THIS DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(D) OF REGULATION S-T
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Schedule 13D
(Rule 13d-101)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
SKY GAMES INTERNATIONAL LTD.
(Name of Issuer)
COMMON STOCK, PAR VALUE U.S.$.01
(Title of Class of Securities)
G81772108
(CUSIP Number)
Harrah's Interactive Investment Company
1023 Cherry Road
Memphis, Tennessee 38117
Attn: John M. Boushy
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
June 17, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
Schedule because of Rule 13d-1(b)(3) or (4), check the following box. [_]
Note. Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1 (a) for other parties to whom copies are to
be sent.
(Continued on following pages)
(Page 1 of 16 Pages)
CUSIP NO. G81772108 13D Page 2
- ------------------------------------------------------------------------------
1. NAME OF REPORTING PERSON:
Harrah's Interactive Investment Company
- ------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group:
(a) [_]
(b) [X]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. Source of Funds: WC
- ------------------------------------------------------------------------------
5. Check box if Disclosure of Legal Proceedings is
Required Pursuant to Items 2(d) or 2(e):
[_]
- ------------------------------------------------------------------------------
6. Citizenship or Place of Organization: NEVADA
-------------------------------------------------
Number of
7. Sole Voting Power: 6,886,915
Shares
-------------------------------------------------
Beneficially
8. Shared Voting Power: 0
Owned By
-------------------------------------------------
Each
9. Sole Dispositive Power: 6,886,915
Reporting
-------------------------------------------------
Person
10. Shared Dispositive Power: 0
With
- ------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person: 6,886,915
- ------------------------------------------------------------------------------
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
[_]
- ------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11): 32.23%
- ------------------------------------------------------------------------------
14. Type of Reporting Person: CO
- ------------------------------------------------------------------------------
CUSIP NO. G81772108 13D PAGE 3
- ------------------------------------------------------------------------------
1. Name of Reporting Person:
Harrah's Operating Company, Inc.
- ------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group:
(a) [_]
(b) [X]
- ------------------------------------------------------------------------------
3. SEC Use Only
- ------------------------------------------------------------------------------
4. Source of Funds: WC
- ------------------------------------------------------------------------------
5. Check box if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(e) or 2(f):
[_]
- ------------------------------------------------------------------------------
6. Citizenship or Place of Organization: Delaware
-----------------------------------------------------------
7. Sole Voting Power: 0
NUMBER OF
SHARES -----------------------------------------------------------
BENEFICIALLY 8. Shared Voting Power: 6,886,915(1)
OWNED BY
EACH -----------------------------------------------------------
REPORTING 9. Sole Dispositive Power: 0
PERSON
WITH -----------------------------------------------------------
10. Shared Dispositive Power: 6,886,915(1)
- ------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person: 6,886,915(1)
- ------------------------------------------------------------------------------
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
[_]
- ------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11) 32.23%
[_]
- ------------------------------------------------------------------------------
14. Type of Reporting Person: CO
- ------------------------------------------------------------------------------
/1/ Solely in its capacity as the sole stockholder of Harrah's Interactive
Investment Company, a Nevada Corporation.
CUSIP NO. G81772108 13D Page 4
- ------------------------------------------------------------------------------
1. Name of Reporting Person:
Harrah's Entertainment, Inc.
- ------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group:
(a) [_]
(b) [X]
- ------------------------------------------------------------------------------
3. SEC Use Only
- ------------------------------------------------------------------------------
4. Source of Funds: WC
- ------------------------------------------------------------------------------
5. Check box if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(e) or 2(f):
[_]
- ------------------------------------------------------------------------------
6. Citizenship or Place of Organization: Delaware
------------------------------------------------------------
NUMBER OF 7. Sole Voting Power: 0
SHARES -----------------------------------------------------------
BENEFICIALLY 8. Shared Voting Power: 6,886,915(1)
OWNED BY
-----------------------------------------------------------
EACH
9. Sole Dispositive Power: 0
REPORTING
PERSON -----------------------------------------------------------
WITH 10. Shared Dispositive Power: 6,886,915(1)
- ------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned By Each Reporting Person: 6,886,915(1)
- ------------------------------------------------------------------------------
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
[_]
- ------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11): 32.23%
- ------------------------------------------------------------------------------
14. Type of Reporting Person: CO
- ------------------------------------------------------------------------------
(1) Solely in its capacity as the sole stockholder of Harrah's Operating
Company, a Nevada Corporation.
CUSIP NO. G81772108 13D Page 5
Item 1. Securities and Issuer.
---------------------
This Statement relates to the Common Stock, par value U.S.$.01 per
share (the "Shares"), of Interactive Entertainment Limited, a Bermuda exempted
company (the "Company"). The principal executive offices of the Company are
located at 845 Crossover Lane, Suite D-215, Memphis, Tennessee 38117.
Item 2. Identity and Background.
-----------------------
(a) The undersigned, Harrah's Interactive Investment Company, a Nevada
corporation("HIIC"), and Harrah's Operating Company, Inc.("HOC"), a wholly-owned
subsidiary of Harrah's Entertainment Inc., a Nevada corporation ("HEI"), hereby
file this Statement on Schedule 13D. The foregoing persons and entities are
sometimes collectively referred to herein as the "Reporting Persons". Pursuant
to Rule 13d-3(d)(1)(i) promulgated under the Securities Exchange Act of 1934, as
amended (the "Act"), the Reporting Persons acquired beneficial ownership of the
Shares reported herein on June 17, 1997 pursuant to that certain Agreement and
Plan of Merger and Amalgamation, dated as of May 13, 1997 (the "Amalgamation
Agreement"), among the Company, SGI Holding Corporation Limited, a Bermuda
exempted company ("SGIHC"), Interactive Entertainment Limited, a Bermuda
exempted company ("IEL"), and HIIC, and pursuant to that certain Funding
Agreement, dated May 13, 1997, among the Company, SGIHC, IEL and HIIC (the
"Funding Agreement").
(b)(c) HIIC is an Nevada Corporation whose principal business is that of
investment in the interactive gaming and entertainment industry. All of the
outstanding shares of common stock of HIIC are owned by HOC. All of the
outstanding shares of common stock of HOC are owned by HEI. The principal
business address (which also serves as the principal office) of each of HIIC,
HOC and HEI is 1023 Cherry Road, Memphis, Tennessee 38117.
Pursuant to Instruction C to Schedule 13D under the Act, the directors and
executive officers of HIIC, HOC and HEI and their respective business addresses
and principal occupations are listed below. There are currently no vacancies on
the Board of Directors of HIIC, HOC and HEI.
HIIC
Directors Address Occupation
- --------- ------- ----------
Colin V. Reed 1023 Cherry Road Director
Memphis, TN 38117
Philip G. Satre 1023 Cherry Road Director
Memphis, TN 38117
Executive Officers Address Occupation
- ------------------ ------- ----------
Philip G. Satre 1023 Cherry Road President
Memphis, TN 38117
Colin V. Reed 1023 Cherry Road Executive Vice President/
Memphis, TN 38117 Treasurer
CUSIP NO. G81772108 13D Page 6
Executive Officers Address Occupation
- ------------------ ------- ----------
John M. Boushy 1023 Cherry Road Senior Vice President
Memphis, TN 38117
John W. McConomy 1023 Cherry Road Vice President/Secretary
Memphis, TN 38117
HOC
Directors Address Occupation
- --------- ------- ----------
Philip G. Satre 1023 Cherry Road Director
Memphis, TN 38117
Colin V. Reed 1023 Cherry Road Director
Memphis, TN 38117
Executive Officers Address Occupation
- ------------------ ------- ----------
Philip G. Satre 1023 Cherry Road Chairman of the Board,
Memphis, TN 38117 President and Chief
Executive Officer
Colin V. Reed 1023 Cherry Road Executive Vice President and
Memphis, TN 38117 Chief Financial Officer
John M. Boushy 1023 Cherry Road Senior Vice President
Memphis, TN 38117
Bradford W. Morgan 1023 Cherry Road Senior Vice President
Memphis, TN 38117
Ben C. Petemell 1023 Cherry Road Senior Vice President
Memphis, TN 38117
E. O. Robinson, Jr. 1023 Cherry Road Senior Vice President
Memphis, TN 38117
Charles L. Atwood 1023 Cherry Road Vice President and Treasurer
Memphis, TN 38117
Neil F. Barnhart 1023 Cherry Road Vice President
Memphis, TN 38117
Jil A. Blumberg 1023 Cherry Road Vice President
Memphis, TN 38117
Ralph J. Berry 1023 Cherry Road Vice President
Memphis, TN 38117
CUSIP NO. G81772108 13D Page 7
Executive Officers Address Occupation
- ------------------ ------- ----------
Martin P. Boscaccy 1023 Cherry Road Vice President
Memphis, TN 38117
Gary L. Burhop 1023 Cherry Road Vice President
Memphis, TN 38117
David A. Hicks 1023 Cherry Road Vice President
Memphis, TN 38117
Reginald A. Mallamo 1023 Cherry Road Vice President
Memphis, TN 38117
J. W. McAllister 1023 Cherry Road Vice President
Memphis, TN 38117
John W. McConomy 1023 Cherry Road Vice President
Memphis, TN 38117
Michael K. Morgan 1023 Cherry Road Vice President
Memphis, TN 38117
Thomas M. Morgan 1023 Cherry Road Vice President
Memphis, TN 38117
Michael N. Regan 1023 Cherry Road Vice President and Controller
Memphis, TN 38117
Andrew J. Revella 1023 Cherry Road Vice President
Memphis, TN 38117
Bruce C. Rowe 1023 Cherry Road Vice President
Memphis, TN 38117
Karen Von Der Bruegge 1023 Cherry Road Vice President
Memphis, TN 38117
Dee A. Wallace 1023 Cherry Road Vice President
Memphis, TN 38117
Rebecca W. Ballou 1023 Cherry Road Secretary
Memphis, TN 38117
HEI
Directors Address Occupation
- --------- ------- ----------
James L. Barksdale 501 East Middlefield Road Director
Mountain View, CA 94043
Susan Clark-Johnson 955 Kuenzli Director
Reno, NV 89520
CUSIP NO. G81772108 13D Page 8
Directors Address Occupation
- --------- ------- ----------
James B. Farley Villa D'Este Director
2665 North Ocean Blvd.
Delray Beach, FL 33483
Joe M. Henson 3625 Island Road Director
Palm Beach Gardens, FL 33410
Ralph Horn 165 Madison Avenue, Third Floor Director
Memphis, TN 38103
R. Brad Martin 5810 Shelby Oaks Drive Director
Memphis, TN 38134
Walter J. Salmon Harvard University Director
Soldiers Field
Boston, MA 02163
Philip G. Satre 1023 Cherry Road Director
Memphis, TN 38117
Boake A. Sells 3105 Topping Lane Director
Hunting Valley, OH 44022
Eddie N. Williams 1090 Vermont Ave., N.W. Director
Suite 1100
Washington, D.C. 20005
Executive Officers Address Occupation
- ------------------ ------- ----------
Philip G. Satre 1023 Cherry Road Chairman of the Board,
Memphis, TN 38117 President
and Chief Executive Officer
Colin V. Reed 1023 Cherry Road Executive Vice President and
Memphis, TN 38117 Chief Financial Officer
John M. Boushy 1023 Cherry Road Senior Vice President
Memphis, TN 38117
Bradford W. Morgan 1023 Cherry Road Senior Vice President
Memphis, TN 38117
Ben C. Peternell 1023 Cherry Road Senior Vice President
Memphis, TN 38117
E. O. Robinson, Jr. 1023 Cherry Road Senior Vice President
Memphis, TN 38117
Charles L. Atwood 1023 Cherry Road Vice President and Treasurer
Memphis, TN 38117
CUSIP NO. G81772108 13D PAGE 9
Executive Officers Address Occupation
- ------------------ ------- ----------
Neil F. Barnhart 1023 Cherry Road Vice President
Memphis, TN 38117
Ralph J. Berry 1023 Cherry Road Vice President
Memphis, TN 38117
Jil A. Blumberg 1023 Cherry Road Vice President
Memphis, TN 38117
Martin P. Boscaccy 1023 Cherry Road Vice President
Memphis, TN 38117
Gary L. Burhop 1023 Cherry Road Vice President
Memphis, TN 38117
David A. Hicks 1023 Cherry Road Vice President
Memphis, TN 38117
Reginald A. Mallamo 1023 Cherry Road Vice President
Memphis, TN 38117
J. W. McAllister 1023 Cherry Road Vice President
Memphis, TN 38117
John W. McConomy 1023 Cherry Road Vice President
Memphis, TN 38117
Michael K. Morgan 1023 Cherry Road Vice President
Memphis, TN 38117
Thomas M. Morgan 1023 Cherry Road Vice President
Memphis, TN 38117
Michael N. Regan 1023 Cherry Road Vice President and Controller
Memphis, TN 38117
Andrew J. Revella 1023 Cherry Road Vice President
Memphis, TN 38117
Bruce C. Rowe 1023 Cherry Road Vice President
Memphis, TN 38117
Karen Von Der Bruegge 1023 Cherry Road Vice President
Memphis, TN 38117
Dee A. Wallace 1023 Cherry Road Vice President
Memphis, TN 38117
Rebecca W. Ballou 1023 Cherry Road Secretary
Memphis, TN 38117
CUSIP NO. G81772108 13D Page 10
(d) None of the entities or persons identified in this Item 2 has,
during the last five years, been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
(e) None of the entities or persons identified in this Item 2 has
during the last five years been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
(f) Except for Colin V. Reed, all of the persons identified in this
Item 2 are citizens of the United States of America.
Item 3. Source and Amount of Funds or Other Consideration.
5,879,040 of the Shares reported herein were received by HIIC in
exchange for its shares of IEL pursuant to the Amalgamation Agreement. 1,007,875
of the Shares reported herein were received by HIIC in conversion of $1,007,875
of debt (including accrued interest) owed by IEL to HIIC, pursuant to the
Funding Agreement. The source of the funds used to purchase the shares of IEL
and the source of the funds used to make the loan of $1,000,000 pursuant to the
Funding Agreement consisted solely of working capital of HIIC.
Item 4. Purpose of Transaction.
The Shares to which this statement relates have been acquired for
investment purposes. It is Harrah's Interactive Investment Company's intent to
evaluate its investment in the Company and to increase or decrease its
shareholdings as circumstances require.
Pursuant to the Amalgamation Agreement, IEL amalgamated with and into
SGIHC and immediately thereafter SGIHC amalgamated with and into Sky Games.
Subsequent to the amalgamations, the Company changed its name to "Interactive
Entertainment Limited." Pursuant to the Amalgamation Agreement, the issued and
outstanding shares of common stock of IEL held by HIIC were converted into
5,879,040 shares of Common Stock. In the event that the Class A Preference
Shares of Sky Games to be issued to B/E Aerospace, Inc. are converted, in whole
or in part into Common Stock, the number of shares of Common Stock issued to
HIIC in connection with the Amalgamation Agreement will be increased to adjust
for any such issuance. Upon consummation of the amalgamation of IEL with and
into SGIHC, the $1,007,875 outstanding under the Funding Agreement, and related
agreements, were automatically converted into 1,007,875 shares of Common Stock.
Had the outstanding amount under the Funding Agreement been less than
$1,000,000, HIIC would have had the option to purchase, within 90 days of the
amalgamation of IEL with and into SGIHC, the balance of 1,000,000 shares at
$1.00 per share. Under the Funding Agreement, the Company may require HIIC to
purchase up to 650,000 shares of Common Stock at $1.00 per share. However, the
Company has indicated on June 26 that it intends to exercise its right to have
HIIC purchase the additional 650,000 shares of Common Stock at $1.00 per share.
In order to consummate the amalgamations, the bye-laws of the Company
were amended at the Special General Meeting of the shareholders of the Company,
held on June 16, 1997. The rights of the HIIC under the amended bye-laws of the
Company vary depending on their aggregate ownership of voting shares on a Fully-
Diluted Basis (as such term is defined in the amended bye-laws of the Company).
The bye-laws of the Company were amended to provide board
representation rights, which apply to HIIC in accordance with specified
percentages of equity ownership by HIIC. These board representation amendments
provide that: (i) at any time at which HIIC, and/or an affiliate thereof, (the
"HIIC Entities") own 10% or more of the voting shares of Sky Games on a Fully-
Diluted Basis, the HIIC Entities shall be entitled to appoint a percentage
CUSIP NO. G81772108 13D Page 11
of directors (rounded up to the nearest 10%) which bears the same proportion to
the size of the entire board as the number of voting shares held by the HIIC
Entities bears to the total number of voting shares of the Company on a Fully-
Diluted Basis (such directors hereinafter referred to as the "HIIC Appointees"),
and the HIIC Entities would be entitled to proportionate representation on the
Executive, Compensation and Audit Committees of the Board; (ii) at any time at
which the HIIC Entities own 5% or more, but less than 10%, of the voting shares
of the Company on a Fully-Diluted Basis, the HIIC Entities would be entitled to
appoint one director to the board and one member of the Executive, Compensation
and Audit Committees of the board; (iii) the Company may in a general meeting
authorize the board to fill any vacancy on the board, other than a vacancy in
the office of an HIIC Appointee; (iv) the size of the board shall be fixed at 10
members until the HIIC Entities' ownership interest falls below 5% of the voting
shares of the Company on a Fully-Diluted Basis; (v) at such time as the HIIC
Entities own less than 5% of the voting shares of the Company on a Fully-Diluted
Basis the board shall consist of not less than 3 directors; (vi) at least 2 of
the directors sitting on the board, other than the HIIC Appointees, shall be
outside directors; and (vii) the Compensation Committee will be comprised of
non-management directors.
The amendments also caused the bye-laws to provide that at any time that
the HIIC Entities own 20% or more of the voting shares of the Company on a
Fully-Diluted Basis, any of the following actions would require the approval of
a majority of the HIIC Appointees as part of the necessary majority of the board
of directors and the HIIC Entities' consent, as part of the necessary
shareholder approval: (i) the amalgamation, merger or consolidation of the
Company; and (ii) any amendment to the bye-laws of the Company which would have
a material adverse effect on HIIC Entities' rights under the bye-laws including
their right to board or committee representation or board or shareholder
approval rights.
The bye-laws of the Company were also amended to provide for certain
approval rights to the HIIC Entities as a shareholder of Company. Under the
amended bye-laws, at any time that the HIIC Entities own 20% or more of the
voting shares of the Company on a Fully-Diluted Basis, any of the following
actions would require the HIIC Entities' consent, as part of the necessary
shareholder approval: (i) the dissolution or winding up of the Company; and (ii)
the appointment of the Company's independent auditors.
The bye-laws were further amended to provide that the Company is required
to redeem, for cash at fair market value, the shares of any holder of the shares
of capital stock of the Company (1) who, either individually or when taken
together with any other holders of shares of the Company, is or would reasonably
be expected to be determined by any gaming regulatory agency to be unsuitable,
or has or would reasonably be expected to have an application for a gaming
license or permit or other necessary regulatory approval rejected, or has or
would reasonably be expected to have a previously issued gaming license or
permit or other necessary regulatory approval rescinded, suspended, revoked, not
renewed or not reinstated, as the case may be, whether or not any of the
foregoing is or would reasonably be expected to be final and nonappealable, or
(2) whose holding of shares, either individually or taken together with the
holdings of others, could reasonably be expected to cause the Company (or any
other company engaged in the gaming business in any jurisdiction if such holder
of shares were a shareholder of that company) to be denied a license, permit or
other necessary regulatory approval to engage in any aspect of the gaming
business or the serving or sale of alcoholic beverages in connection with the
operation of a gaming business (a "Disqualified Holder"). A Disqualified
Holder's shares shall (i) be required to be redeemed whenever the HIIC Entities
own 10% or more of the voting shares on a Fully-Diluted Basis and (ii) be
subject to redemption by action of the board whenever the HIIC Entities own less
than 10% of the voting shares on a Fully-Diluted Basis. Additionally, the bye-
laws were amended to provide for the automatic disqualification of any director
or officer of the Company who would be a Disqualified Holder if he were to own
shares of the Company.
The Company has negotiated with B/E Aerospace, Inc. to convert its
indebtedness in the amount approximate of U.S. $2.6 million (including accrued
and unpaid interest) into approximately 2,600 Class A Preference Shares. In
order to consummate this transaction and issue the Class A preference shares,
the bye-Laws of the Company were amended at the Special Annual Meeting to permit
the board to designate the rights attaching to the Class A Preference Shares.
CUSIP NO. G81772108 13D Page 12
In order to simplify the procedures for amending the bye-laws of Company,
the bye-laws were amended to permit amendment to the amended bye-laws by a vote
of a simple majority of the votes cast at a general meeting of the shareholders
of Sky Games except for those provisions of the amended bye-laws setting forth
the board or shareholder approval rights of the HIIC Entities. In order to
effect certain agreements in connection with the cancellation of the 3,525,0000
shares of Common Stock held in escrow pursuant to an escrow agreement, dated May
27, 1992, among Montreal Trust Company of Canada, the Company (f/k/a Creator
Capital Inc.) and certain shareholders of the Company, the bye-laws were amended
to permit shareholders of the Company to issue an irrevocable proxy with respect
to their holdings of Common Stock. Finally, in order to improve the bye-laws of
the Company, the bye-laws were amended to correct certain technical errors
contained therein.
Pursuant to the Amalgamation Agreement, HIIC and the Company have entered
into additional agreements affecting control of the Company. As a condition to
the consummation of the amalgamation of IEL and SGIHC, the parties to the
Amalgamation Agreement entered into a Shareholder Rights Agreement (the
"Shareholder Rights Agreement"). 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 of
directors of the Company 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 the Amalgamated 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 Management Incentive Plan
approved by the Company at the December 6, 1996 meeting of the board of
directors (the "MIP") for 12 months following the amalgamation of IEL and SGIHC;
(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 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. Also pursuant to such
agreement, 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 or any of its subsidiaries' business or proposed business
(including, but not limited to, the terms of repurchase or redemption of any
debt from any holder thereof if such holder would be a Disqualified Holder if
such person held shares of the Company) that would constitute or result in, 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.
Additionally, as a condition to the consummation of the amalgamation of IEL
and SGIHC, HIIC and the Company have entered into a Registration and Preemptive
Rights Agreement (the "Registration and Preemptive Rights Agreement"). Under
such agreement, the HIIC Entities have two demand registration rights to cause
the Company to register the Common Stock owned by the HIIC Entities, provided,
that prior to June 30, 1998, no such demand registration could be brought for a
number of shares in excess of one million shares unless the Company receives the
CUSIP NO. G81772108 13D Page 13
opinion of its investment banker that the trading price of the Common Stock
would not fall by more than 25% for more than 15 consecutive trading days as a
result of such sale, in which case a demand could be brought with respect to up
to such number of shares of Common Stock as would not cause the market price to
fall below such level. Each such offering shall be underwritten on a firm
commitment basis by an underwriter chosen by the Company. The Company would also
agree pursuant to such agreement that until the earlier of when the HIIC
Entities own less than 5% of the outstanding voting shares of the Company on a
Fully-Diluted Basis, the HIIC Entities have customary piggy-back rights to
include their shares of Common Stock in registered offerings by the Company. The
HIIC Entities bear the costs of their legal counsel and any underwriting
discounts, commissions or allowances in connection with all sales pursuant to
the foregoing, and the Company bears all other fees and expenses of such
registrations. 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 which would include the certain
outstanding convertible debentures and shares issuable upon conversion of such
debentures. The HIIC Entities would 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. 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 (a) of any change in or conduct of the business or proposed
business of the Company or any of its subsidiaries or any other action or
inaction of the Company or any of its subsidiaries which would constitute a
Disqualifying Action or (b) the Company does not redeem a Disqualified Holder
pursuant to the amended bye-laws, in each case at the Company's expense without
being subject to the limitations on demand rights set forth above. Upon any
conversion of any Class A Preference Shares issued to B/E Aerospace as part of
the conversion of the approximately $2.6 million debt owed by the Company to B/E
Aerospace, Inc., the Company shall issue to HIIC a number of shares of Common
Stock at no charge to HIIC such that such number of shares plus 6,886,915
constitutes the same percentage of the outstanding Common Stock on a Fully-
Diluted Basis as bears constituted of the outstanding Common Stock on a Fully-
Diluted Basis prior to such issuance.
Except as described herein, the Reporting Persons have no plans or
proposals with respect to the Company that relate to or would result in any of
the actions specified in clauses (a) through (j) of Item 4 of Schedule 13D.
Item 5. Interests in Securities of the Issuer.
Based on information provided by the Company to HIIC and HOC, as of
June 12, 1997, 21,358,445 shares of Common Stock were outstanding.
(a) HIIC beneficially owns 6,886,915 shares of Common Stock, which
constitutes approximately 32.23% of the Shares outstanding as of the date of the
distribution of such Shares. HOC, as the sole holder of the common stock of
HIIC, and HEI, as the sole holder of the common stock of HOC, may be deemed to
beneficially own all of such 6,886,915 shares of Common Stock.
(b) HIIC has the sole power to vote or direct the vote of and the
sole power to dispose or direct the disposition of all of the 6,886,915 shares
of Common Stock reported herein. HOC, as the sole holder of common stock of
HIIC, and HEI, as the sole holder of the common stock of HOC, may be deemed to
share voting and dispositive power with respect to all of such shares of Common
Stock.
(c) Except as set forth above, the Reporting Persons do not
beneficially own any Shares and, except as set forth herein, have effected no
transactions in Shares during the preceding 60 days.
CUSIP NO. G81772108 13D Page 14
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
to Securities of the Issuer.
Except as set forth in Item 4 above, the Reporting Persons do not have
any contract, arrangement, understanding or relationship (legal or otherwise)
with any person with respect to any securities of the Company, including but not
limited to transfer or voting of any of the securities, finder's fees, joint
ventures, loan or option arrangements, puts or calls, guarantees of fits,
division of profits or loss, or the giving or withholding of proxies.
Item 7. Material to be filed as Exhibits.
Exhibit A. Agreement pursuant to Rule 13d-1(f)(1)(iii)
Exhibit 1 Amalgamation Agreement
Exhibit 2 Shareholder Rights Agreement
Exhibit 3 Registration and Preemptive Rights Agreement
Exhibit 4 Funding Agreement
Exhibit 5 Warrant Agreement
Exhibit 6 Convertible Preferred Promissory Note
Exhibit 7 Security Agreement
Exhibit 8 Guaranty
Exhibit 9 Pledge and Security Agreement
CUSIP NO. G81772108 13D Page 15
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 26, 1997
HARRAH'S INTERACTIVE INVESTMENT COMPANY
By: /s/ John M. Boushy
----------------------------
Name: John M. Boushy
Title: Senior Vice President
HARRAH'S OPERATING COMPANY, INC.
By: /s/ John M. Boushy
----------------------------
Name: John M. Boushy
Title: Senior Vice President
HARRAH'S ENTERTAINMENT, INC.
By: /s/ John M. Boushy
---------------------------
Name: John M. Boushy
Title: Senior Vice President
CUSIP NO. G81772108 13D Page 16
EXHIBIT INDEX
Exhibit No. Document Description Page No.
Exhibit A. Agreement pursuant to Rule 13d-1(f)(1)(iii)
Exhibit 1 Amalgamation Agreement
Exhibit 2 Shareholder Rights Agreement
Exhibit 3 Registration and Preemptive Rights Agreement
Exhibit 4 Funding Agreement
Exhibit 5 Warrant Agreement
Exhibit 6 Convertible Secured Promissory Note
Exhibit 7 Security Agreement
Exhibit 8 Guaranty
Exhibit 9 Pledge and Security Agreement
EXHIBIT 1
[EXECUTION COPY]
PLAN AND AGREEMENT OF MERGER AND AMALGAMATION
---------------------------------------------
PLAN AND AGREEMENT OF MERGER AND AMALGAMATION dated as of May 13, 1997
(this "Agreement") among Sky Games International Ltd., a Bermuda exempted
company ("Parent"), SGI Holding Corporation Limited, a Bermuda exempted company
and a wholly-owned subsidiary of Parent ("Sub"), and Interactive Entertainment
Limited, a Bermuda exempted company ("IEL") (Sub and IEL being hereinafter
collectively referred to as the "Amalgamating Companies") and Harrah's
Interactive Investment Company, a Nevada corporation ("HIIC").
W I T N E S S E T H:
-------------------
WHEREAS, Parent, Sub, IEL and HIIC desire IEL to amalgamate with and
into Sub (the "Amalgamation"), upon the terms and subject to the conditions
herein set forth, whereby each issued and outstanding share of common stock,
U.S.$1.00 par value per share, of IEL ("IEL Common Shares"), not owned directly
or indirectly by Sub or Parent, will be converted into shares of common stock,
Cdn.$.01 par value, of Parent ("Parent Common Shares");
WHEREAS, the Board of Directors of Parent has determined that the
Amalgamation is in furtherance of and consistent with its long-term business
strategies and is fair to and in the best interests of its shareholders;
WHEREAS, the respective Boards of Directors of Parent and Sub have
approved and declared advisable the Amalgamation;
WHEREAS, Sub has approved as a shareholder of IEL and Parent has
approved as the sole shareholder of Sub this Agreement and the Amalgamation;
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
THE AMALGAMATION
----------------
Section 1.1 The Amalgamation. Upon the terms and subject to the
conditions herein set forth, and in accordance with The Companies Act 1981
("CA"), the Amalgamating Companies shall make the appropriate filings with the
Registrar of Companies in Bermuda and IEL shall be amalgamated with and into Sub
at the Effective Time (as hereinafter defined). Following the Amalgamation, the
separate corporate existence of IEL shall cease and IEL and Sub shall continue
as the amalgamated company (the "Amalgamated Company") and shall continue to
exist as a company incorporated and governed by the laws of Bermuda.
Section 1.2 Effective Time. The Amalgamation shall be effective on the
date shown in the Certificate of Amalgamation issued by the Registrar of
Companies in Bermuda (the "Effective Time").
Section 1.3 Effects of the Amalgamation. At the Effective Time, the
effect of the Amalgamation shall be as provided in the applicable provisions of
the CA and as set forth in this Agreement. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein:
(a) the amalgamation of the Amalgamating Companies and their
continuance as one company shall become effective;
1
(b) all of the property, rights, privileges, powers and franchises of
Sub and IEL shall vest in the Amalgamated Company;
(c) all debts, liabilities and duties of Sub and IEL shall become the
debts, liabilities and duties of the Amalgamated Company;
(d) any existing cause of action, claim or liability to prosecution
shall be unaffected;
(e) any civil, criminal or administrative action or proceeding by or
against an Amalgamating Company may be continued to be prosecuted by or against
the Amalgamated Company; and
(f) any conviction against, or ruling, order or judgment in favor of
or against, an Amalgamating Company may be enforced by or against the
Amalgamated Company.
Section 1.4 Memorandum of Association; Bye-laws; Directors and Officers.
(a) At the Effective Time, the Memorandum of Association of Sub, as in effect
immediately prior to the Effective Time, shall be the Memorandum of Association
of the Amalgamated Company until thereafter changed or amended as provided
therein or by applicable law.
(b) The Bye-Laws of Sub, as in effect immediately prior to the
Effective Time, shall be the Bye-laws of the Amalgamated Company until
thereafter changed or amended as provided therein or as provided by applicable
law.
(c) The Board of Directors of the Amalgamated Company shall consist
of not less than three (3) directors to be designated by Parent, who shall serve
until their respective successors are duly elected and qualified. The names and
addresses of each of the individuals to serve as directors of the Amalgamated
Company are as follows:
(i) Gordon Stevenson, 1023 Cherry Road, Memphis, Tennessee 38117;
(ii) Laurence Geller, 10 South Wacker Drive, Suite 3500, Chicago,
Illinois 60606; and
(iii) John Boushy, 1023 Cherry Road, Memphis, Tennessee 38117.
(d) The officers of IEL immediately prior to the Effective Time shall
be the officers of the Amalgamated Company until their respective successors are
duly elected and qualified.
Section 1.5 Conversion of Securities. As of the Effective Time, by virtue
of the Amalgamation and without any action on the part of the shareholders of
either of the Amalgamating Companies:
(a) All IEL Common Shares owned by Sub or Parent shall be cancelled
without any repayment of capital in respect thereof and no capital stock of
Parent or other consideration shall be delivered in exchange therefor.
(b) Each IEL Common Share issued and outstanding immediately prior to
the Effective Time (other than shares to be cancelled in accordance with Section
1.5(a)) shall be converted into 5.879040 (such number being hereinafter referred
to as the "Conversion Number") validly issued and fully paid shares of Parent
Common Shares. All such IEL Common Shares, when so converted, shall no longer
be outstanding and shall automatically be cancelled and retired without any
repayment of capital in respect thereof; and each holder prior to the Effective
Time of any such IEL Common Shares shall cease to have any rights with respect
thereto, except the right to receive (i) certificates representing the shares of
Parent Common Shares into which such IEL Common Shares have been converted and
(ii) any dividends and other distributions in accordance with Section 1.7.
2
Section 1.6 Parent to Make Stock Certificates Available. (a) Exchange of
Certificates. As soon as practicable after the Effective Time, Parent shall
cause its Transfer Agent and Registrar (the "Transfer Agent") to issue to the
holders of IEL Common Shares converted in the Amalgamation, certificates (the
"Parent Certificates") representing the shares of Parent Common Shares issuable
pursuant to Section 1.5(b) in exchange for the outstanding IEL Common Shares.
(b) Status of Company Certificates. Subject to the provisions of
Section 1.7, each certificate which immediately prior to the Effective Time
represented IEL Common Shares to be converted in the Amalgamation (the "IEL
Certificates") shall, from and after the Effective Time and until surrendered in
exchange for Parent Certificate(s) in accordance with this Section 1.6, be
deemed for all purposes to represent the number of shares of Parent Common
Shares into which such IEL Common Shares shall have been so converted. For
purposes of this Section 1.6, Parent may rely conclusively on the shareholder
records of IEL in determining the identity of, and the number of IEL Common
Shares held by, each holder of an IEL Certificate at the Effective Time.
Section 1.7 Dividends; Transfer Taxes; Withholding. (a) No dividends or
other distributions that are declared on or after the Effective Time on Parent
Common Shares, or are payable to the holders of record thereof who became such
on or after the Effective Time, shall be paid to any person entitled by reason
of the Amalgamation to receive Parent Certificates representing Parent Common
Shares until such person shall have surrendered its IEL Certificate(s) as
provided in Section 1.6. Subject to applicable law, there shall be paid to each
person receiving a Parent Certificate representing such shares of Parent Common
Shares: (i) at the time of such surrender or as promptly as practicable
thereafter, the amount of any dividends or other distributions theretofore paid
with respect to the shares of Parent Common Shares represented by such Parent
Certificate and having a record date on or after the Effective Time and a
payment date prior to such surrender; and (ii) at the appropriate payment date
or as promptly as practicable thereafter, the amount of any dividends or other
distributions payable with respect to such shares of Parent Common Shares and
having a record date on or after the Effective Time but prior to such surrender
and a payment date on or subsequent to such surrender. In no event shall the
person entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions.
(b) If any Parent Certificate representing shares of Parent Common
Shares is to be issued in a name other than that in which IEL Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the IEL Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange shall pay to the Transfer Agent any transfer or other taxes required by
reason of the issuance of such Parent Certificate in a name other than that of
the registered holder of IEL Certificate so surrendered, or shall establish to
the satisfaction of the Transfer Agent that such tax has been paid or is not
applicable.
Section 1.8 No Further Ownership Rights in IEL Common Shares. All
certificates representing Parent Common Shares delivered upon the surrender for
exchange of any IEL Certificate in accordance with the terms hereof shall be
deemed to have been delivered in full satisfaction of all rights pertaining to
IEL Common Shares represented by such IEL Certificate.
Section 1.9 Closing of Company Transfer Books. At the Effective Time, the
transfer books of IEL for IEL Common Shares shall be closed, and no transfer of
IEL Common Shares shall thereafter be made. If, after the Effective Time, IEL
Certificates are presented to the Amalgamated Company, they shall be cancelled
and exchanged as provided in this Article I.
Section 1.10 Further Assurances. If, at any time after the Effective
Time, the Amalgamated Company shall consider or be advised that any deeds, bills
of sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
the Amalgamated Company its right, title and interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of either of the
Amalgamating Companies or (ii) otherwise to carry out the purposes of this
Agreement, the Amalgamated
3
Company and its proper officers and directors or their designees shall be
authorized to execute and deliver, in the name and on behalf of either
Amalgamating Company, all such deeds, bills of sale, assignments and assurances
and to do, in the name and on behalf of either Amalgamating Company, all such
other acts and things as may be necessary, desirable or proper to vest, perfect
or confirm the Amalgamated Company's right, title and interest in, to and under
any of the rights, privileges, powers, franchises, properties or assets of such
Amalgamating Company and otherwise to carry out the purposes of this Agreement.
Section 1.11 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall be deemed to take place at the offices of
Altheimer & Gray, 10 South Wacker Drive, Suite 4000, Chicago, Illinois at 12:01
p.m., Central Daylight Savings Time, on the first business day on which each of
the conditions set forth in Article VII shall have been (and continue to be)
fulfilled or waived, or at such other time and place as Parent and HIIC may
agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
------------------------------------------------
Parent and Sub represent and warrant, jointly and severally, to HIIC as
follows:
Section 2.1 Organization, Standing and Power. Each of Parent and Sub is
an exempted company duly organized, validly existing and in good standing under
the laws of Bermuda; and each of Parent and Sub has the requisite corporate
power and authority to carry on its business as now being conducted. Each
Subsidiary (as hereinafter defined) of Parent is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and authority to
carry on its business as now being conducted. Parent and each of its
Subsidiaries are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect (as
hereinafter defined) on Parent. Parent and its Subsidiaries are not subject to
any material joint venture, joint operating or similar arrangement or any
material shareholders agreement relating thereto other than the Shareholders
Agreement among Sub, HIIC and IEL dated December 30, 1994 (the "Shareholders
Agreement") and the Management Agreement between IEL and Harrah's Interactive
Entertainment Company, a Nevada corporation ("HIEC"), dated December 30, 1994
(the "Management Agreement"). For purposes of this Agreement: (i) "Material
Adverse Change" or "Material Adverse Effect" means, when used with respect to
Parent or HIIC, as the case may be, any change or effect that is materially
adverse to the business, properties, assets, liabilities, condition (financial
or otherwise) or results of operations of Parent and its Subsidiaries and IEL
taken as a whole, or HIIC and its Subsidiaries taken as a whole, as the case may
be, except, in the case of a Material Adverse Change, for any change resulting
from conditions or circumstances generally affecting the industry as a whole in
which Parent or HIIC, as the case may be, operates; and (ii) "Subsidiary" means
any corporation, partnership, joint venture or other legal entity of which
Parent or HIIC, as the case may be (either alone or through or together with any
other of its Subsidiaries), owns, directly or indirectly, fifty percent (50%) or
more of the capital stock or other equity interests the holders of which are
generally entitled to vote with respect to the election of directors or other
managing authority and/or other matters to be voted on in such corporation,
partnership, joint venture or other legal entity, other than, with respect to
Parent and Sub, IEL and its Subsidiary.
Section 2.2 Capital Structure. As of the date hereof, the authorized
capital stock of Parent consists of: 50,000,000 shares of Parent Common Shares.
At the close of business on April 21, 1997, 13,304,405 shares of Parent Common
Shares were issued and outstanding, all of which were validly issued and are
fully paid and are free of preemptive rights. All of the shares of Parent
Common Shares issuable in exchange for IEL Common Shares at the Effective Time
in accordance with this Agreement will be, when so issued, duly authorized,
validly issued and fully paid. As of the date of this Agreement, other than
outstanding options for 1,190,000 shares of Parent Common
4
Shares; the authority to issue options for 4,070,105 additional shares of Parent
Common Shares; outstanding share purchase warrants for the purchase of 308,528
shares of Parent Common Shares; the rights of HIIC pursuant to that certain
convertible secured promissory note and that certain warrant issued to HIIC in
connection with the Funding Agreement among Parent, Sub, IEL and HIIC dated May
13, 1997 (the "Funding Agreement"); and the agreement to issue, subject to
necessary shareholder approvals to create a class of preference shares and
authorize such issuance, up to 3,000 shares of convertible redeemable preference
shares of Parent to B/E Aerospace, Inc., a Delaware corporation ("B/EA"), which
are convertible into Parent Common Shares at a percentage of the trading price
of the Parent Common Shares as previously disclosed to HIIC (the "B/E
Conversion") (collectively, the "Parent Stock Rights"), there are no options,
warrants, calls, rights or agreements to which Parent or any of its Subsidiaries
is a party or by which any of them is bound obligating Parent or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Parent or any such Subsidiary or
obligating Parent or any such Subsidiary to grant, extend or enter into any such
option, warrant, call, right or agreement. Each outstanding share of capital
stock of each Subsidiary of Parent is duly authorized, validly issued, fully
paid and nonassessable and each such share is beneficially owned by Parent or
another Subsidiary of Parent, free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
voting rights, charges and other encumbrances of any nature whatsoever, other
than those interests granted to HIIC pursuant to the Funding Agreement. All of
Sub's outstanding shares of capital stock are owned directly by Parent. Sub
owns four million (4,000,000) shares of IEL Common Shares in the aggregate
represented by IEL Certificate numbers 3, 8, 10, 12, 14, 16, 18, 20, 22, 33, 34,
37, 38, 39 and 40 issued in the name of Sub and neither Parent nor any of its
Subsidiaries owns any other IEL Common Shares or, except pursuant to the
Shareholders Agreement, any option, warrant, call, right or agreement to receive
any other IEL Common Shares.
Section 2.3 Authority. The Board of Directors of Parent has declared as
advisable and fair to and in the best interests of the shareholders of Parent
(and, in the case of clauses (b) and (c) below, has resolved to recommend to
such shareholders for approval) (a) the Amalgamation and the transactions to be
effected thereby, (b) amendments to the Bye-Laws of Parent set forth on Exhibit
A attached hereto (collectively, the "Bye-Law Amendments") and (c) the
resolutions to be adopted by the shareholders of Parent set forth on Exhibit B
attached hereto (the "Resolutions"). The Boards of Directors of Parent and Sub
have each approved this Agreement and all agreements to be entered into by
Parent or Sub in connection therewith (collectively, "Parent Ancillary
Agreements"). Parent has approved the Amalgamation and this Agreement as the
sole shareholder of Sub. The Board of Directors of Sub has declared the
Amalgamation advisable, and Sub has approved the Amalgamation and this Agreement
as a shareholder of IEL. Parent has all requisite power and authority to enter
into this Agreement and the Parent Ancillary Agreements to which it is a party
and (subject to (x) approval of the Resolutions by a majority of the votes cast
at the Parent Shareholder Meeting (as hereinafter defined) by the holders of
Parent Common Shares, and (y) adoption of the Bye-Law Amendments by seventy-five
percent (75%) of the votes cast at the Parent Shareholder Meeting by the holders
of Parent Common Shares) to consummate the transactions contemplated hereby and
thereby. Sub has all requisite power and authority to enter into this Agreement
and the Parent Ancillary Agreements to which it is a party and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the Parent Ancillary Agreements by Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Parent and Sub,
subject, in the case of this Agreement, to (x) approval of the Resolutions by a
majority of the votes cast at the Parent Shareholder Meeting by the holders of
Parent Common Shares, and (y) adoption of the Bye-Law Amendments by seventy-five
percent (75%) of the votes cast at the Parent Shareholder Meeting by the holders
of Parent Common Shares. This Agreement and the Parent Ancillary Agreements
have been duly executed and delivered by Parent and Sub and (assuming the valid
authorization, execution and delivery hereof and thereof by HIIC and any other
parties hereto and thereto and the validity and binding effect hereof and
thereof on HIIC and any other parties thereto) each constitutes the valid and
binding obligation of Parent and Sub enforceable against Parent and Sub in
accordance with its terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(b) rules of law governing specific performance, injunctive relief and other
equitable remedies, and (c) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of securities.
5
Section 2.4 Consents and Approvals; No Violation. The execution and
delivery of this Agreement and the Parent Ancillary Agreements do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its Subsidiaries under: (i) subject to adoption of the
Resolutions and Bye-Law Amendments as described in Section 2.3, any provision of
the Memorandum of Continuance and Bye-laws of Parent or the comparable charter
or organization documents or by-laws of any of its Subsidiaries, (ii) assuming
approval by HIIC under the Shareholders Agreement and HIEC under the Management
Agreement and the consent of Singapore Airlines Limited ("SAL") to IEL as
previously furnished by IEL to HIIC and Parent (the "SAL Consent"), any loan or
credit agreement, note, bond, mortgage, indenture, lease, agreement, instrument,
permit, concession, franchise or license applicable to Parent or any of its
Subsidiaries or (iii) assuming adoption of the Resolutions and Bye-law
Amendments as described in Section 2.3, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent or any of its
Subsidiaries or any of their respective properties or assets, other than, in the
case of clauses (ii) and (iii), any such violations, defaults, rights, liens,
security interests, charges or encumbrances that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Parent and would not materially impair the ability of Parent or Sub to perform
their respective obligations hereunder or under the Parent Ancillary Agreements
or prevent the consummation of any of the transactions contemplated hereby or
thereby. No filing or registration with, or authorization, consent or approval
of, any domestic (federal and state), foreign (including provincial) or
supranational court, commission, governmental body, regulatory agency, authority
or tribunal (a "Governmental Entity") is required by or with respect to Parent
or any of its Subsidiaries in connection with the execution and delivery of this
Agreement or the Parent Ancillary Agreements by Parent and Sub, or is necessary
for the consummation of the Amalgamation and the other transactions contemplated
by this Agreement or the Parent Ancillary Agreements, except: (i) for the filing
with the Registrar of Companies in Bermuda of an application for consent and an
application for registration of the Amalgamation and appropriate documents with
the relevant authorities of other states in which IEL or any of its Subsidiaries
is qualified to do business; (ii) for receipt of consent of the Minister of
Finance in Bermuda and such other consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the laws of any
foreign country (including, without limitation, any political subdivision
thereof) in which Parent or its Subsidiaries conducts any business or owns any
property or assets; and (iii) for such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to obtain or make
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent and would not materially impair the ability of
Parent or Sub to perform their respective obligations hereunder or under the
Parent Ancillary Agreements or prevent the consummation of any of the
transactions contemplated hereby or thereby.
Section 2.5 SEC Documents and Other Reports. As of their respective
dates, all documents filed by Parent with the U. S. Securities and Exchange
Commission (the "SEC") on or after January 4, 1994 (the "Parent SEC Documents"),
copies of which have been delivered to HIIC, complied in all material respects
with the requirements of the U. S. Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 2.6 Absence of Certain Changes or Events. Except as set forth in
the Parent SEC Documents filed prior to the date hereof, on or after January 4,
1994: (i) Parent and its Subsidiaries have not incurred any material liability
or obligation (indirect, direct or contingent), or entered into any material
oral or written agreement or other transaction, that is not in the ordinary
course of business or that has resulted or would reasonably be expected to
result in a Material Adverse Effect on Parent; (ii) Parent and its Subsidiaries
have not sustained any loss or interference with their business or properties
(whether or not covered by insurance) that has had or that would reasonably be
expected to have a Material Adverse Effect on Parent; (iii) there has been no
material change in the indebtedness of Parent and its Subsidiaries (other than
changes in the ordinary course of business or as a result of a contemplated
private
6
placement by Parent of 8% convertible debentures in an amount not to exceed $3.5
million (the "Debentures"), no change in the outstanding shares of capital stock
of Parent except for the issuance of Parent Common Shares pursuant to the Parent
Stock Rights and no dividend or distribution of any kind (including stock
dividends, stock splits and the like) declared, paid or made by Parent on any
class of its capital stock and (iv) there has been no Material Adverse Change
with respect to Parent, nor any event or development that would, individually or
in the aggregate, reasonably be expected to result in a Material Adverse Change
with respect to Parent.
Section 2.7 No Existing Violation, Default, Etc. Neither Parent nor any
of its Subsidiaries is in violation of (i) its Memorandum of Continuance,
Memorandum of Association or Bye-laws, (ii) any applicable law, ordinance or
administrative or governmental rule or regulation or (iii) any order, decree or
judgment of any Governmental Entity having jurisdiction over Parent or any of
its Subsidiaries, except for any violations that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Parent. Assuming consummation of the B/E Conversion, there is no existing event
of default or event that, but for the giving of notice or lapse of time, or
both, would constitute an event of default under any loan or credit agreement,
note, bond, mortgage, indenture or guarantee of indebtedness for borrowed money
and there is no existing event of default or event that, but for the giving of
notice or lapse of time, or both, would constitute an event of default under any
lease, other agreement or instrument to which Parent or any of its Subsidiaries
is a party or by which Parent or any such Subsidiary or any of their respective
properties, assets or business is bound, in the case of each clause immediately
above, which, individually or in the aggregate, has had or would reasonably be
expected to have a Material Adverse Effect on Parent.
Section 2.8 Actions and Proceedings. There are no outstanding orders,
judgments, injunctions, awards or decrees of any Governmental Entity against
Parent or any of its Subsidiaries, any of its or their properties, assets or
business, or, to the knowledge of Parent, any of its or their current or former
directors or officers, as such, that would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent. Other
than continuing monthly review by the National Association of Securities Dealers
of Parent's compliance with the continued listing requirements of the Nasdaq
SmallCap Market, there are no actions, suits or claims or legal, administrative
or arbitration proceedings or investigations pending or, to the knowledge of
Parent, threatened against Parent or any of its Subsidiaries, any of its or
their properties, assets or business, or, to the knowledge of Parent, any of its
or their current or former directors or officers, as such, that would reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on Parent. As of the date hereof, there are no actions, suits or claims or
legal, administrative or arbitration proceedings or investigations pending or,
to the knowledge of Parent, threatened against Parent or any of its
Subsidiaries, any of its or their properties, assets or business, or, to the
knowledge of Parent, any of its or their current or former directors or
officers, as such, relating to the transactions contemplated by this Agreement.
Section 2.9 Contracts. All of the material contracts of Parent and its
Subsidiaries that are required to be described in the Parent SEC Documents or to
be filed as exhibits thereto have been described or filed as required. Neither
Parent or any of its Subsidiaries nor, to the knowledge of Parent, any other
party is in breach of or default under any such contracts which are currently in
effect, except for such breaches and defaults which would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent. Except as set forth in the Parent SEC Documents, neither Parent nor any
of its Subsidiaries is a party to or bound by any non-competition agreement or
any other agreement or obligation which purports to limit in any material
respect the manner in which, or the localities in which, Parent or any such
Subsidiary is entitled to conduct all or any material portion of the business of
Parent and its Subsidiaries taken as whole.
Section 2.10 Liabilities. Except as fully reflected or reserved against
in the most recent audited consolidated financial statements for the fiscal year
ended February 28, 1997, or disclosed in the footnotes thereto, Parent and its
Subsidiaries had no liabilities (including, without limitation, liabilities for
income, use or any other taxes) at the date of such consolidated financial
statements, absolute or contingent, of a nature which are required by generally
accepted accounting principles to be reflected on such consolidated financial
statements or disclosed in the footnotes thereto, that were material, either
individually or in the aggregate, to Parent and its Subsidiaries and IEL taken
as a whole.
7
Except as so reflected, reserved, disclosed or set forth, Parent and its
Subsidiaries have no commitments which are reasonably expected to be materially
adverse, either individually or in the aggregate, to Parent and its Subsidiaries
and IEL taken as a whole.
Section 2.11 Operations of Sub. Sub was formed solely for the purpose of
owning its interest in IEL and has engaged in no other business activities and
has conducted its operations only as contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HIIC
--------------------------------------
HIIC represents and warrants to Parent and Sub as follows:
Section 3.1 Organization, Standing and Power. HIIC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada; owns one million (1,000,000) shares of IEL Common Shares in the
aggregate represented by IEL Certificates numbers 5, 6, 25, 26, 27, 28, 29, 30,
31, 32, 35 and 36 issued in the name of HIIC and neither HIIC nor any of its
Affiliates (as hereinafter defined) owns any other IEL Common Shares; or, except
pursuant to the Shareholders Agreement, any option, warrant, call, right or
agreement to receive any other IEL Common Shares and has the requisite corporate
power and authority to carry on its business as now being conducted. For
purposes of this Agreement, "Affiliates" means, any Person which Controls a
party to this Agreement, which that party Controls or which is under common
Control with that party; "Person" means an individual, partnership, limited
partnership, corporation, limited liability company, association, joint stock
company, trust, joint venture or unincorporated organization, or the United
States of America or any other nation, any state or other political subdivision
thereof, or any entity exercising executive, legislative, judicial, regulatory
or administrative functions of government; and "Control" means the power, direct
or indirect, to direct or cause the direction of the management and policies of
a Person through voting securities, contract or otherwise.
Section 3.2 Authority. Subject to the approval of the Board of Directors
of HIIC, prior to the Effective Time, HIIC shall have approved the Amalgamation
and this Agreement as a shareholder of IEL. Subject to the approval by the Board
of Directors of each of HIIC and HIEC, HIIC and, as applicable, HIEC have all
requisite power and authority to enter into this Agreement and all agreements to
be entered into by HIIC and HIEC in connection therewith (collectively, "HIIC
Ancillary Agreements") and to consummate the transactions contemplated hereby
and thereby. Subject to the approval of the Board of Directors of each of HIIC
and HIEC, prior to the Effective Time, the execution and delivery of this
Agreement and the HIIC Ancillary Agreements by HIIC and HIEC and the
consummation by HIIC and HIEC of the transactions contemplated hereby and
thereby shall have been duly authorized by all necessary corporate action on the
part of HIIC and, as applicable, HIEC. Subject to the approval by the Board of
Directors of each of HIIC and HIEC, prior to the Effective Time, this Agreement
and the HIIC Ancillary Agreements shall have been duly executed and delivered by
HIIC and HIEC, as applicable, (assuming the valid authorization, execution and
delivery hereof by Parent, Sub and any other parties hereto and thereto and the
validity and binding effect hereof on Parent, Sub and any other parties thereto)
and each constitutes the valid and binding obligation of HIIC and HIEC, as
applicable, enforceable against HIIC and HIEC, as applicable, in accordance with
its terms, except as to the effect, if any, of (a) applicable bankruptcy and
other similar laws affecting the rights of creditors generally, (b) rules of law
governing specific performance, injunctive relief and other equitable remedies,
and (c) the enforceability of provisions requiring indemnification in connection
with the offering, issuance or sale of securities.
Section 3.3 Consents and Approvals; No Violation. The execution and
delivery of this Agreement and the HIIC Ancillary Agreements does not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance
8
upon any of the properties or assets of HIIC or HIEC under: (i) any provision of
the Articles of Incorporation or By-Laws of HIIC or its Affiliates, (ii)
assuming approval by the other parties thereto under the Shareholders Agreement
and the Management Agreement and the SAL Consent, any loan or credit agreement,
note, bond, mortgage, indenture, lease, agreement, instrument, permit,
concession, franchise or license applicable to HIIC or HIEC or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to HIIC or HIEC or any of its properties or assets, other than, in the case of
clauses (ii) and (iii), any such violations, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on HIIC or HIEC and
would not materially impair the ability of HIIC or, as applicable, HIEC to
perform its obligations hereunder or under the HIIC Ancillary Agreements or
prevent the consummation of any of the transactions contemplated hereby or
thereby. No filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to HIIC or HIEC in
connection with the execution and delivery of this Agreement or the HIIC
Ancillary Agreements by HIIC or HIEC or is necessary for the consummation of the
Amalgamation and the other transactions contemplated by this Agreement or the
HIIC Ancillary Agreements, except: (i) for the filing with the Registrar of
Companies in Bermuda of an application for approval and for registration of the
Amalgamation, (ii) for receipt of consent of the Minister of Finance in Bermuda
and such other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the laws of any foreign
country (including, without limitation, any political subdivision thereof) in
which HIIC or HIEC conducts any business or owns any property or assets and
(iii) for such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to obtain or make would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on HIIC or HIEC and would not materially impair the ability of
HIIC or HIEC to perform its obligations hereunder or under the HIIC Ancillary
Agreements or prevent the consummation of any of the transactions contemplated
hereby and thereby.
Section 3.4 Actions and Proceedings. As of the date hereof, there are no
actions, suits or claims or legal, administrative or arbitration proceedings or
investigations pending or, to the knowledge of HIIC, threatened against HIIC or
any of its Subsidiaries or Affiliates, any of its or their properties, assets or
business relating to the transactions contemplated by this Agreement.
Section 3.5 Ownership of Parent Capital Stock. Neither HIIC nor any of
its Affiliates owns any shares of the capital stock of Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF IEL
-------------------------------------
IEL represents and warrants to HIIC, Parent and Sub as follows:
Section 4.1 Organization, Standing and Power. IEL is an exempted company
duly organized, validly existing and in good standing under the laws of Bermuda;
and IEL has the requisite corporate power and authority to carry on its business
as now being conducted. Each Subsidiary of IEL is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and authority to
carry on its business as now being conducted. IEL and each of its Subsidiaries
are duly qualified to do business, and are in good standing, in each
jurisdiction where the character of their properties owned or held under lease
or the nature of their activities makes such qualification necessary, except
where the failure to be so qualified would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on IEL. IEL is not
subject to any material joint venture, joint operating or similar arrangement or
any material shareholders agreement relating thereto other than the Shareholders
Agreement and the Management Agreement.
Section 4.2 Capital Structure. As of the date hereof, the authorized
capital stock of IEL consists of: 5,000,000 shares of IEL Common Shares, all of
which are issued and outstanding, were validly issued, are fully paid
9
and are free of preemptive rights, except for rights under the Shareholders
Agreement. As of the date of this Agreement, other than rights and options
which may arise under the Shareholders Agreement (collectively, the "IEL Stock
Rights"), there are no options, warrants, calls, rights or agreements to which
IEL or any of its Subsidiaries is a party or by which any of them is bound
obligating IEL or any of its Subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of IEL or
obligating IEL to grant, extend or enter into any such option, warrant, call,
right or agreement. Each outstanding share of capital stock of each Subsidiary
of IEL is duly authorized, validly issued, fully paid and nonassessable and each
such share is beneficially owned by IEL, free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on voting rights, charges and other encumbrances of any nature
whatsoever.
Section 4.3 Authority. Prior to the Effective Time, the Board of
Directors of IEL shall have approved this Agreement, and subject to approval of
the Board of Directors of IEL and the approval of Sub and HIIC as the only
shareholders of IEL, IEL has all requisite power and authority to enter into
this Agreement and all agreements to be entered into by IEL in connection
therewith (collectively, "IEL Ancillary Agreements") to which it is a party and
to consummate the transactions contemplated hereby and thereby. Prior to the
Effective Time, the execution and delivery of this Agreement and the IEL
Ancillary Agreements by IEL and the consummation by IEL of the transactions
contemplated hereby and thereby shall have been duly authorized by all necessary
corporate action on the part of IEL. Subject to approval of the Board of
Directors of IEL and the approval of Sub and HIIC as the only shareholders of
IEL, this Agreement and the IEL Ancillary Agreements has been duly executed and
delivered by IEL and (assuming the valid authorization, execution and delivery
hereof and thereof by the other parties hereto and thereto and the validity and
binding effect hereof and thereof on the other parties thereto) each constitutes
the valid and binding obligation of IEL enforceable against IEL in accordance
with its terms , except as to the effect, if any, of (a) applicable bankruptcy
and other similar laws affecting the rights of creditors generally, (b) rules of
law governing specific performance, injunctive relief and other equitable
remedies, and (c) the enforceability of provisions requiring indemnification in
connection with the offering, issuance or sale of securities.
Section 4.4 Consents and Approvals; No Violation. The execution and
delivery of this Agreement and the IEL Ancillary Agreements do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
IEL or any of its Subsidiaries under: (i) any provision of the Memorandum of
Association and Bye-laws of IEL or the comparable charter or organization
documents or by-laws of any of its Subsidiaries, (ii) assuming approval by the
other parties thereto under the Shareholders Agreement and the Management
Agreement and the SAL Consent, any loan or credit agreement, note, bond,
mortgage, indenture, lease, agreement, instrument, permit, concession, franchise
or license applicable to IEL or any of its Subsidiaries (other than (a) the
Mutual Confidentiality and Non-Disclosure Agreement, dated March 22, 1996, by
and between IEL and the In-Flight Entertainment Division of B/E Aerospace, Inc.,
(b) the Software Integration Assistance Agreement, dated as of June 1, 1995, by
and between IEL and Matsushita Avionics Systems Corporation, (c) the Public
Relations Services Agreement dated March 28, 1996, by and between Karen Weiner
Escalera Associates, Inc. and IEL) and (d) Sublicense Agreement effective as of
October 11, 1996 between Harrah's Operating Company, Inc. and IEL or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to IEL or any of its Subsidiaries or any of their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any such violations,
defaults, rights, liens, security interests, charges or encumbrances that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on IEL and would not materially impair the ability of
IEL to perform its obligations hereunder or under the IEL Ancillary Agreements
or prevent the consummation of any of the transactions contemplated hereby or
thereby. No filing or registration with, or authorization, consent or approval
of any Governmental Entity is required by or with respect to IEL or any of its
Subsidiaries in connection with the execution and delivery of this Agreement or
the IEL Ancillary Agreements by IEL, or is necessary for the consummation of the
Amalgamation and the other transactions contemplated by this Agreement or the
IEL Ancillary Agreements, except: (i) for the filing with the Registrar of
Companies in Bermuda of an application for approval and for registration of the
Amalgamation and appropriate documents with the relevant authorities of other
states in which IEL or any of its Subsidiaries is qualified to do business; (ii)
for receipt of consent from the Minister of Finance in Bermuda and such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the laws of any foreign country (including,
without limitation, any political subdivision thereof) in which IEL
10
or any of its Subsidiaries conducts any business or owns any property or assets;
and (iii) for such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to obtain or make would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on IEL and would not materially impair the ability of IEL to
perform its obligations hereunder or under the IEL Ancillary Agreements or
prevent the consummation of any of the transactions contemplated hereby or
thereby.
Section 4.5 Absence of Certain Changes or Events. Since December 30,
1994, (i) IEL has not incurred any material liability or obligation (indirect,
direct or contingent), or entered into any material oral or written agreement or
other transaction, that is not in the ordinary course of business or as
otherwise authorized by the Management Agreement or the 1995 business plan of
IEL, the 1996 business plan of IEL or the 1997 business plan of IEL (the "1997
IEL Plan") or reflected or reserved against in the annual audited consolidated
financial statements of IEL or disclosed in the footnotes thereto for the fiscal
years ending December 31, 1995 and 1996, each as approved by the Board of
Directors of IEL, or that has resulted or would reasonably be expected to result
in a Material Adverse Effect on IEL; (ii) IEL and its Subsidiaries have not
sustained any loss or interference with their business or properties (whether or
not covered by insurance) that has had or that would reasonably be expected to
have a Material Adverse Effect on IEL; (iii) there has been no material change
in the indebtedness of IEL and its Subsidiaries (other than changes in the
ordinary course of business or pursuant to the Funding Agreement), no change in
the outstanding shares of capital stock of IEL, except for any increases in the
authorized share capital approved by Sub and HIIC, and no dividend or
distribution of any kind (including stock dividends, stock splits and the like)
declared, paid or made by IEL on any class of its capital stock and (iv) there
has been no Material Adverse Change with respect to IEL, nor any event or
development that would, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Change with respect to IEL.
Section 4.6 No Existing Violation, Default, Etc. IEL is not in violation
of (i) its Memorandum of Association or bye-laws, (ii) any applicable law,
ordinance or administrative or governmental rule or regulation or (iii) any
order, decree or judgment of any Governmental Entity having jurisdiction over
IEL or any of its Subsidiaries, except for any violations that, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on IEL. There is no existing event of default or event that, but for the
giving of notice or lapse of time, or both, would constitute an event of default
under any loan or credit agreement, note, bond, mortgage, indenture or guarantee
of indebtedness for borrowed money and there is no existing event of default or
event that, but for the giving of notice or lapse of time, or both, would
constitute an event of default under any lease, other agreement or instrument to
which IEL or any of its Subsidiaries is a party or by which IEL or any such
Subsidiary or any of their respective properties, assets or business is bound,
in the case of each of clause (i) and (ii) immediately above, which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect on IEL.
Section 4.7 Actions and Proceedings. There are no outstanding orders,
judgments, injunctions, awards or decrees of any Governmental Entity against IEL
or any of its Subsidiaries, any of its or their properties, assets or business,
or, to the knowledge of IEL, any of its or their current or former directors or
officers, as such, that would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on IEL. There are no actions, suits or
claims or legal, administrative or arbitration proceedings or investigations
pending or, to the knowledge of IEL, threatened against IEL or any of its
Subsidiaries, any of its or their properties, assets or business, or, to the
knowledge of IEL, any of its or their current or former directors or officers,
as such, that would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on IEL. As of the date hereof, there are no
actions, suits or claims or legal, administrative or arbitration proceedings or
investigations pending or, to the knowledge of IEL, threatened against IEL or
any of its Subsidiaries, any of its or their properties, assets or business, or,
to the knowledge of IEL, any of its or their current or former directors or
officers, as such, relating to the transactions contemplated by this Agreement.
Section 4.8 Contracts. Neither IEL or any of its Subsidiaries nor, to the
knowledge of IEL, any other party is in breach of or default under any material
contract to which it is a party which is currently in effect, except for such
11
breaches and defaults which would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on IEL. Neither IEL
nor any of its Subsidiaries is a party to or bound by any non-competition
agreement or any other agreement or obligation which purports to limit in any
material respect the manner in which, or the localities in which, IEL or any
such Subsidiary is entitled to conduct all or any material portion of the
business of IEL and its Subsidiaries taken as whole (other than the Shareholders
Agreement).
Section 4.9 Liabilities. Except as fully reflected or reserved
against in the most recent audited consolidated financial statements of IEL for
the year ended December 31, 1996, or disclosed in the footnotes thereto, IEL had
no liabilities (including, without limitation, liabilities for income, use or
other taxes) at the date of such consolidated financial statements, absolute or
contingent, of a nature which are required by generally accepted accounting
principles to be reflected on such consolidated financial statements or
disclosed in the footnotes thereto, that were material, either individually or
in the aggregate, to IEL and its Subsidiaries taken as a whole, except for
amounts owed to HIEC pursuant to and in accordance with the terms and provisions
of the Management Agreement. Except as so reflected, reserved, disclosed or set
forth, IEL and its Subsidiaries have no commitments which are reasonably
expected to be materially adverse, either individually or in the aggregate, to
IEL and its Subsidiaries taken as a whole, assuming IEL has adequate financial
resources to fulfill its obligations to SAL under the Software License and
Software Service Agreement dated November 7, 1995 with SAL and the Services
Agreement dated November 7, 1995 and SAL (collectively, the "SAL Agreements").
Section 4.10 Operations of Subsidiary. The Subsidiary of IEL was
formed solely for the purpose of conducting all operations required to be
conducted by IEL in Singapore pursuant to the SAL Agreements and attempting to
secure additional contracts with other Asian airlines and has engaged in no
other business activities.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
-----------------------------------------
Section 5.1 Conduct of Business Pending the Amalgamation. (a)
Actions by Parent. During the period from the date of this Agreement through the
Effective Time, except as otherwise expressly required by this Agreement and the
Parent Ancillary Documents, Parent shall, and shall cause each of its
Subsidiaries to, in all material respects carry on its business in, and not
enter into any material transaction other than in accordance with, the ordinary
course of its business as currently conducted and, to the extent consistent
therewith, use its reasonable best efforts to preserve intact its current
business organization, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it, all to the end that its goodwill and ongoing
business shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, and except as otherwise expressly contemplated by
this Agreement and the Parent Ancillary Documents, Parent shall not, and shall
not permit any of its Subsidiaries to, without the prior written consent of
HIIC:
(i) (A) declare, set aside or pay any dividends (including any stock
dividends) on, or make any other actual, constructive or deemed
distributions or stock splits or similar actions in respect of, any of its
capital stock, or otherwise make any payments to its shareholders in their
capacity as such; or (B) purchase, redeem or otherwise acquire any shares
of its capital stock or those of any Subsidiary or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock (other than pursuant to the Funding
Agreement), any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities, equity equivalent or convertible
securities (other than the issuance of Parent Common Shares during the
period from the date of this Agreement through the Effective Time upon the
exercise of Parent Stock Rights, except for the issuance of Parent Common
Shares upon conversion of the convertible redeemable preference shares of
Parent issued upon the B/E Conversion) unless a number of voting shares of
Parent are issued to
12
HIIC upon payment by HIIC of the par value thereof such that such number of
shares plus the number of Parent Common Shares into which HIIC's IEL Common
Shares are to be converted pursuant to Section 1.5 plus the number of
shares of Parent Common Shares issuable to HIIC under the Funding Agreement
constitutes the same percentage of the outstanding voting shares of Parent
on a fully diluted basis (as used in this Agreement, "fully diluted basis"
shall be as defined in the bye-laws of Parent as to be amended by the Bye-
Law Amendments in substantially the form attached hereto as Exhibit A) as
the number of Parent Common Shares into which HIIC's IEL Common Shares are
to be converted pursuant to Section 1.5 plus the number of shares of Parent
Common Shares issuable to HIIC under the Funding Agreement constituted of
the outstanding voting shares of Parent on a fully diluted basis prior to
such issuance;
(iii) amend its Memorandum of Association; or amend its bye-laws if
such amendment would adversely affect the rights of HIIC hereunder or upon
consummation of the Amalgamation;
(iv) acquire or agree to acquire, by amalgamating, merging or
consolidating with, by purchasing a substantial portion of the assets of or
equity in or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets, other than
transactions that are not material to Parent and its Subsidiaries taken as
a whole;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets (other than the real property owned
by a Subsidiary of Parent), other than transactions that are not material
to Parent and its Subsidiaries taken as a whole;
(vi) incur or assume any indebtedness for borrowed money or
guarantee any such indebtedness (other than pursuant to the Funding
Agreement or as a result of the issuance of the Debentures) or make any
loans, advances or capital contributions to, or other investments in, any
other person;
(vii) violate or fail to perform any material obligation or duty
imposed upon Parent or any Subsidiary by any applicable federal, state,
local, foreign or provincial law, rule, regulation, guideline or ordinance;
(viii) take any action, other than reasonable and usual actions in
the ordinary course of business consistent with past practice, with respect
to accounting policies or procedures; or
(ix) authorize, recommend, propose or announce an intention to do
any of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Parent shall promptly advise HIIC orally and in writing of any change
or event having, or which would reasonably be expected to have, a Material
Adverse Effect on Parent.
(b) Actions by HIIC. During the period from the date of this
Agreement through the Effective Time, except as otherwise expressly required by
this Agreement or the HIIC Ancillary Agreements, HIIC shall cause HIEC to manage
the business of IEL in accordance with the terms of the Management Agreement,
the Shareholders Agreement and the 1997 IEL Plan and to cause IEL not to enter
into any material transaction, contract or agreement other than as authorized by
the Management Agreement, the Shareholders Agreement, the 1997 IEL Plan or by
the Board of Directors of IEL in writing. Without limiting the generality of
the foregoing, and except as otherwise expressly contemplated by this Agreement,
HIIC shall not, and shall cause HIEC not to, without the prior written consent
of Parent, during the period from the date of this Agreement through the
Effective Time:
(i) with respect to any employees or agents of IEL or employees or
agents used to conduct the business of IEL, enter into or adopt any
employee benefit or welfare plan, or amend in any material respect
13
any existing employee benefit or welfare plan, other than as required by
law or in the ordinary course of business consistent with past practices;
(ii) with respect to any employees or agents of IEL or employees or
agents used to conduct the business of IEL, increase the compensation
payable or to become payable to its officers or employees or grant any
severance or termination pay to, or enter into, or amend or modify, any
employment, severance or consulting agreement with, any director, officer,
employee or agent of IEL or any of its Subsidiaries, or, except in the
ordinary course of business consistent with past practices, establish,
adopt, enter into or, except as may be required to comply with applicable
law or, except in the ordinary course of business consistent with past
practices, amend in any material respect or take action to enhance in any
material respect or accelerate any rights or benefits under, any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee; or
(iii) acquire any shares of capital stock of Parent.
HIIC shall promptly advise Parent orally and in writing of any change
or event having, or which would reasonably be expected to have, a Material
Adverse Effect on IEL.
ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
Section 6.1 Shareholder Meetings. Parent shall call a meeting of its
shareholders (the "Parent Shareholder Meeting") to be held as promptly as
practicable (but in no event prior to the fulfillment of the conditions
specified in Section 7.1(c) to each party's obligation to effect the
Amalgamation) for the purpose of voting upon the Bye-Law Amendments and the
Resolutions.
Section 6.2 Access to Information. Parent shall, and shall cause
each of its Subsidiaries to, afford, during normal business hours during the
period from the date of this Agreement through the Effective Time, to the
accountants, counsel, financial advisors, officers and other representatives of
HIIC reasonable access to, and permit them to make such inspections as may
reasonably be requested of, its properties, books, contracts, commitments and
records (including, without limitation, the work papers of independent public
accountants), and also permit such interviews with its officers and employees as
may be reasonably requested; and, during such period, Parent shall, and shall
cause each of its Subsidiaries to, furnish promptly to HIIC (i) a copy of each
report, schedule, registration statement and other document filed by it during
such period pursuant to the requirements of federal or state securities laws and
(ii) all other information concerning its properties, assets, business and
personnel as the other may reasonably request.
Section 6.3 Stock Exchange Listings. Parent shall use its reasonable
best efforts to list on the Nasdaq SmallCap Market, upon official notice of
issuance, the Parent Common Shares to be issued in connection with the
Amalgamation.
Section 6.4 Fees and Expenses. Except as otherwise provided in this
Section 6.4, whether or not the Amalgamation shall be consummated, all costs and
expenses incurred in connection with this Agreement, the Parent Ancillary
Agreements and the HIIC Ancillary Agreements and the transactions contemplated
hereby and thereby, including, without limitation, the fees and disbursements of
counsel, financial advisors, accountants, actuaries and consultants, shall be
paid by the party incurring such costs and expenses. Parent and HIIC hereby
acknowledge and agree that IEL has not incurred any costs and expenses in
connection with this Agreement, the Parent Ancillary
14
Agreements and the HIIC Ancillary Agreements and the transactions contemplated
hereby and thereby; provided, HIEC may receive reimbursement in accordance with
the terms and provisions of the Management Agreement for services provided to
IEL solely for the benefit of IEL which involved any of the foregoing.
Section 6.5 Reasonable Best Efforts. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
hereto agrees to use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable, to
consummate and make effective, as soon as reasonably practicable, the
Amalgamation and the other transactions contemplated by this Agreement,
including, but not limited to: (i) the obtaining of all necessary actions or
non-actions, waivers, consents and approvals from all Governmental Entities and
the making of all necessary registrations and filings with, and the taking of
all other reasonable steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any Governmental Entity; (ii) the
obtaining, of all necessary consents, approvals or waivers from persons other
than Governmental Entities; (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement, the
Parent Ancillary Agreements and HIIC Ancillary Agreements, or the consummation
of the transactions contemplated hereby or thereby, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed; and (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by this Agreement.
(b) Each party hereto shall use its reasonable best efforts not to
take any action, or to enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or to
result in a breach of any of its covenants in this Agreement.
(c) Notwithstanding any provision in this Agreement to the contrary
neither Parent nor HIIC shall be obligated to use its reasonable best efforts or
to take any action (or omit to take any action) pursuant to this Agreement if
the Board of Directors of Parent or HIIC, as the case may be, shall conclude in
good faith on the basis of the advice of its outside counsel that such action
would be inconsistent with the fiduciary obligations of such Board of Directors
under applicable law.
Section 6.6 Public Announcements. Parent and HIIC shall consult with
each other before issuing any press release or otherwise making any public
statement with respect to the transactions contemplated by this Agreement and
shall not issue any such press release or make any such public statement prior
to such consultation and without the written approval (which shall not
unreasonably be withheld) of the other, except as may be required by applicable
law or regulation or by existing obligations pursuant to any listing agreement
with any national securities exchange.
Section 6.7 Notification of Certain Matters. Parent shall give
prompt notice to HIIC and HIIC shall give prompt notice to Parent, of: (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which does or would be likely to cause (A) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
or (B) any covenant, condition or agreement contained in this Agreement not to
be complied with or satisfied; and (ii) any failure of Parent, Sub, HIIC or IEL,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 6.7 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 6.8 Amalgamation of Parent and Sub. Parent and Sub agree to
use their reasonable best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done all things necessary, proper or advisable, to
consummate and make effective, as soon as reasonably practicable after the
Effective Time, the amalgamation of the Amalgamated Company with and into Parent
and, as part of such transaction, to change the name of Parent to "Interactive
Entertainment Limited, " in accordance with the CA (the "Parent Amalgamation").
15
ARTICLE VII
CONDITIONS PRECEDENT TO THE AMALGAMATION
----------------------------------------
Section 7.1 Conditions to Each Party's Obligation to Consummate the
Amalgamation. The respective obligations of each party hereto to consummate the
Amalgamation shall be subject to the fulfillment at or prior to the Effective
Time of the following conditions:
(a) Shareholder Approval. The Resolutions shall have been duly
approved by a majority of the votes cast at the Parent Shareholder Meeting by
the holders of shares entitled to vote thereon, in accordance with applicable
law and the Bye-laws of Parent, and the Bye-Law Amendments shall have been duly
adopted by seventy-five percent (75%) of the votes cast at the Parent
Shareholder Meeting by the holders of shares entitled to vote thereon in
accordance with applicable law and the Bye-laws of Parent.
(b) SAL and Other Approvals.
-----------------------
(i) IEL shall have received the written consent of SAL to the
Amalgamations and the transactions contemplated thereby, including, without
limitation, termination of the Management Agreement; and
(ii) all authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting
periods imposed by, any Governmental Entity, which the failure to obtain,
make or occur would have the effect of making the Amalgamation or any of
the transactions contemplated hereby illegal (or without which the
Amalgamation could not become effective) or would have a Material Adverse
Effect on Parent or IEL (as the Amalgamated Company), assuming the
Amalgamation had taken place, shall have been obtained, shall have been
made or shall have occurred.
(c) No Order. No court or other Governmental Entity having
jurisdiction over IEL or Parent, or any of their respective Subsidiaries, shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making illegal or prohibiting the Amalgamation or any of the transactions
contemplated hereby.
(d) Termination Agreements. The parties thereto shall have entered
into agreements reasonably satisfactory to the parties thereto to terminate the
following agreements:
(i) the Management Agreement effective as of the Effective Time
(which shall contain a mutual release by the parties thereto);
(ii) the Shareholders Agreement effective as of the Effective
Time (which shall contain a mutual release by the parties thereto); and
(iii) the Cross-License Agreement among Parent (f/k/a Creator
Capital Inc., a Yukon Territory corporation), IEL and HIEC dated December
30, 1994 effective as of the effective time of the Parent Amalgamation.
(e) Litigation. There shall not have been instituted and be pending
any suit, action or proceeding by any Governmental Entity or any shareholder of
Parent (including any shareholder derivative action) with proper standing to
bring such suit, action or proceeding as a result of this Agreement or any of
the transactions contemplated hereby which, if such Governmental Entity or
shareholder of Parent were to prevail, would reasonably be expected to have the
effect of preventing or materially delaying the Amalgamation.
16
(f) Performance of Obligations; Representations and Warranties. IEL
shall have performed in all material respects each of its agreements contained
in this Agreement required to be performed at or prior to the Effective Time,
each of the representations and warranties of IEL contained in this Agreement
that is qualified by materiality shall be true and correct at and as of the
Effective Time as if made at and as of the Effective Time and each of such
representations and warranties that is not so qualified shall be true and
correct in all material respects at and as of the Effective Time as if made at
and as of the Effective Time, in each case except as contemplated or permitted
by this Agreement; and each of Parent and HIIC shall have received a certificate
signed on behalf of IEL by its President and its Treasurer to such effect.
(g) Material Adverse Change. Since the date of this Agreement, there
shall have been no Material Adverse Change with respect to IEL, except as
contemplated in the 1997 IEL Plan; and each of Parent and HIIC shall have
received a certificate signed on behalf of IEL by Gordon Stevenson, President,
and Laurence Geller, Vice President, to such effect.
(h) Continuing Services Agreement. Parent and HIEC shall as of the
Closing have entered into a Continuing Services Agreement regarding the
provision of certain administrative and support services by HIEC to Parent after
the Closing on terms reasonably satisfactory to the parties and terminable by
Parent upon sixty (60) days' notice; provided Parent bears the cost of
termination.
(i) Continued Listing of Parent Common Shares. There shall not be a
cease trading order in effect as to the trading of the Parent Common Shares
through the Nasdaq SmallCap Market, the Parent Common Shares shall be listed on
the Nasdaq SmallCap Market and Parent shall not have received a written or an
official oral notice of non-compliance from Nasdaq as to any applicable SmallCap
Market continued listing requirement and such notice shall not have been
rescinded or such non-compliance remedied.
(j) Receipt of Legal Opinion. HIIC, Parent and Sub shall have
received the legal opinion of Appleby, Spurling & Kempe addressed to each of
them in such form as is reasonably acceptable to each of HIIC, Parent and Sub.
Section 7.2 Conditions to Obligation of HIIC to Consummate the
Amalgamation. The obligation of HIIC to consummate the Amalgamation shall be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions:
(a) Approval of HIIC Board and HIIC. The Board of directors of HIIC
shall have approved this Agreement and the HIIC Ancillary Agreements and HIIC
shall have approved the Amalgamation and this Agreement as a shareholder of IEL.
(b) Performance of Obligations; Representations and Warranties. Each
of Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed at or prior to
the Effective Time, each of the representations and warranties of Parent and Sub
contained in this Agreement that is qualified by materiality shall be true and
correct at and as of the Effective Time as if made at and as of the Effective
Time and each of such representations and warranties that is not so qualified
shall be true and correct in all material respects at and as of the Effective
Time as if made at and as of the Effective Time, in each case except as
contemplated or permitted by this Agreement; and HIIC shall have received a
certificate signed on behalf of Parent by its Chief Executive Officer and its
Chief Financial Officer to such effect.
(c) Consents Under Agreements. HIIC shall have obtained the consent
or approval of each person (other than SAL and the Governmental Entities
referred to in Section 7.1(c)) whose consent or approval shall be required in
connection with the transactions contemplated hereby under any indenture,
mortgage, evidence of indebtedness, license, lease or other agreement or
instrument, except where the failure to obtain the same would not
17
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on HIIC or upon the consummation of the transactions contemplated
hereby.
(d) Material Adverse Change. Since the date of this Agreement, there
shall have been no Material Adverse Change with respect to Parent, except as
contemplated in the 1997 IEL Plan or as a result of the write-down of real
estate assets owned by a Subsidiary of Parent; and HIIC shall have received a
certificate signed on behalf of Parent by its Chief Executive Officer and its
Chief Financial Officer to such effect.
(e) Delivery of Agreements. Parent and HIIC shall have entered into
the following agreements as of the Closing:
(i) a Shareholder Rights Agreement between HIIC and Parent, in
such form as is reasonably acceptable to HIIC and Parent, regarding
approval by HIIC and the Affiliates of HIIC for as long as they
collectively own:
(A) twenty percent (20%) or more of the outstanding voting
shares of Parent, on a fully diluted basis, as to:
(1) the sale of all or any material portion of the
assets of Parent together with its Subsidiaries;
(2) the incurrence, renewal, refinancing, prepayment or
amendment of the terms of indebtedness of Parent together with
its Subsidiaries in excess of $5 million in any one fiscal
year;
(3) Parent or any of its Subsidiaries entering into any
material joint venture or partnership agreement outside of its
previously approved scope of business;
(4) any material acquisition of assets by Parent or any
of its Subsidiaries, including by lease or otherwise (other
than by merger, consolidation or amalgamation) and other than
pursuant to a previously approved budget or plan, or the
acquisition by Parent or any of its Subsidiaries of the stock
of another entity, in each case involving an acquisition
valued at $5 million or more;
(5) any material change in the nature of the business
conducted by Parent or any of its Subsidiaries;
(6) any material amendments to the management incentive
plan covering 4,070,105 Parent Common Shares (the "MIP") for
12 months following the Closing;
(7) the adoption of any stock option plans for greater
than 5% of the then outstanding Parent Common Shares on a
fully diluted basis, other than the MIP, in any one fiscal
year;
(8) material changes in accounting policies; and
(9) the creation or adoption of any shareholder rights
plan; and
18
(B) 10% or more of the outstanding voting shares of Parent
on a fully diluted basis, as to (1) any change in or conduct of
Parent's or any of its Subsidiaries' business or proposed
business (including, but not limited to, the terms of repurchase
or redemption of any debt from any holder thereof if such holder
would be a Disqualified Holder (as such term is defined in the
bye-laws of Parent (as to be amended by the Bye-Law Amendments in
substantially the form attached hereto as Exhibit A) if such
Person held shares of Parent) that would constitute or result in,
or (2) any action or inaction of or by Parent or any of its
Subsidiaries' which HIIC or the Affiliates of HIIC determine in
their reasonable business judgment would result in, in the case
of either (1) or (2), 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 HIIC
or the Affiliates of HIIC in any jurisdiction in which HIIC or
any of the Affiliates of HIIC 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 referred
to herein as a "Disqualifying Action"); provided, the reasonable
business judgment to be exercised by HIIC and the Affiliates of
HIIC in determining whether a Disqualifying Action has occurred
or would result need not involve any consideration of the effect
of the Disqualifying Action on Parent 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 HIIC and the
Affiliates of HIIC;
(ii) a Registration and Preemptive Rights Agreement on
substantially the following terms:
(A) HIIC would have two (2) demand registration rights to
cause Parent to register Parent Common Shares owned by HIIC
and/or the Affiliates of HIIC, provided, prior to June 30, 1998,
no such demand registration shall be brought for a number of
shares in excess of one million (1,000,000) unless Parent
receives the opinion of its investment banker that the trading
price of the Parent Common Shares would not fall by more than
twenty-five percent (25%) for more than fifteen (15) consecutive
trading days as a result of such sale, in which case a demand
could be brought with respect to up to such number of Parent
Common Shares as would not cause the market price to fall below
such level. Each such offering shall be underwritten on a firm
commitment basis by an underwriter chosen by Parent. The demand
rights would be subject to customary restrictions such as 120 day
blockage periods for corporate developments or registered
offerings by Parent, cut-backs and etc.;
(B) Parent would also agree pursuant to such registration
rights agreement that until HIIC and the Affiliates of HIIC
collectively own less than 5% of the outstanding voting shares of
Parent on a fully diluted basis, HIIC and the Affiliates of HIIC
shall have customary piggy-back rights to include their Parent
Common Shares in registered offerings by Parent;
(C) HIIC and the Affiliates of HIIC would bear the costs of
their legal counsel and any underwriting discounts, commissions
or allowances in connection with all sales pursuant to the
foregoing, and Parent would bear all other fees and expenses of
such registrations;
19
(D) HIIC and/or the Affiliates of HIIC would have the right
to purchase voting shares of Parent (or securities convertible
into voting shares of Parent) offered by Parent for as long as
HIIC and the Affiliates of HIIC collectively owned twenty percent
(20%) or more of the outstanding voting shares of Parent on a
fully diluted basis at the same price and terms such securities
are otherwise being offered. HIIC and/or the Affiliates of HIIC
would also have the right for as long as HIIC and the Affiliates
of HIIC collectively owned twenty percent (20%) or more of the
outstanding voting shares of Parent on a fully diluted basis to
participate on a proportionate basis in any non-pro rata stock
repurchases or redemptions conducted by Parent;
(E) at any time that HIIC and the Affiliates of HIIC
collectively own less than ten percent (10%) of the outstanding
voting shares of Parent, on a fully diluted basis, (1) Parent
shall have the right to cause HIIC and the Affiliates of HIIC to
sell their voting shares of Parent pursuant to a registered sale
and (2) HIIC shall have the right to cause Parent to file a
registration statement to sell its and its Affiliates' voting
shares of Parent, in each case of (1) and (2), in the event (x)
of any change in or conduct of the business or proposed business
of Parent or any of its Subsidiaries or any other action or
inaction of Parent or any of its Subsidiaries which would
constitute or result in a Disqualifying Action or (y) Parent does
not redeem a "Disqualified Holder" pursuant to Bye-law 4B of its
bye-laws (as to be amended by the Bye-Law Amendments in
substantially the form attached hereto as Exhibit A), and in each
case of (1) and (2), at Parent's expense (other than HIIC's and
the Affiliates of HIIC underwriting discounts, commissions or
allowances) without being subject to the limitations set forth in
the foregoing paragraph (A); and
(F) upon any conversion of any shares of convertible
redeemable preference shares of Parent issued to B/EA as part of
the B/E Conversion, Parent shall issue to HIIC and/or the
Affiliates of HIIC a number of Parent Common Shares upon payment
by HIIC of the par value thereof such that such number of shares
plus the number of Parent Common Shares into which HIIC's IEL
Common Shares are to be converted pursuant to Section 1.5 plus
the number of shares of Parent Common Shares issuable to HIIC
under the Funding Agreement collectively constitutes the same
percentage of the outstanding voting shares of Parent on a fully-
diluted basis as the number of Parent Common Shares into which
HIIC's IEL Common Shares are to be converted pursuant to Section
1.5 plus the number of shares of Parent Common Shares issuable to
HIIC under the Funding Agreement constituted of the outstanding
voting shares of Parent on a fully diluted basis prior to such
issuance; and
(iii) a License Agreement regarding use by HIIC and its
Affiliates of IEL intellectual property on substantially the following
terms: Parent would grant a fully paid and perpetual worldwide license
to Harrah's to use IEL's gaming technology in non-competitive uses in
traditional casino venues which it or its Affiliates own, operate or
manage. The license would include source codes for all software, and
neither party would have any obligation to share or provide any
improvements or modifications with the other party. The license would
contain customary provisions regarding limitations on the use of and
protections regarding the IEL intellectual property.
(f) Escrow Shares. Parent shall have entered into binding written
agreements with the record holders of all 3,525,000 Parent Common Shares being
held in escrow by Montreal Trust Company of Canada under an Escrow Agreement
dated May 27, 1992 ("Performance Shares"), pursuant to which such holders have
agreed to allow Parent to redeem and/or cancel such Parent Common Shares. In
connection with such redemption and/or cancellation of the Performance Shares,
Parent shall not issue or agree to issue more than 1,175,000 Parent Common
20
Shares, and HIIC shall have received a certificate signed on behalf of Parent by
its Chief Executive Officer to such effect. Each record holder of Performance
Shares shall have executed and delivered to a national banking association
selected by HIIC and acceptable to Parent (the "Proxy Holder") an irrevocable
proxy appointing the Proxy Holder proxy for such holder with respect to the
Performance Shares. The Proxy Holder shall have entered into an agreement with
Parent and HIIC regarding the Proxy Holder's agreement not to vote the
Performance Shares.
(g) Bye-Law Amendments. The Bye-Law Amendments substantially in the
form attached hereto as Exhibit A shall have been approved and adopted by
seventy-five percent (75%) of the votes cast at the Parent Shareholder Meeting
by the holders of shares entitled to vote thereon in accordance with applicable
law and the Bye-Laws of Parent.
(h) B/E Conversion. Parent shall have prior to or at the Effective
Time consummated the B/E Conversion.
(i) B.C. Securities Compliance Certificate. Parent shall have
delivered to HIIC a certificate of the British Columbia Securities Commission
certifying that Parent is in compliance with its filing obligations under the
British Columbia Securities Commission dated no more than ten (10) days prior to
the date of the Closing.
Section 7.3 Conditions to Obligations of Parent and Sub to Consummate the
Amalgamation. The obligation of Parent and Sub to consummate the Amalgamation
shall be subject to the fulfillment at or prior to the Effective Time of the
following additional conditions:
(a) Performance of Obligations; Representations and Warranties. HIIC
shall have performed in all material respects each of its agreements contained
in this Agreement required to be performed at or prior to the Effective Time,
each of the representations and warranties of HIIC contained in this Agreement
that is qualified by materiality shall be true and correct at and as of the
Effective Time as if made at and as of the Effective Time and each of such
representations and warranties that is not so qualified shall be true and
correct in all material respects at and as of the Effective Time as if made at
and as of the Effective Time, in each case except as contemplated or permitted
by this Agreement; and Parent shall have received a certificate signed on behalf
of HIIC by its President and its Treasurer to such effect.
(b) Consents Under Agreements. Parent and Sub shall have obtained the
consent or approval of each person (other than SAL and the Governmental Entities
referred to in Section 7.1(c)) whose consent or approval shall be required in
connection with the transactions contemplated hereby under any indenture,
mortgage, evidence of indebtedness, license, lease or other agreement or
instrument, except where the failure to obtain the same would not reasonably be
expected, in the good faith opinion of Parent, individually or in the aggregate,
to have a Material Adverse Effect on Parent or Sub or upon the consummation of
the transactions contemplated hereby.
ARTICLE VIII
TERMINATION; AMENDMENT AND WAIVER
---------------------------------
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after any approval by the
stockholders of Parent of the matters presented in connection with the
Amalgamation:
(a) by mutual written consent of Parent and HIIC;
(b) by Parent, by written notice to HIIC, if (i) HIIC shall have
failed to comply in any material respect with any of its covenants or agreements
contained in this Agreement required to be complied with prior to the
21
date of such termination, which failure to comply has not been cured within five
(5) business days of written notice of such failure to comply, (ii) the
shareholders of Parent shall not approve and adopt the Resolutions at the Parent
Shareholder Meeting or any adjournment thereof or by written consent or (iii)
the shareholders of Parent shall not approve and adopt the Bye-Law Amendments at
the Parent Shareholder Meeting or any adjournment thereof or by written consent;
(c) by HIIC, by written notice to Parent, if (i) Parent or Sub shall
have failed to comply in any material respect with any of its respective
covenants or agreements contained in this Agreement required to be complied with
prior to the date of such termination, which failure to comply has not been
cured within five (5) business days after written notice of such failure to
comply, (ii) the shareholders of Parent shall not approve and adopt the
Resolutions at the Parent Shareholder Meeting or any adjournment thereof or
(iii) the shareholders of Parent shall not approve and adopt the Bye-Law
Amendments at the Parent Shareholder Meeting or any adjournment thereof or by
written consent;
(d) by either Parent or HIIC, by written notice from the terminating
party to the other parties, if there has been (i) a material breach by the other
(and/or by Sub if HIIC is the terminating party) of any representation or
warranty that is not qualified as to materiality or (ii) a breach by the other
(and/or by Sub if HIIC is the terminating party) of any representation or
warranty that is qualified as to materiality, in each case which breach has not
been cured within five (5) business days after receipt by the breaching party of
written notice of the breach;
(e) by either Parent or HIIC, by written notice from the terminating
party to the other parties, if there has been (i) a failure by IEL to comply in
any material respect with any of its covenants or agreements contained in this
Agreement required to be complied with prior to the date of such termination,
which failure to comply has not been cured within five (5) business days of
written notice of such failure to comply, (ii) a material breach by IEL of any
representation or warranty that is not qualified as to materiality or (iii) a
breach by IEL of any representation or warranty that is qualified as to
materiality, in each case which breach has not been cured within five (5)
business days after receipt by the breaching party of written notice of the
breach;
(f) by either Parent or HIIC, by written notice from the terminating
party to the other parties, if: (i) the Amalgamation has not been effected on or
prior to the close of business on June 21, 1997; provided, however, that the
right to terminate this Agreement pursuant to this clause (e) shall not be
available to any party whose failure to fulfill any obligation of this Agreement
has been the cause of, or resulted in, the failure of the Amalgamation to have
occurred on or prior to such date or (ii) any court or other Governmental Entity
having jurisdiction over a party hereto shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable.
The right of Parent or HIIC to terminate this Agreement pursuant to this
Section 8.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of such party, whether prior to or after
the execution of this Agreement. Notwithstanding Sections 7.1(f) and 8.1(e), in
the event a party has failed to fulfill a material obligation under this
Agreement and such failure is the direct or proximate cause of the failure by
IEL to satisfy any of the conditions set forth in Section 7.1(f), such party
shall not be released from its obligation to consummate the Amalgamation
pursuant to Section 7.1(f) and shall not have the right to terminate this
Agreement pursuant to Section 8.1(e).
Section 8.2 Effect of Termination. In the event of the termination of
this Agreement by either Parent or HIIC as provided in Section 8.1, this
Agreement shall forthwith become void without any liability hereunder on the
part of HIIC, IEL, Parent, Sub or their respective directors or officers, except
for Section 6.2 and Section 6.4, which shall survive any such termination;
provided, however, that nothing contained in this Section 8.2 shall relieve any
party hereto from any liability for any breach of this Agreement.
22
Section 8.3 Amendment. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after approval by the stockholders of Parent of the
matters presented to them in connection with the Amalgamation; provided,
however, that after any such approval, no amendment shall be made if applicable
law would require further approval by such stockholders, unless such further
approval shall be obtained. This Agreement shall not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 8.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any instrument delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of any party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
------------------
Section 9.1 Survival of Representations and Warranties. The
representations and warranties in this Agreement and in each instrument
delivered pursuant hereto shall survive the Effective Time (i) for a period of
thirty-six (36) months solely with respect to the representations and warranties
set forth in Section 2.5 and for (ii) the period terminating on the date of the
first report of Parent's independent auditors on the audited financial
statements of Parent for the period ending December 31, 1997, with respect to
all other representations and warranties in this Agreement and in each
instrument delivered pursuant hereto.
Section 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day after
being delivered prepaid to an overnight courier or when telecopied (with a
confirmatory copy sent by overnight courier) to the other parties hereto at the
following addresses (or at such other address for any party as shall be
specified by like notice):
(a) if to Parent or Sub, to:
Sky Games International Ltd.
1115-595 Howe Street
Vancouver, British Columbia V6C 2T5
Attention: Malcolm P. Burke
Facsimile: (604) 689-8678
with a copy to:
Laurence Geller
10 S. Wacker Drive, Suite 4000
Chicago, Illinois 60606
Facsimile: (312) 715-4212
23
and to:
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon, Esq.
Facsimile: (312) 715-4800
(b) if to IEL, to:
Interactive Entertainment Limited
1023 Cherry Road
Memphis, Tennessee 38117
Attention: Gordon Stevenson
Facsimile: (901) 537-3801
(c) if to HIIC, to:
Harrah's Interactive Investment Company
1023 Cherry Road
Memphis, Tennessee 38117
Attention: John Boushy
Facsimile: (901) 762-8914
with a copy to:
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Attention: John W. McConomy, Esq.
Facsimile: (901) 762-8735
and to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attention: Harry Boadwee, Esq.
Facsimile: (415) 494-1417
Section 9.3 Interpretation. When reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include","includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
Section 9.4 Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts shall have been signed by
each of the parties hereto and delivered to the other parties.
24
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (and the schedules and attachments to the foregoing) constitutes the
entire agreement of the parties hereto and supersede all prior agreements and
understandings, both written and oral, among such parties with respect to the
subject matter hereof.
Section 9.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of Bermuda, regardless of the laws that
might otherwise govern under applicable principles of conflict of laws of such
country.
Section 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by operation of law or
otherwise by any of the parties hereto without the prior written consent of the
other parties.
Section 9.8 Severability. If any term or provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other terms, provisions and conditions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party hereto. Upon any determination that any term or
other provision hereof is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of such parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
may be consummated as originally contemplated to the fullest extent possible.
Section 9.9 Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the terms or provisions
of this Agreement were not performed in accordance with their specific wording
or were otherwise breached. It is accordingly agreed that each of the parties
hereto shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States of America or any state having jurisdiction, such
remedy being in addition to any other remedy to which any party may be entitled
at law or in equity. In any action to enforce its rights hereunder, the
prevailing party shall be entitled to recover its reasonable fees and expenses
(including reasonable attorney's fees and expenses) from the non-prevailing
party.
Section 9.10 Indemnification Obligations of Parent. From and after the
Closing, Parent shall indemnify, defend, save and keep HIIC, HIEC and the
Affiliates of HIIC (including their respective directors, officers, employees
and agents) (each, an "Indemnitee") forever harmless against and from all loss,
cost, damage, liability and expense, including reasonable attorney's fees and
expenses (collectively, "Damages"), sustained or incurred by any Indemnitee as a
result of or arising out of or by virtue of or in connection with any inaccuracy
in or breach of any representation or warranty made by Parent or Sub in Article
II of this Agreement.
(a) Limitations on Parent's Indemnification Obligations. Parent shall
not have any indemnification obligation and no Indemnitee shall be entitled to
recover under this Section 9.10, unless a claim for indemnification has been
asserted by written notice, specifying the details of the alleged inaccuracy in
or breach of any representation or warranty, delivered to Parent on or prior to
the end of the period terminating on the date of the first report of Parent's
independent auditors on the audited financial statements of Parent for the
period ending December 31, 1997; provided, however, that claims under this
Section 9.10 with respect to any alleged inaccuracy in or breach of any
representation or warranty in Section 2.5 may be asserted by such written
notice, delivered to Parent on or prior to the end of the period terminating
thirty-six (36) months after the date of the Closing.
(b) Third Party Claims. Within thirty (30) days following the receipt
of notice of a Third Party Claim, and in any event within the period necessary
to respond to such pleading, if applicable, the party receiving the notice of
the Third Party Claim shall (i) notify Parent of the existence of such Third
Party Claim setting forth with reasonable specificity the facts and
circumstances of which such party has received notice, and (ii) specifying the
basis hereunder upon which the Indemnitee's claim for indemnification is
asserted. As used herein, "Third Party Claim"
25
shall mean any claim, action, suit, proceeding, investigation, or like matter
which is asserted or threatened by any party other than the parties hereto,
their successors and permitted assigns, against an Indemnitee. The failure to
deliver the notice described in the first sentence of this Section 9.10(b)
within the time frame required shall relieve Parent of any liability with
respect to such Third Party Claim. Each Indemnitee shall, upon reasonable
notice, tender the defense of a Third Party Claim to Parent if so requested by
Parent in writing. Then, except as hereinafter provided, such Indemnitee shall
not, and Parent shall, have the right to contest, defend, litigate or settle
such Third Party Claim. Each Indemnitee shall have the right to be represented
by counsel and to participate at its own expense in any such contest, defense,
litigation or settlement conducted by Parent. Parent shall have the exclusive
right to contest and defend the Third Party Claim and shall have the right, upon
receiving the prior written approval of such Indemnitee (which shall not be
unreasonably withheld) and which shall be deemed automatically given if a
response has not been received within the ten (10) day period following a
written request for such consent), to settle any such matter, either before or
after the initiation of litigation, at such time and upon such terms as it deems
fair and reasonable. If an Indemnitee is entitled to indemnification against a
Third Party Claim, and Parent fails to accept a tender of, or assume, the
defense of a Third Party Claim pursuant to this Section 9.10(b), such Indemnitee
shall have the right, without prejudice to its right of indemnification
hereunder, in its discretion exercised in good faith and upon the advice of
counsel, to contest, defend, litigate and settle such Third Party Claim, either
before or after the initiation of litigation, at such time and upon such terms
as such Indemnitee deems fair and reasonable, provided that written notice of
its intention to settle is given to Parent at least ten (10) days prior to
settlement. If, pursuant to this Section 9.10(b), such Indemnitee so contests,
defends, litigates or settles a Third Party Claim for which it is entitled to
indemnification hereunder as hereinabove provided, such Indemnitee shall be
reimbursed by Parent for the reasonable attorneys' fees and other expenses of
defending, contesting, litigating and/or settling the Third Party Claim which
are incurred from time to time, forthwith following the presentation to Parent
of itemized bills for said attorneys' fees and other expenses.
(c) Tax and Insurance Benefits. All indemnification or reimbursement
payments required pursuant to this Agreement shall be made net of all cash, tax
and insurance benefits received by HIIC, HIEC or their Affiliates. In the event
that any claim for indemnification asserted hereunder is, or may be, the subject
of any insurance coverage or other right to indemnification or contribution from
any third person, HIIC, HIEC and their Affiliates shall be required to, and HIIC
expressly agrees that it shall, promptly notify the applicable insurance
carrier of any such claim or loss and tender defense thereof to such carrier,
and shall also promptly notify any potential third party indemnitor or
contributor which may be liable for any portion of such losses or claims. HIIC,
HIEC and their Affiliates shall be required to, and HIIC expressly agrees that
it shall, promptly pursue, at the cost and expense of Parent, such claims
diligently and to reasonably cooperate, at the cost and expense of Parent, with
each applicable insurance carrier and third party indemnitor or contributor.
Notwithstanding Section 9.10(b) and this Section 9.10(c), no Indemnitee shall be
required to tender the defense of a Third Party Claim more than once unless so
requested by Parent and Parent has acknowledged in writing its liability
pursuant to Section 9.10(b) for such Third Party Claim.
(d) Remedies and Undertakings. Except as otherwise specifically
provided in this Agreement, the sole and exclusive remedy after the Closing of
HIIC, HIEC and their Affiliates under this Agreement for an inaccuracy in or
breach of any representation or warranty made by Parent or Sub in Article II of
this Agreement shall be restricted to the indemnification rights set forth in
this Section 9.10. Prior to the assertion of any claims for indemnification
under this Agreement, each Indemnitee shall utilize all reasonable efforts,
consistent with normal practices and policies and good commercial practice, to
mitigate such Damages. Notwithstanding anything to the contrary contained
herein, the foregoing limitations set forth in this Section 9.10(d) shall not
apply to actions arising from a default or an alleged default in the performance
of any provision of this Agreement (other than a representation or warranty in
Article II of this Agreement), and the parties hereto shall have all remedies
available to them at law and equity with respect to any such default or alleged
default.
Section 9.11 Limitation of Liability. Notwithstanding Section 8.2 and
Section 9.10, no party to this Agreement or any of its Affiliates shall be
liable to any other party for such damage, loss or injury due to a breach of
this Agreement which does not flow directly and immediately from the act or
omission of the party or any of its
26
Affiliates and each party hereto hereby waives all rights to bring any action in
respect of such liability. Such limitation of liability shall apply to, among
other things, liability arising from tort (including negligence) and liability
for lost revenues or profits, and such limitation of liability shall apply even
if the party or its Affiliates causing damage, loss or liability to which this
limitation of liability applies have been advised of the possibility of such
damage, loss or liability.
27
IN WITNESS WHEREOF, Parent, Sub, IEL and HIIC have caused this Agreement to
be executed and attested by their respective officers thereunto duly authorized,
all as of the date first written above.
SKY GAMES INTERNATIONAL LTD.
By: /s/ Malcolm Burke
Its: President
Attest:/s/ P.J. Lawless
SGI HOLDING CORPORATION LIMITED
By: /s/ Malcolm Burke
Its: President
Attest:/s/ P.J. Lawless
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ Malcolm Burke
Its: President
Attest:/s/ P.J. Lawless
HARRAH'S INTERACTIVE INVESTMENT
COMPANY
By: /s/ John Boushy
Its: Sr. Vice President
Attest:/s/ P.J. Lawless
28
Exhibit A
---------
Form of Bye-Law Amendments
29
SCHEDULE OF
PROPOSED AMENDMENTS TO THE BYE-LAWS OF
SKY GAMES INTERNATIONAL LTD.
The Board of Directors is recommending the following Bye-law amendments to
the shareholders for approval at the Special General Meeting:
Bye-Law 1
The following definitions are inserted in alphabetical order in Bye-law 1:
"Affiliates" means, with respect to any person or entity, any person or entity
that directly or indirectly Controls such person or entity, or any person or
entity which is Controlled by or under common Control with such person or
entity.
"Common Shares" has the meaning set forth in Bye-law 3(B).
"Control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a person or entity,
whether through the ownership of voting securities, by contract or otherwise.
"Director" means a director of the Company.
"fully diluted basis" means at any time that number of (A) Common Shares equal
to the sum, without duplication, of (i) the total number of Common Shares then
outstanding (other than 3,525,000 shares of Common Shares held in escrow
pursuant to that Escrow Agreement dated May 27, 1992, as amended, among Montreal
Trust Company of Canada, the Company and certain shareholders), plus (ii) the
total number of Common Shares into which all then outstanding Preference Shares
or any other shares of the Company are then convertible directly or indirectly,
provided that Common Shares issuable upon conversion of Class A Preference
Shares shall not be included until such conversion occurs, plus (iii) the total
number of Common Shares then issuable directly or indirectly upon exercise of
all then outstanding options, warrants (including the warrant for 650,000 Common
Shares exercisable at $1 per Common Share issued to Harrah's Interactive
Investment Company, a Nevada corporation, and exercisable at the option of the
Company), unexercised stock subscriptions, convertible debentures and other
convertible securities, plus (B) Other Voting Shares equal to the sum, without
duplication (including without duplication of any Common Shares) of (i) the
total number of Other Voting Shares then outstanding, plus (ii) the total number
of Other Voting Shares into which all then outstanding Preference Shares or any
other shares of the Company are then convertible directly or indirectly, plus
(iii) the total number of Other Voting Shares then issuable directly or
indirectly upon exercise of all then outstanding options, warrants, unexercised
stock subscriptions, convertible debentures and other convertible securities.
"HIIC Entities" means Harrah's Interactive Investment Company, a Nevada
corporation, and any of its Affiliates owning shares in the Company.
"HIIC Directors" means the Directors appointed pursuant to Bye-law 54(B) or the
second sentence of Bye-law 55.
"Other Voting Shares" means shares of the Company having the right to vote for
election of directors other than Common Shares or securities convertible into
Common Shares.
"Preference Shares" has the meaning set forth in Bye-law 3(B).
1
"Special Board Majority" means (i) a majority of the Directors voting at a
meeting of the Board which also includes a majority of the HIIC Directors then
in office or (ii) a written resolution executed by all the members of the Board.
"Special Shareholders Majority" means a majority of the votes cast at a general
meeting which also includes the votes attaching to a majority of the Voting
Shares of the Company on a fully diluted basis then heir by the HIIC Entities.
"Voting Shares" means Common Shares having the right to vote for election of or
to appoint Directors and any shares convertible directly or indirectly into such
Common Shares and Other Voting Shares and any shares convertible directly or
indirectly into Other Voting Shares.
Bye-Law 3(B)
- ------------
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$550,030 divided into 50,000,000 common shares of par value
US$0.01 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 4
- ---------
Delete paragraph (c) and the word "and" immediately preceding it.
Delete the last sentence of Bye-law 4 and insert the following as Bye-law 4A:
The Board shall be authorised to issue from time to time in one or more series
the Preference Shares on such terms as it deems appropriate, including, without
limitation, the following:
(a) the number of shares of the Preference Shares, less than or equal to
the total number of Preference Shares authorised in Bye-law 3(B) for each class
of Preference Shares, respectively;
(b) whether dividends, if any, shall be cumulative or noncumulative and the
dividend rate of the Preference Shares;
(c) the dates at which dividends, if any, shall be payable;
(d) the redemption rights of the Preference Shares;
(e) the terms and amount of any sinking fund provided for the purchase or
redemption of shares of the Preference Shares;
(f) the amounts payable on shares of the Preference Shares in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company;
(g) whether the shares of the Preference Shares shall be convertible into
shares of any other class or preference shares, or any other equity security, of
the Company or any other company, and, if so, the specification of such other
class or preference shares or such other equity security, the conversion price
or prices or rate or rates, any adjustments thereof, the date or dates as of
which such shares shall be convertible and all other terms and conditions upon
which such conversion may be made; and
2
(h) the voting rights, if any, of the holders of shares of the Preference
Shares; provided that the Class A Preference Shares shall be not-voting.
Insert the following as Bye-law 4B:
"(A) Any Common Shares, Preference Shares or shares of any other class shall
always (i) be redeemed whenever the HIIC Entities own 10% or more of the Voting
Shares on a fully diluted basis and (ii) be subject to redemption by the Company
in accordance with the Companies Act, by action of the Board whenever the HIIC
Entities own less than 10% of the Voting Shares on a fully diluted basis, if any
holder of such shares is a Disqualified Holder or if such action otherwise
should be taken pursuant to any applicable provision of law, to the extent
necessary to avoid any regulatory sanctions against, or to prevent the loss of,
inability to obtain or secure the reinstatement of any license, franchise or
entitlement from any governmental agency held by, the Company, any Affiliate of
the Company, any entity in which the Company or such Affiliate is an owner or
the HIIC Entities or their Affiliates which license, franchise or entitlement is
(i) conditioned upon some or all of the holders of the Company's shares of any
class or series possessing prescribed qualifications, or (ii) needed to allow
the conduct of any portion of the business of the Company or any such Affiliate
or other entity or the HIIC Entities or their Affiliates.
The terms and conditions of such redemption shall be as follows:
(a) the redemption price of the Common Shares and the shares convertible
into Common Shares to be redeemed pursuant to this Bye-law shall be equal to the
Fair Market Value of such shares, and as to such convertible shares, as if any
such convertible shares were converted into Common Shares, (or such other
redemption price as required by any applicable law, regulation or rule) and the
redemption price of shares of the Company of any class (or classes) or series
other than Common Shares or shares convertible into Common Shares shall be the
Fair Market Value of such shares; provided that in both of the previous cases
there shall be excluded any dividends thereon not entitled to be received
pursuant to paragraph (e) of this Bye-law;
(b) the redemption price of such shares may be paid only in cash;
(c) if less than all the shares held by Disqualified Holders are to be
redeemed, the shares to be redeemed shall be selected in such manner as shall be
determined by the Board, which may include selection first of the most recently
purchased shares thereof, selection by lot or selection in any other manner
determined by the Board;
(d) at least 30 days' written notice of the Redemption Date shall be given
to the record holders of the shares selected to be redeemed pursuant to this
Bye-law (unless waived in writing by any such holder), provided that the
Redemption Date may be the date on which written notice shall be given to record
holders if the cash necessary to effect the redemption shall have been deposited
in trust for the benefit of such record holders and subject to immediate
withdrawal by them upon surrender of the share certificates for their shares to
be redeemed together with any other documentation required to effect such
redemption; and
(e) from and after the Redemption Date or such earlier date as required by
any applicable law, regulation or rule, any and all rights of whatever nature,
which may be held by the owners of shares selected for redemption (including
without limitation any rights to vote or participate in dividends declared on
stock of the same class or series as such shares), shall cease and terminate and
they shall thenceforth be entitled only to receive the cash upon redemption.
As used in these Bye-laws:
(i) "Disqualified Holder" shall mean any holder of shares of the Company of
any class (or classes) or series: (1) who, either individually or when taken
together with any other holders of shares of the Company of any class (or
classes) or series is or would reasonably be expected to be determined by any
gaming regulatory agency to be unsuitable, or has or would reasonably be
expected to have an application for a gaming license, permit or other
3
necessary regulatory approval rejected, or has or would reasonably be expected
to have a previously issued gaming license, permit or other necessary regulatory
approval rescinded, suspended, revoked, not renewed or not reinstated, as the
case may be, whether or not any of the foregoing is or would reasonably be
expected to be final and nonappealable; or (2) whose holding of such shares,
either individually or when taken together with the holding of shares of the
Company of any class (or classes) or series by any other holder could reasonably
be expected to cause the Company (or any other company engaged in the gaming
business in any jurisdiction if such holder of shares were a shareholder of that
company) to be denied a licence, permit or other necessary regulatory approval
to engage in any aspect of the gaming business or the serving or sale of
alcoholic beverages in connection with the operation of a gaming business.
(ii) "Fair Market Value" of a share of (1) the Common Shares shall mean the
average Closing Price for such share for each of the 45 most recent days of
which Common Shares shall have been traded preceding the day on which notice of
redemption shall be given pursuant to paragraph (d) of this Bye-law; provided,
however, that "Fair Market Value" as to any shareholder who purchased any Common
Shares subject to redemption within 120 days of a Redemption Date need not
(unless otherwise determined by the Board) exceed the purchase price paid by him
for any Common Shares purchased within such 120 days and (2) shares of the
Company of any class (or classes) or series other than Common Shares or shares
convertible into Common Shares (including, Other Voting Shares) shall be
determined by the Board in good faith; provided, however, that "Fair Market
Value" as to any shareholder who purchased any such shares subject to redemption
within 120 days of the Redemption Date need not (unless otherwise determined by
the Board) exceed the purchase price paid by him for any such shares of the
Company purchased within such 120 days.
(iii) "Closing Price" on any day means the reported closing sales price or,
in case no such sale takes place, the average of the reported closing bid and
asked prices on the Composite Tape for the New York Stock Exchange-Listed
Stocks, or, if such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934 on which such shares are listed, or, if such shares are not listed on
any such exchange, the highest closing sales price or bid quotation for such
shares on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such prices or quotations
are available, the fair market value on the day in question as determined by the
Board in good faith.
(iv) "Redemption Date" shall mean the date fixed by the Board for the
redemption of any shares of the Company pursuant to this Bye-law; provided,
however, with respect to any redemption pursuant to Bye-law 4B(A)(i), the
Redemption Date shall not be more than 90 days after the date the Board first
learned of the existence of a Disqualified Holder.
(v) "Subsidiary" shall mean any company (wherever incorporated),
association, partnership or other business entity more than 50% of whose
outstanding stock or other ownership interests entitled to vote generally in the
election of directors (or their equivalent in such form of entity and under the
laws of the jurisdiction of organisation of such entity) is owned by the
Company, by one or more Subsidiaries or by the Company and one or more
Subsidiaries.
(B) So long as a holder of Preference Shares is not a Disqualified Holder, such
Preference Shares shall be redeemed in accordance with the terms set forth in
the resolutions adopted by the Board."
Bye-Law 17
Bye-law 17 is amended by deleting the words "within three months" and inserting
the words "within three days".
4
Bye-Law 49
Bye-law 49 is renumbered as "Bye-law 49(A)", and the following words are
inserted at the beginning of the second sentence thereof:
"Subject to Bye-law 49(B),".
A new Bye-law 49(B) is inserted as follows:
"Any Shareholder may irrevocably appoint a proxy, and in such case, such proxy
shall be irrevocable in accordance with the instrument of appointment and the
Shareholder may not vote at any meeting at which the proxy holder is present
either in person or pursuant to s. 75A of the Companies Acts."
Bye-Law 52
In Bye-law 52, insert the following words immediately after the words "provided
that":
", subject to Bye-law 49(B),".
Bye-Law 53
In Bye-law 53, insert the words "Bye-law 49(B) and" immediately before the words
"the Companies Acts".
Bye-Laws 54-56
Bye-laws 54, 55 and 56 are deleted in their entirety and are replaced with the
following:
"54(A) Until the HIIC Entities own less than 5% of the Voting Shares on a fully
diluted basis, the Board shall consist of 10 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.
At such time as the HIIC Entities own less than 5% of the Voting Shares on a
fully diluted basis, the Board shall consist of such number not less than three
as the Company by Resolution may from time to time determine. At least two of
the Directors, other than the Directors appointed pursuant to Bye-law 54(B),
shall be individuals who are not otherwise officers or employees of the Company.
54(B) At any time at which the HIIC Entities own 10% or more of the Voting
Shares on a fully diluted basis, the HIIC Entities shall be entitled to appoint
a percentage of Directors which is the same percentage of the size of the entire
Board as the number of Voting Shares held by the HIIC Entities is of the total
number of Voting Shares on a fully diluted basis (such percentage of Voting
Shares owned by and such number of Directors appointed by the HIIC Entities
shall be determined as follows: the fractional portion of any percentage of
ownership shall be disregarded and whole numbers ending in 5 through 9 shall be
rounded up to the next highest multiple of 10 and whole numbers ending 1 through
4 shall be rounded down to the next lowest multiple of 10 (e.g., 24.9% shall be
rounded down to 20% and 25.1% shall be rounded up to 30%) (and the resulting
percentage shall be multiplied by 10). At any time at which the HIIC Entities
own 5% or more, but less than 10%, of the Voting Shares on a fully diluted
basis, the HIIC Entities shall be entitled to appoint one Director.
55. The Company in general meeting may authorise the Board to 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.
5
56. The Company may in a Special General Meeting called for that purpose remove
a Director provided notice of any such meeting shall be served upon the Director
concerned not less than 14 days before the meeting and he shall be entitled to
be heard at that meeting and provided further that only the HIIC Entities shall
be entitled to vote on any resolution for the removal of an HIIC Director unless
the reason for removal is disqualification of such Director under Bye-law 58(f)
in which case such Director shall be subject to removal by the Company in
accordance with the foregoing provisions of this Bye-law 56. Any vacancy created
by the removal of a Director at a Special General Meeting may be filled at the
Meeting pursuant to Bye-law 54 by the election of another Director in his place
or, in the absence of such election, pursuant to Bye-law 55."
Bye-Law 58
Insert the words "and Officers" after the word "Director" in the heading.
Rename Bye-Law 58 as "Bye-law 58A"
In paragraph (e) of Bye-law 58, replace the words "a Special Resolution of the
Company"' with the words "Bye-law 56", and replace the period with a semi-colon.
Insert a new paragraph (f) as follows:
"(f) if he would be a Disqualified Holder if he were to own any shares of the
Company".
Insert a new Bye-law "58B" as follows:
The office of any officer shall be vacated upon the happening as to such officer
of the events set out in Bye-law 58A (except the events described in paragraph
(d) and (e)).
Bye-Law 59
In the first sentence of Bye-law 59, immediately after the words "of the
Directors" insert the words, ", other than the HIIC Directors,"; replace the
words "a Director may appoint" with the words "an HIIC Director may appoint" and
in the second sentence thereof replace the words "may be removed by Resolution
of the Company" with the words "may be removed in the same manner as the
Director in respect of whom he is appointed in the alternative".
Bye-Law 64
At the beginning of the third sentence of Bye-law 64, insert the words "Subject
to Bye-law 71,", and in the fourth sentence insert the words ", subject to Bye-
Law 71," immediately after the words "PROVIDED that".
Bye-Law 70
At the beginning of Bye-Law 70(A) and the beginning of the first sentence of
Bye-law 70(B) insert the words "Subject to Bye-law 71(B).".
Bye-law 70(B) is amended by the insertion of the following at the end thereof:
Notwithstanding the first sentence of this paragraph and Bye-law 70(C), for so
long as the HIIC Entities hold at least 5% but less than 10% of the Voting
Shares on a fully diluted basis, the HIIC Directors shall be entitled to elect
one member to each of the Board's executive committee, compensation committee
and audit committee (or any other committee with powers similar thereto); for
such time as the HIIC Entities hold 10% or more of the Voting Shares on a fully
diluted basis, the HIIC Directors shall be entitled to appoint a percentage of
members to each of the Board's executive committee, compensation committee and
audit committee (or any other committee with powers similar
6
thereto) which is the same percentage of the total number of members of such
committee as the percentage of Voting Shares so held by the HIIC Entities is of
the total number of Voting Shares on a fully diluted basis (such number to be
determined follows: the fractional portion of any percentage of ownership shall
be disregarded and whole numbers ending in 5 through 9 shall be rounded up to
the next highest multiple of 10 and whole numbers ending 1 through 4 shall be
rounded down to the next lowest multiple of 10 (e.g., 24.9% shall be rounded
down to 20% and 25.1% shall be rounded up to 30%) and the fractional portion of
the number of members shall be rounded up to the nearest whole number (e.g., 30%
of a committee of 4 members would result in the right to appoint 2 members of
such committee)).
Bye-law 70(C) is amended by the substitution of the word "Affiliate" for the
word "affiliate".
Bye-Law 71
Bye-law 71 is renumbered "Bye-law 71(A)", and at the beginning of the second
sentence thereof, the following shall be inserted: "Save as otherwise provided
in these Bye-laws,".
Insert a new Bye-law "71(B)" as follows:
At any time that the HIIC Entities own 20% or more of the Voting Shares on a
fully diluted basis, any of the following actions by the Company would require
the approval by a Special Board Majority and a Resolution:
(i) the amalgamation, merger or consolidation of the Company; and
(ii) the amendment of these Bye-laws, including, without limitation, Bye-
laws 4B, 54, 55, 56, 58A, 58B, 71(B) or 71(C), in a manner that would
have a material adverse effect on the rights of the HIIC Entities
hereunder.
Insert a new Bye-law "71(C)" as follows:
At any time that the HIIC Entities own 20% or more of the Voting Shares of the
Company on a fully diluted basis, any of the following actions by the Company
would require the approval by a Special Shareholder Majority:
(i) the winding-up or dissolution of the Company; and
(ii) appointment of the Company's independent auditors.
Bye-Law 72
Bye-law 72 is amended by deleting the words "word of mouth" and substituting
therefor the word "verbally".
Bye-Law 73
Bye-Law 73 is amended by the deletion of the words "may be fixed by the Board
and, unless so fixed at any other number".
Bye-Law 95
In Bye-law 95 insert the words: "or to vote at" before the words "general
meetings".
7
Bye-Law 107
Bye-law 107 is amended by the insertion of the words "Subject to Bye-law 71(B),"
at the beginning thereof and by the deletion of the words "by Special Resolution
at which time" and substituting therefor the words ", and upon such
confirmation".
8
EXHIBIT 2
SHAREHOLDER RIGHTS AGREEMENT
----------------------------
This Agreement is dated as of 17 June, 1997 between Sky Games International Ltd.
("Sky Games"), a Bermuda exempted company, and Harrah's Interactive Investment
Company, a Nevada corporation ("HIIC").
WHEREAS:
A. Interactive Entertainment Limited ("IEL"), a Bermuda exempted company,
proposes to amalgamate with and into SGI Holding Corporation Limited
("SGIHC"), a Bermuda exempted company (the "Amalgamation"), pursuant to a
Plan and Agreement of Merger and Amalgamation dated 13 May, 1997 (the
"Amalgamation Agreement"), whereby each issued and outstanding share of
common stock, US $1.00 par value per share of IEL will be cancelled and, in
respect of such shares owned by HIIC, which will be converted into shares
of common stock of CDN $.01 par value each of the Sky Games;
B. SGIHC will amalgamate with and into Sky Games immediately after the
Amalgamation (the "Parent Amalgamation"; the company continuing therefrom
is hereafter referred to as the "Amalgamated Company").
NOW, THEREFORE, in consideration of the premises, representations, warranties
and agreements herein contained, the receipt and sufficiency of which are hereby
acknowledged, each party hereto agrees as follows:
I. TERMS
-----
Capitalised terms not defined herein shall have the same meanings ascribed to
them as set out in the Bye-laws of Sky Games as in effect upon the closing of
the Amalgamation (the "Bye-laws").
II. BOARD APPROVAL RIGHTS
---------------------
(A) As long as the HIIC Entities own 20% or more of the outstanding Voting
Shares of the Amalgamated Company on a "fully diluted basis" (as such term is
defined in the Bye-laws), none of the following actions shall be taken by the
Amalgamated Company unless the same shall first be approved by a Special Board
Majority:
(a) the sale of all or any material portion of the assets of the
Amalgamated Company together with any corporation, partnership, joint
venture or other legal entity of which the Amalgamated Company (either
alone or through or together with any other of its Subsidiaries),
owns, directly or indirectly, fifty percent (50%) or more of the
capital stock or other equity interest the holders of which are
generally entitled to vote with respect to the election of directors
or other managing authority and/or other matters to be
voted on in such corporation, partnership, joint venture or other
legal entity (each a "Subsidiary").
(b) the incurrence, renewal, refinancing, prepayment or amendment of the
terms of indebtedness of the Amalgamated Company together with its
Subsidiaries in excess of US$5 million in any one fiscal year;
(c) the Amalgamated Company or any of its Subsidiaries entering into
any material joint venture or partnership agreement outside of the
Amalgamated Company's scope of business as approved by the Board of
Directors of Sky Games prior to the Amalgamation;
(d) any material acquisition of assets by the Amalgamated Company or
any of its Subsidiaries, including by lease or otherwise (other than
by merger, consolidation or amalgamation) and other than pursuant to a
previously approved budget or plan, or the acquisition by the
Amalgamated Company or any of its Subsidiaries of the stock of another
entity, in each case involving an acquisition valued at US$5 million
or more;
(e) any material change in the nature of the business conducted by the
Amalgamated Company or any of its Subsidiaries;
(f) any material amendments to the MIP (as defined in the Amalgamation
Agreement) for 12 months following the closing of the Parent
Amalgamation;
(g) the adoption of any stock option plans for greater than 5% of the
then outstanding Common Shares of the Amalgamated Company on a fully-
diluted basis other than the MIP in any one fiscal year;
(h) material changes in accounting policies; and
(i) the creation or adoption of any shareholder rights plan.
(B) As long as the HIIC Entities own 10% of the outstanding Voting Shares of
the Amalgamated Company on a fully diluted basis, none of the following actions
shall be taken by the Amalgamated Company unless the same shall first be
approved by a Special Board Majority:
(a) any change in or conduct of the Amalgamated Company's or any of its
Subsidiaries' business or proposed business (including, but not limited to,
the terms of repurchase or redemption of any debt from any holder thereof
if such holder would be a Disqualified Holder (as defined in the
Bye-laws if such Person held shares of the Amalgamated Company) that would
constitute or result in; or (b) any action or inaction of or by the
Amalgamated Company or any of its Subsidiaries which HIIC or the Affiliates
of HIIC determine in their reasonable business judgment would result in, in
the case of either (a) or (b), 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 HIIC or the Affiliates of HIIC in any
jurisdiction in which HIIC or any of the Affiliates of HIIC are actively
conducting business or as to which any of them has received final approval
or authorisation or 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 referred to herein as a "Disqualifying
Action"); provided, the reasonable business judgment to be exercised by
HIIC and the Affiliates of HIIC 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 Amalgamated 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 HIIC and the Affiliates of
HIIC.
III. ENTIRE AGREEMENT; AMENDMENT
---------------------------
This Agreement constitutes the entire agreement between the parties in respect
of the subject matter hereof. No provision of this Agreement may be amended or
waived except by an instrument in writing executed by the parties.
IV. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with the laws of
Bermuda, regardless of the laws that might otherwise govern under applicable
principles of conflict of laws of such country, and the parties hereby submit
expressly to the non-exclusive jurisdiction of the courts of Bermuda.
V. HEADINGS
--------
The headings appearing above certain paragraphs of this Agreement are for
convenience only and shall not affect the construction or interpretation hereof.
VI. ASSIGNMENT
----------
Neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be assigned by operation of law or otherwise by any party hereto
without the prior written consent of the other party, and any purported
assignment without such consent shall be void; provided that HIIC may assign
this Agreement to any of its Affiliates without consent. Subject to the
foregoing sentence, this Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties
VII. SEVERABILITY
------------
If any term or provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law, or public policy, all other terms, provisions
and conditions of this Agreement shall nevertheless remain in full force and
effect so long as the economic and legal substance of the transactions
contemplated hereby are not affected in any manner materially adverse to any
party hereto. Upon any determination that any term or other provision hereof is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of such parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
VIII. ENFORCEMENT OF THIS AGREEMENT
-----------------------------
The parties hereto agree that irreparable damage would occur in the event that
any of the terms or provisions of this Agreement were not performed in
accordance with their specific wording or were otherwise breached. It is
accordingly agreed that each of the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
of America or any state having jurisdiction, such remedy being in addition to
any other remedy to which any party may be entitled at law or in equity. In any
action to enforce its rights hereunder, the prevailing party shall be entitled
to recover its reasonable fees and expenses (including reasonable attorney's
fees and expenses) from the non-prevailing party.
IX. COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, all of which shall
be considered one and the same agreement.
IN WITNESS WHEREOF the parties have caused this Agreement to be duly
executed and delivered.
SIGNED by )
for and on behalf of SKY GAMES) /s/ Laurence Geller
INTERNATIONAL LTD. in the )
presence of )
SIGNED by )
for and on behalf of HARRAH'S ) /s/ John M. Boushy
INTERACTIVE INVESTMENT )
COMPANY in the presence of )
EXHIBIT 3
EXECUTION COPY
--------------
REGISTRATION AND PREEMPTIVE RIGHTS AGREEMENT
THIS REGISTRATION AND PREEMPTIVE RIGHTS AGREEMENT (this "Agreement"), dated
as of June 17, 1997, is entered into among Sky Games International Ltd., a
Bermuda exempted company (the "Company"), and Harrah's Interactive Investment
Company, a Nevada corporation ("HIIC").
R E C I T A L S:
---------------
WHEREAS, pursuant to a Plan and Agreement of Merger and Amalgamation dated
as of May 13, 1997 (the "Amalgamation Agreement") and the conversion of amounts
owed under a Funding Agreement dated as of May 13, 1997 (the "Funding
Agreement"), HIIC has acquired from the Company shares of Company Common Stock
(as defined in Section 1(e)) and may acquire certain additional shares of
Company Common Stock; and
WHEREAS, the Company and HIIC desire to provide a mechanism for the
registration of the Company Common Stock on the terms and conditions set forth
herein;
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
SECTION 1. Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) the term "Additional Piggyback Sellers" shall have the meaning
assigned thereto in Section 3(b) of the Agreement;
(b) the term "Affiliate" means any Person which Controls a party to
this Agreement, which that party Controls or which is under common Control with
that party;
(c) the term "Amalgamation Shares" means the shares of Company Common
Stock issuable to HIIC and/or its Affiliates under the Amalgamation Agreement;
(d) the term "B/EA" shall have the meaning assigned thereto in
Section 8(d) of this Agreement;
(e) the term "Commission" shall have the meaning assigned thereto in
Section 2(c) of this Agreement;
(f) the term "Company Common Stock" means the common stock, par value
US$.01 per share, of the Company;
(g) the term "Control" means the power, direct or indirect, to direct
or cause the direction of the management and policies of a Person through voting
securities, contract or otherwise;
(h) the term "Conversion Shares" means the shares of Company Common
Stock issuable upon conversion of indebtedness under the Funding Agreement;
(i) the term "Demand" shall have the meaning assigned thereto in
Section 2(a) of this Agreement;
(j) the term "Demand Registration" shall have the meaning assigned
thereto in Section 2(a) of this Agreement;
(k) the term "Demanding Sellers" shall have the meaning assigned
thereto in Section 2(e) of this Agreement;
(l) the term "Disqualifying Action" means (1) any change in or
conduct of the Company's or any of its Subsidiaries' business or proposed
business (including, but not limited to, the terms of repurchase or redemption
of any debt from any holder thereof if such holder would be a Disqualified
Holder (if such Person held shares of the Company)) that would constitute or
result in, or (2) any action or inaction of or by the Company or any of its
Subsidiaries' which HIIC or the Affiliates of HIIC determine in their reasonable
business judgment would result in, in the case of either (1) or (2), 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 HIIC or the Affiliates of HIIC in
any jurisdiction in which HIIC or any of the Affiliates of HIIC 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; provided, the reasonable business
judgment to be exercised by HIIC and its Affiliates 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 any of 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 HIIC and its Affiliates;
(m) the term "Disqualified Holder" means any holder of shares of the
Company of any class (or classes) or series (1) who, either individually or when
taken together with any other holders of shares of the Company of any class (or
classes) or series is or would reasonably be expected to be determined by any
gaming regulatory agency to be unsuitable, or has or would reasonably be
expected to have an application for a gaming license, permit or other necessary
regulatory approval rejected, or has or would reasonably be expected to have a
previously issued gaming license, permit or other necessary regulatory approval
rescinded, suspended, revoked, not renewed or not reinstated, as the case may
be, whether or not any of the foregoing is or would reasonably be expected to be
final and nonappealable or (2) whose holding of such shares, either individually
or when taken together with the holding of shares of the Company of any class
(or classes) or series by any other holder could reasonably be expected to cause
the Company (or any other company engaged in the gaming business in any
jurisdiction if such holder of shares were a shareholder of that company) to be
denied a licence, permit or other necessary regulatory approval to engage in any
aspect of the gaming business or the serving or sale of alcoholic beverages in
connection with the operation of a gaming business;
(n) the term "fully diluted basis" means, at any time, that number of
(A) shares of Company Common Stock equal to the sum, without duplication, of (i)
the total number of shares of Company Common Stock then outstanding (other than
3,525,000 shares of shares of Company Common Stock held in escrow pursuant to
that Escrow Agreement dated May 27, 1992, as amended, among Montreal Trust
Company of Canada, the Company and certain shareholders), plus (ii) the total
number of shares of Company Common Stock into which all then outstanding
Preference Shares (as defined in the Bye-Laws) of the Company or any other
shares of the Company are then convertible directly or indirectly, provided that
shares of Company Common Stock issuable upon conversion of Class A Preference
Shares of the Company shall not be included
2
until such conversion occurs, plus (iii) the total number of shares of Company
Common Stock then issuable directly or indirectly upon exercise of all then
outstanding options, warrants (including the commitment for 650,000 shares of
Company Common Stock exercisable at $1 per share of Company Common Stock issued
to HIIC and exercisable at the option of the Company), unexercised stock
subscriptions, convertible debentures and other convertible securities, plus (B)
Other Voting Shares equal to the sum, without duplication (including without
duplication of any shares of Company Common Stock) of (i) the total number of
Other Voting Shares then outstanding, plus (ii) the total number of Other Voting
Shares into which all then outstanding preference shares of the Company or any
other shares of the Company are then convertible directly or indirectly, plus
(iii) the total number of Other Voting Shares then issuable directly or
indirectly upon exercise of all then outstanding options, warrants, unexercised
stock subscriptions, convertible debentures and other convertible securities;
(o) the term "HIIC Piggyback Seller" shall have the meaning assigned
thereto in Section 3(b) of this Agreement;
(p) the term "Internal Expenses" shall have the meaning assigned
thereto in Section 7 of this Agreement;
(q) the term "Maximum Demand Number" shall have the meaning assigned
thereto in Section 2(e) of this Agreement;
(r) the term "Maximum Piggyback Number" shall have the meaning
assigned thereto in Section 3(b) of this Agreement;
(s) the term "Other Demand Rights" shall have the meaning assigned
thereto in Section 3(b) of this Agreement;
(t) the term "Other Demanding Sellers" shall have the meaning
assigned thereto in Section 3(b) of this Agreement;
(u) the term "Other Voting Shares" means shares of the Company having
the right to vote for election of directors other than Company Common Stock or
securities convertible into Company Common Stock;
(v) the term "Person" means any individual, partnership, limited
partnership, corporation, limited liability company, association, joint stock
company, trust, joint venture or unincorporated organization, or the United
States of America, Bermuda or any other nation, any state or other political
subdivision thereof, or any entity exercising executive, legislative, judicial,
regulatory or administrative functions of government or other entity, and shall
include any successor (by merger or otherwise) of such entity;
(w) the term "Piggyback Notice" shall have the meaning assigned
thereto in Section 3(a) of this Agreement;
(x) the term "Piggyback Registration" shall have the meaning assigned
thereto in Section 3(a) of this Agreement;
3
(y) the term "Primary Offering" shall have the meaning assigned
thereto in Section 3(b) of this Agreement;
(z) the term "Registrable Securities" means (i) the Amalgamation
Shares, the Conversion Shares, the Warrant Shares and shares received pursuant
to Section 8 of this Agreement and (ii) securities issued or issuable with
respect to the Amalgamation Shares, the Conversion Shares and the Warrant Shares
(or other Registrable Securities by virtue of this clause (ii)) by way of a
dividend, other distribution, stock split, combination of shares,
recapitalization, reorganization, reclassification, merger, consolidation,
compulsory share exchange or any transaction or series of related transactions
in which shares of Company Common Stock or Registrable Securities are changed
into, converted into or exchanged for other securities; provided, as to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when (i) a registration statement registering such securities under
the Securities Act has been declared effective and such securities have been
sold or otherwise transferred by the holder thereof pursuant to such
registration statement, (ii) such securities are sold in compliance with Rule
144 or (iii) such securities are transferred to any Person which is not an
Affiliate of HIIC;
(aa) the term "Registration Expenses" shall have the meaning assigned
thereto in Section 7 of this Agreement;
(bb) the term "Rule 144" means Rule 144 (or any successor provisions)
promulgated under the Securities Act;
(cc) the term "Securities Act" shall have the meaning assigned thereto
in Section 2(a) of this Agreement;
(dd) the term "Subsidiary" means any corporation, partnership, joint
venture or other legal entity of which the Company or HIIC, as the case may be
(either alone or through or together with any other of its Subsidiaries), owns,
directly or indirectly, fifty percent (50%) or more of the capital stock or
other equity interests the holders of which are generally entitled to vote with
respect to the election of directors or other managing authority and/or other
matters to be voted on in such corporation, partnership, joint venture or other
legal entity;
(ee) the term "Trading Price" means the average of the mean of the bid
and ask prices of the Company Common Stock on a single trading day as reported
on the NASDAQ SmallCap Market or any other securities exchange or over-the-
counter market on which or through which Company Common Stock may then be listed
or quoted;
(ff) the term "Voting Shares" means Company Common Stock having the
right to vote for election of or to appoint Directors and any shares
convertible, directly or indirectly, into such Company Common Stock and Other
Voting Shares and any shares convertible directly or indirectly into Other
Voting Shares; and
(gg) the term "Warrant Shares" means the shares of Company Common
Stock issuable to HIIC and/or its Affiliates under the Warrant Agreement dated
May 13, 1997 and the exercise by the Company of the equity purchase commitment
by HIIC in the Funding Agreement.
SECTION 2. Demand Registrations.
--------------------
4
(a) Requests for Registration. Subject to the limitations set forth
in paragraph (d) below, at any time and from time to time after the date hereof
HIIC and its Affiliates shall be entitled to make written requests of the
Company (each such request being a "Demand") for registration under the
Securities Act of 1933, as amended (the "Securities Act"), of all or part of the
Registrable Securities (a "Demand Registration"). Such Demand shall specify the
aggregate number and kind of Registrable Securities requested to be registered.
(b) Number of Demand Registrations. HIIC and its Affiliates shall be
entitled to two (2) Demand Registrations.
(c) Satisfaction of Obligations. Subject to Section 4, a registration
shall not be treated as a Demand Registration until (i) the applicable
registration statement under the Securities Act has been filed with the
Securities and Exchange Commission (the "Commission") with respect to such
Demand Registration, (ii) such registration statement shall have been maintained
continuously effective for a period of at least thirty (30) days (ninety (90)
days in the event of a best efforts underwriting pursuant to Section 2(d)(ii))
or such shorter period as when all Registrable Securities included therein have
been sold thereunder in accordance with the manner of distribution set forth in
such registration statement and (iii) the number or amount of Registrable
Securities sold pursuant to such registration shall equal or exceed eighty
percent (80%) of the Registrable Securities as to which HIIC and/or its
Affiliates requested registration.
(d) Restrictions on Demand Registrations. The Company shall not be
obligated to file any Demand Registration:
(i) prior to June 30, 1998 for an aggregate number of
Registrable Securities in excess of one million (1,000,000) shares (as
adjusted for stock splits, dividends, reclassifications, etc.), unless
the Company receives the written opinion of its investment bank at the
time that the Trading Price of the Company Common Stock would not fall
by more than twenty-five percent (25%) for more than fifteen (15)
consecutive trading days as a result of such sale, in which case, a
Demand could be brought for such aggregate number of Registrable
Shares as would not, in such investment bank's opinion, cause the
Trading Price to fall below such level;
(ii) unless the method of distribution is pursuant to a so-
called "firm commitment" underwritten registration to be managed and
administered by an underwriter selected by the Board of Directors of
the Company; provided, however, in the event the Company cannot reach
an agreement with an underwriter to underwrite a registration on a
firm commitment basis, in such circumstance only, the method of
distribution may be a "best efforts" underwritten registration to be
managed and administered by an underwriter selected by the Board of
Directors of the Company; or
(iii) within one hundred eighty (180) days after the effective
date of a so-called "firm commitment" underwritten registration in
which all holders of Registrable Securities were given so-called
"piggyback" rights pursuant to Section 3 hereof, unless the number or
amount of Registrable Securities sold pursuant to such registration is
less than eighty percent (80%) of the Registrable Securities as to
which HIIC and/or its Affiliates requested registration.
In addition, the Company shall be entitled to postpone (upon written notice to
HIIC) the filing or the effectiveness of a registration statement in respect of
a Demand for up to one hundred twenty (120) days (but
5
no more than once in any consecutive eight (8) months) after the date of receipt
of a Demand Notice if the Company's Board of Directors determines that effecting
the Demand Registration in respect of such Demand would (i) have a material
adverse effect on any proposal or plan by the Company to engage in any public
debt or equity financing, acquisition or disposition of assets or any merger,
consolidation, tender offer or other similar transaction or (ii) require
disclosure of a previously undisclosed material development involving the
Company which disclosure would have a material adverse effect on the Company or
its prospects. In the event the Company receives a request prior to June 30,
1998 to file a Demand Registration for an aggregate number of Registrable
Securities in excess of one million (1,000,000) shares (as adjusted for stock
splits, dividends, reclassifications, etc.), the Company shall request its
investment bank to conduct the analysis set forth in paragraph (d)(i) above, and
in the event such investment bank does not issue within fifteen (15) business
days after the date of receipt of a Demand Notice by the Company its written
opinion that the sale would cause the Trading Price of the Company Common Stock
to fall by more than twenty-five percent (25%) for more than fifteen (15)
consecutive trading days, then it shall be presumed for purposes of this
paragraph (d) that such investment bank was of the opinion that the sale would
not cause the Trading Price of the Company Common Stock to fall by more than
twenty-five percent (25%) for more than fifteen (15) consecutive trading days
(e) Participation in Demand Registrations. If, in connection with a
Demand Registration, the managing underwriter advises the Company and the
holders of the Registrable Securities sought to be included in such Demand
Registration in writing that, in its opinion, the marketability of the
Registrable Securities sought to be sold pursuant thereto would be adversely
affected by the inclusion of both the Registrable Securities and, if authorized
pursuant to this paragraph, other securities of the Company, in each case,
sought to be registered in connection with such Demand Registration, then the
Company shall include in the registration statement applicable to such Demand
Registration only such securities as the Company and the holders of Registrable
Securities sought to be registered therein ("Demanding Sellers") are advised in
writing by such underwriter can be sold without such an effect (the "Maximum
Demand Number"), as follows and in the following order of priority:
(i) first, the number of Registrable Securities sought to be
registered by each Demanding Seller, pro rata in proportion to the
number of Registrable Securities sought to be registered by all
Demanding Sellers; and
(ii) second, if the number of Registrable Securities to be
included under clause (i) next above is less than the Maximum Demand
Number, the number of securities sought to be included by each other
seller, pro rata in proportion to the number of securities sought to
be sold by all such other sellers, which in the aggregate, when added
to the number of securities to be included pursuant to clause (i) next
above, equals the Maximum Demand Number.
SECTION 3. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. At any time from and after the date hereof
for so long as HIIC and its Affiliates collectively own five percent (5%) or
more of the outstanding Voting Shares of the Company, on a fully diluted basis,
whenever the Company proposes to register any of its equity securities under the
Securities Act (other than pursuant to a Demand Registration or on a Form S-4 or
S-8 (or any successor form)) (a "Piggyback Registration"), the Company shall
give all holders of Registrable Securities prompt written notice thereof (but
not less than thirty (30) days prior to the filing by the Company with the
Commission of any registration statement with respect thereto). Such notice (a
"Piggyback Notice") shall specify, at a minimum, to the extent known, the number
and kind of securities proposed to be registered, the proposed date
6
of filing of such registration statement with the Commission, the proposed means
of distribution, the proposed managing underwriter or underwriters (if any and
if known), and a good faith estimate by the Company of the proposed minimum
offering price of such securities, as such price is proposed to appear on the
facing page of such registration statement. Upon the written request of a holder
of Registrable Securities given within ten (10) business days of such holder's
receipt of the Piggyback Notice (which written request shall specify the number
and kind of Registrable Securities intended to be disposed of by such holder and
the intended method of distribution thereof), the Company shall include in such
registration all Registrable Securities with respect to which the Company has
received such written requests for inclusion; provided that such holder sells
such Registrable Securities only in accordance with the method of distribution
selected by the Company or in accordance with any other method of distribution
which may be approved by the managing underwriter of such offering.
(b) Priority on Piggyback Registrations. If, in connection with a
Piggyback Registration, any managing underwriter (or, if such Piggyback
Registration is not an underwritten offering, a nationally recognized
independent underwriter approved by the Board of Directors of the Company)
advises the Company and the holders of the Registrable Securities to be included
in such Piggyback Registration, that, in its opinion, the inclusion of all the
securities sought to be included in such Piggyback Registration by the Company,
any Persons who have sought to have shares registered thereunder pursuant to
rights to demand (other than pursuant to so-called "piggyback" or other
incidental or participation registration rights) such registration (such demand
rights being "Other Demand Rights" and such Persons being "Other Demanding
Sellers"), any holders of Registrable Securities seeking to sell such securities
in such Piggyback Registration ("HIIC Piggyback Sellers") and any other proposed
sellers ("Additional Piggyback Sellers"), in each case, if any, would adversely
affect the marketability of the securities sought to be sold pursuant thereto,
then the Company shall include in the registration statement applicable to such
Piggyback Registration only such securities as the Company and the HIIC
Piggyback Sellers are so advised by such underwriter can be sold without such an
effect, which may exclude any class of Registrable Securities if, in the
judgment of such underwriter, the inclusion of such Registrable Securities would
adversely affect the marketability of the securities sought to be sold pursuant
thereto (the "Maximum Piggyback Number"), as follows and in the following order
of priority:
(i) if the Piggyback Registration is an offering on behalf of
the Company and not any Person exercising Other Demand Rights (whether
or not other Persons seek to include securities therein pursuant to
so-called "piggyback" or other incidental or participatory registra-
tion rights) (a "Primary Offering"), then (A) first, such number of
securities to be sold by the Company as the Company shall have
determined, (B) second, if the number of securities to be included
under clause (A) next above is less than the Maximum Piggyback Number,
the number of Registrable Securities of each HIIC Piggyback Seller,
pro rata in proportion to the number of securities sought to be
registered by all HIIC Piggyback Sellers, which in the aggregate, when
added to the number of securities to be registered under clause (A)
next above, equals the Maximum Piggyback Number and (C) third, if the
number of securities to be included under clauses (A) and (B) next
above is less than the Maximum Piggyback Number, the number of
securities of each Additional Piggyback Seller, pro rata in proportion
to the number of securities sought to be registered by all such
Additional Piggyback Sellers, which in the aggregate, when added to
the number of securities to be registered under clauses (A) and (B)
next above, equals the Maximum Piggyback Number;
(ii) if the Piggyback Registration is an offering other than
pursuant to a Primary Offering, then (A) first, such number of
securities sought to be registered by each Other
7
Demanding Seller, pro rata in proportion to the number of securities
sought to be registered by all such Other Demanding Sellers, (B)
second, if the number of securities included under clause (A) next
above is less than the Maximum Piggyback Number, the number of
securities sought to be registered by each HIIC Piggyback Seller, pro
rata in proportion to the number of securities sought to be registered
by all HIIC Piggyback Sellers, which in the aggregate, when added to
the number of securities to be registered pursuant to clause (A) next
above, equals the Maximum Piggyback Number and (C) third, if the
number of securities to be included under clauses (A) and (B) next
above is less than the Maximum Piggyback Number, the number of
securities of each Additional Piggyback Seller, pro rata in proportion
to the number of securities sought to be included by all such
Additional Piggyback Sellers, which in the aggregate, when added to
the number of securities to be registered under clauses (A) and (B)
next above, equals the Maximum Piggyback Number.
(c) Withdrawal by the Company. If, at any time after giving written
notice of its intention to register any of its securities as set forth in
Section 3(a) and prior to the time the registration statement filed in
connection with such registration is declared effective, the Company shall
determine for any reason not to register such securities, the Company may, at
its election, give written notice of such determination to each holder of
Registrable Securities and thereupon shall be relieved of its obligation to
register any Registrable Securities in connection with such particular withdrawn
or abandoned registration.
SECTION 4. Withdrawal Rights. Any holder of Registrable Securities having
notified or directed the Company to include any or all of its Registrable
Securities in a registration statement under the Securities Act (whether
pursuant to Section 2 or 3 hereof) shall have the right to withdraw any such
notice or direction with respect to any or all of the Registrable Securities
designated for registration thereby by giving written notice to such effect to
the Company prior to the effective date of such registration statement. In the
event of any such withdrawal, the Company shall not include such Registrable
Securities in the applicable registration and such Registrable Securities shall
continue to be Registrable Securities hereunder. No such withdrawal shall affect
the obligations of the Company with respect to the Registrable Securities not so
withdrawn. Any registration statement not filed or withdrawn in accordance with
an election by the Company or the holders of Registrable Securities shall not be
counted as a Demand for purposes of Section 2 hereof.
SECTION 5. Holdback Agreements. Each holder of Registrable Securities
agrees, at all times the holders of Registrable Securities have piggyback rights
pursuant to Section 3 hereof, not to effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities convertible into or exchangeable or exercisable for such
securities, during (a) the seven (7) days immediately prior to the effective
date of any Demand Registration or Piggyback Registration and (b) the one
hundred twenty (120)-day period beginning on the effective date of any (i)
Primary Offering in which holders of Registrable Securities had piggyback rights
pursuant to Section 3 hereof (provided, no holder of Registrable Securities
shall be subject to the restrictions pursuant to this clause (i) for any more
than one hundred twenty (120) days in any one hundred eighty (180) day period
and whether or not, in the case of a Piggyback Registration, any Registrable
Securities are included therein), (ii) Demand Registration or (iii) any
Piggyback Registration (other than a Primary Offering), unless the number or
amount of Registrable Securities sold pursuant to such Piggyback Registration is
less than eighty percent (80%) of the Registrable Securities as to which HIIC
and/or its Affiliates requested registration (in each case, except as part of
such registration and, or, in each case of clauses (i), (ii) and (iii), if
later, the date of any underwriting agreement with respect thereto. The Company
agrees to use it best efforts to cause a provision identical to the foregoing to
be included in all registration rights which it grants in the future.
8
SECTION 6. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement (whether pursuant to Section 2 or Section 3 of this
Agreement), the Company shall use its best efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof and, in connection therewith, the Company shall as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities, on any form for which the Company then
qualifies and which counsel for the Company shall deem appropriate for the sale
of such Registrable Securities in accordance with the intended method of
distribution thereof, and use its best efforts to cause such registration
statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a continuous period of not less than thirty (30) days (ninety (90) days in the
event of a best efforts underwriting pursuant to Section 2(d)(ii)) (or, if
earlier, until all Registrable Securities included in such registration
statement have been sold thereunder in accordance with the manner of
distribution set forth therein) and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof as set forth in such registration
statement (including, without limitation, by incorporating in a prospectus
supplement or post-effective amendment, at the request of a seller of
Registrable Securities, the terms of the sale of such Registrable Securities);
(c) before filing with the Commission any such registration statement
or prospectus or any amendments or supplements thereto, the Company shall
furnish to counsel selected by HIIC and/or its Affiliates drafts of all such
documents proposed to be filed and provide such counsel with a reasonable
opportunity for review thereof, such review to be conducted with reasonable
promptness;
(d) promptly (i) notify the selling holders of Registrable Securities
of each of (x) the filing and effectiveness of the registration statement and
prospectus and any amendments or supplements thereto, (y) the receipt of any
comments from the Commission or any state securities law authorities or any
other governmental authorities with respect to any such registration statement
or prospectus or any amendments or supplements thereto and (z) any oral or
written stop order with respect to such registration, any suspension of the
registration or qualification of the sale of such Registrable Securities in any
jurisdiction or any initiation or threatening of any proceedings with respect to
the foregoing and (ii) use its best efforts to obtain the withdrawal of any
order suspending the registration or qualification (or the effectiveness
thereof) or suspending or preventing the use of any related prospectus in any
jurisdiction with respect thereto;
(e) furnish to each seller of Registrable Securities and counsel for
the foregoing, a conformed copy of such registration statement and each
amendment and supplement thereto (in each case, including all exhibits thereto
and documents incorporated by reference therein) and such additional number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus (including each preliminary prospectus) included in such
registration statement and prospectus supplements and all exhibits thereto and
documents incorporated by reference therein and such other documents as such
seller or counsel may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such seller, the use of each of which
thereby and therefor to which the Company hereby consents;
(f) use its best efforts to register or qualify such Registrable
Securities under such securities or "blue sky" laws of such jurisdictions as any
seller reasonably requests and do any and all other
9
acts and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller and keep such registration or qualification in
effect for so long as the registration statement remains effective under the
Securities Act (provided that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph or (ii) subject itself to taxation in
any such jurisdiction where it would not otherwise be subject to taxation but
for this paragraph);
(g) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, upon the discovery that, or of the happening of any event as a
result of which, the registration statement covering such Registrable
Securities, as then in effect, contains an untrue statement of a material fact
or omits to state any material fact required to be stated therein or any fact
necessary to make the statements therein not misleading, and promptly prepare
and furnish to each such seller a supplement or amendment to the prospectus
contained in such registration statement so that such Registration Statement
shall not, and such prospectus as thereafter delivered to the purchaser of such
Registrable Securities shall not, contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or any fact
necessary to make the statements therein not misleading;
(h) cause all such Registrable Securities to be listed on each
securities exchange and included in each established over-the-counter market on
which or through which securities of the same class of the Company are then
listed or traded and, if not so listed or traded, to be listed on the National
Association of Securities Dealers Automated Quotation system ("NASDAQ");
(i) provide a transfer agent, registrar and CUSIP number for all of
such Registrable Securities not later than the effective date of such
registration statement;
(j) make available for inspection by any seller of Registrable
Securities and any attorney, accountant or other agent retained by any such
seller, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees, attorneys and independent accountants to supply all information, in
each case reasonably requested by any such sellers, attorneys, accountants or
agents in connection with such registration statement, subject to the right of
the Company to limit access to any such information to the extent that (i) the
Company is restricted from providing such information pursuant to any bona fide
confidentiality agreement to which the Company or any of its Subsidiaries is a
party and (ii) the Company shall have delivered to each seller of the
Registrable Securities a certificate duly executed by the chief executive or
chief financial officer of the Company stating that such information does not
contain any material information which would be required to be disclosed in, or
which would materially affect any information required to be disclosed in, such
registration statement;
(k) use its best efforts to comply with all applicable laws related to
such registration statement and offering and sale of securities and all
applicable rules and regulations of governmental authorities in connection
therewith (including, without limitation, the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) and the rules and
regulations promulgated by the Commission) and make generally available to its
security holders as soon as practicable (but in any event not later than fifteen
(15) months after the effectiveness of such registration statement) an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act;
(l) use its best efforts to furnish to each seller of Registrable
Securities a signed counterpart of (i) an opinion of counsel for the Company
(which counsel shall be reasonably acceptable to
10
HIIC and/or its Affiliates) and (ii) a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included or incorporated by reference in such registration statement,
covering such matters with respect to such registration statement and, in the
case of the accountants' comfort letter, with respect to events subsequent to
the date of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' comfort letters delivered to the
underwriters in underwritten public offerings of securities for the account of,
or on behalf of, an issuer of common stock, such opinion and comfort letters to
be dated the date such opinions and comfort letters are customarily dated in
such transactions and to be addressed to and reasonably acceptable to the
underwriter and each seller of Registrable Securities; and
(m) take all such other actions as HIIC and/or its Affiliates
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities.
Without limiting any of the foregoing, the Company shall enter into an
underwriting agreement with a managing underwriter or underwriters containing
representations, warranties, indemnities and agreements customarily included
(but not inconsistent with the agreements contained herein) by an issuer of
common stock in underwriting agreements with respect to offerings of common
stock for the account of, or on behalf of, selling shareholders. Each seller of
Registrable Securities pursuant to the terms of this Agreement shall be required
to make such representations and warranties to, and agreements with, the Company
and/or underwriter or underwriters as are customary in similar transactions or
are contemplated by the terms of this Agreement. In connection with any offering
of Registrable Securities registered pursuant to this Agreement, the Company
shall (i) furnish to the underwriter unlegended certificates representing
ownership of the Registrable Securities being sold, in such denominations as
requested for sale pursuant to such registration and (ii) instruct any transfer
agent and registrar of the Registrable Securities to release any stop transfer
order with respect thereto.
Each seller of Registrable Securities hereunder agrees that upon receipt of
any notice from the Company of the happening of any event of the kind described
in paragraph (g) of this Section 6, such seller shall forthwith discontinue such
seller's disposition of Registrable Securities pursuant to the applicable
registration statement and prospectus relating thereto until such seller's
receipt of the copies of the supplemented or amended prospectus contemplated by
paragraph (g) of this Section 6 and, if so directed by the Company, deliver to
the Company (at the Company's sole cost and expense) all copies then in such
seller's possession of the prospectus current at the time of receipt of such
notice relating to such Registrable Securities. In the event the Company shall
give such notice, the thirty (30) day period during which such registration
statement must remain effective pursuant to this Agreement shall be extended by
the number of days during the period from the date of giving of a notice
regarding the happening of an event of the kind described in paragraph (g) of
this Section 6 to the date when all such sellers shall receive such a
supplemented or amended prospectus and such prospectus shall have been filed
with the Commission.
SECTION 7. Registration Expenses. All expenses incident to the Company's
performance of, or compliance with, its obligations under this Agreement
including, without limitation, all registration and filing fees, all fees and
expenses of compliance with securities and "blue sky" laws (including, without
limitation, the fees and expenses of counsel for underwriters or placement or
sales agents in connection therewith to the extent provided for in the
underwriting agreement), all printing and copying expenses, all messenger and
delivery expenses, all fees and expenses of underwriters and sales and placement
agents in connection therewith (excluding discounts, commissions and
allowances), all fees and expenses of the Company's independent certified public
accountants (except as otherwise provided in Section 2(d)) and counsel
(including, without limitation, with respect to "comfort" letters and opinions)
and other Persons retained by the Company in connection therewith (collectively,
the "Registration Expenses") shall be borne by the Company unless
11
otherwise provided in this Agreement except that the Company will, in any event
(and without implication that the contrary would otherwise be true), pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties, and the
expense of any annual audit) (collectively, "Internal Expenses") and the
expenses and fees for listing the securities to be registered on each securities
exchange and included in each established over-the-counter market on which
securities of the same class issued by the Company are then listed or traded or
for listing on the NASDAQ pursuant to paragraph (i) of Section 6 of this
Agreement. The sellers of Registrable Shares shall be responsible for their own
underwriting discounts, commissions and allowances and legal fees and expenses.
SECTION 8. Preemptive Rights.
(a) Preemptive Rights. Except for the issuance of securities of the
Company (i) to the Company's or its Affiliates' employees, directors or
consultants (or pursuant to options or rights granted to Persons who were
employees, directors or consultants of the Company or its Affiliates as of the
date of grant) pursuant to a stock purchase or option plan adopted by the Board
of Directors of the Company, (ii) in connection with an acquisition by the
Company or its Affiliates of the assets or capital stock of a third party, (iii)
pursuant to a stock split, dividend, etc., (iv) except as provided in paragraph
(d) below, upon the conversion of any preference shares into Common Stock, or
(v) to any lender in connection with the extension, renewal, modification or
renegotiation of any credit or indebtedness to the Company or its Affiliates
(provided, it being the understanding of the parties that the exception set
forth in this clause (v) shall not apply to any issuance of securities of the
Company in settlement or repayment of any credit or indebtedness to the Company
or its Affiliates), if the Company authorizes the issuance or sale of any Voting
Shares, including options, warrants or rights to acquire Voting Shares or
securities convertible into Voting Shares, (other than as a dividend on the
outstanding Voting Shares) to any Person, the Company shall first offer to sell
to HIIC and its Affiliates a portion of such securities equal to the quotient
determined by dividing (A) the number of shares of Voting Shares held by HIIC
and its Affiliates at the time of the proposed issuance of such securities, on a
fully diluted basis, by (B) the total number of outstanding shares of Voting
Shares outstanding at such time, on a fully diluted basis. The exception set
forth in clauses (i) through (v), inclusive, of this Section 8(a) shall not
apply to any issuance of securities of the Company in a transaction of the type
set forth in clauses (i) through (v), inclusive, to the extent, and solely to
the extent, any such individual issuance would result in the aggregate
ownership, on a fully diluted basis, of Voting Shares by HIIC and its Affiliates
being less than twenty percent (20%) of the outstanding Voting Shares of the
Company, on a fully diluted basis; provided, however, in the event a valuation
of the securities of the Company being issued in such transaction is required in
connection with the exercise of the preemptive rights hereunder, HIIC and its
Affiliates shall retain and be solely responsible for the payment of all fees
and expenses of the investment bank or valuation firm hired to conduct such
valuation and any such investment bank or valuation firm shall be reasonably
acceptable to the Company. If such securities are being offered in a manner such
that each offeree purchasing such stock or securities is required to purchase a
"strip" or more than one type of stock and/or securities, HIIC shall likewise be
required to purchase each of the shares of stock and/or securities included in
the strip if any are purchased.
(b) Procedure. In order to exercise its purchase rights under this
Section 8, HIIC and its Affiliates shall, within fifteen (15) days after receipt
of written notice from the Company describing in reasonable detail the
securities being offered, the purchase price thereof, the payment terms and its
percentage allotment, deliver a written notice to the Company describing its
election hereunder. During the ninety (90) days following the expiration of the
fifteen (15) day period described above, the Company shall be entitled to sell
such securities which HIIC and its Affiliates have not elected to purchase on
terms and conditions no more favorable to the purchasers thereof than those
offered to HIIC and its Affiliates; provided, if the Company does not sell
within the ninety (90) day period the securities which were the subject of the
notice pursuant this
12
Section 8, it must send another notice and repeat the procedure pursuant to this
Section 8 before it could sell such securities after such ninety (90) day
period.
(c) Termination. The provisions of this Section 8 shall terminate
when HIIC and its Affiliates collectively own less than twenty percent (20%) of
the outstanding Voting Shares of the Company on a fully diluted basis.
(d) Special Preemptive Right. Notwithstanding paragraph (c) above and
in addition to the rights set forth in paragraph (a) above, upon any conversion
of any shares of convertible redeemable preference shares of the Company issued
to B E Aerospace, Inc., a Delaware corporation ("B/EA"), as part of the issuance
of up to three thousand (3,000) shares of convertible redeemable preference
shares of the Company to B/EA which are convertible into Parent Common Shares at
a percentage of the trading price of the Parent Common Shares as previously
disclosed to HIIC, the Company shall issue to HIIC and/or the Affiliates of HIIC
a number of the Company Common Shares upon payment by HIIC of the par value
thereof such that such number of shares plus the number of the Amalgamation
Shares, Conversion Shares and Warrant Shares collectively constitutes the same
percentage of the outstanding Voting Shares of the Company on a fully diluted
basis as the number of Amalgamation Shares, Conversion Shares and Warrant Shares
constituted of the outstanding Voting Shares of the Company on a fully diluted
basis prior to such issuance.
SECTION 9. Non-Pro Rata Redemptions. HIIC and/or the Affiliates of HIIC
shall have the right for as long as HIIC and the Affiliates of HIIC collectively
own twenty percent (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 of Voting Shares conducted by the Company, other than
repurchases or redemptions in connection with the termination of employment of
any employee of the Company or any of its Affiliates or pursuant to a
contractual right or obligation of the Company entered into in connection with
the issuance of such Voting Shares.
SECTION 10. Special Sale Obligations/ Rights. At any time that HIIC and the
Affiliates of HIIC collectively own less than ten percent (10%) of the
outstanding Voting Shares of the Company, on a fully diluted basis, (i) the
Company shall have the right to cause HIIC and the Affiliates of HIIC to sell
all of their Voting Shares of the Company pursuant to a sale registered under
the Securities Act and (ii) HIIC shall have the right to cause the Company to
file a registration statement under the Securities Act in accordance with the
terms of Section 2 to sell all of its and its Affiliates' Voting Shares of the
Company, in each case of (i) and (ii), in the event (x) of any change in or
conduct of the business or proposed business of the Company or any of its
Subsidiaries or any other action or inaction of the Company or any of its
Subsidiaries which would constitute or result in a Disqualifying Action or (y)
the Company does not redeem a Disqualified Holder pursuant to Bye-law 4B of its
bye-laws, and in each case of (i) and (ii), at the Company's expense (other than
HIIC's and the Affiliates of HIIC underwriting discounts, commissions or
allowances and legal fees and expenses) without being subject to the limitations
set forth in Sections 2(b) and (d) and Section 5.
SECTION 11. Indemnification.
(a) By the Company. The Company agrees to indemnify, defend and hold
harmless each holder of Registrable Securities, its officers, directors,
employees and agents and each Person who controls (within the meaning of the
Securities Act or the Exchange Act) such holder or such an other indemnified
Person against all losses, claims, damages, liabilities and expenses caused by
(i) any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to
13
be stated therein or of a fact necessary to make the statements
therein not misleading, except insofar as the same are caused by and contained
in any information furnished in writing to the Company by such holder for use
therein by the Company or (ii) any violation by the Company of any applicable
federal or state securities laws.
(b) By Holders. In connection with any registration statement in
which a holder of Registrable Securities is participating, each such holder will
furnish to the Company in writing information regarding such holder's ownership
of Registrable Securities and shall indemnify, defend and hold harmless the
Company, its directors, officers, employees and agents and each Person who
controls (within the meaning of the Securities Act or the Exchange Act) the
Company or such an other indemnified Person against any losses, claims, damages,
liabilities and expenses (including with respect to any claim for
indemnification hereunder asserted by any other indemnified Person) resulting
from (i) any untrue or alleged untrue statement of material fact contained in
such information so furnished by such holder which is contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto, or any omission or alleged omission of a material
fact omitted from the information so furnished by holder which is required to be
stated therein or necessary to make the statements therein not misleading and is
omitted from the registration statement, prospectus or preliminary prospectus or
any amendment or supplement thereto, or (ii) any violation by such holder of any
applicable federal or state securities laws; provided that the liability of each
such holder of Registrable Securities will be in proportion to and limited to
the net amount received by such holder from the sale of Registrable Securities
pursuant to such registration statement.
(c) Notice. Any Person entitled to indemnification hereunder shall
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification; provided, however, the failure to give such
notice shall not release the indemnifying party from its obligation under this
Section 11, except to the extent that the indemnifying party has been materially
prejudiced by such failure to provide such notice.
(d) Defense of Actions. In any case in which any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not (so long as it shall
continue to have the right to defend, contest, litigate and settle the matter in
question in accordance with this paragraph) be liable to such indemnified party
hereunder for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof (unless such
indemnified party presents a written legal opinion of counsel to the effect that
there are defenses available to the indemnified party which are different from
or in addition to the defenses available to such indemnifying party, in which
event the indemnified party shall be reimbursed by the indemnifying party for
the expenses incurred in connection with retaining separate legal counsel;
provided that the indemnifying party shall not be obligated to reimburse the
indemnified parties for the fees and expenses of more than one counsel for all
indemnified parties who do not have different or additional defenses among
themselves). An indemnifying party shall not be liable for any settlement of an
action or claim effected without its consent. The indemnifying party shall lose
its right to defend, contest, litigate and settle a matter if it shall fail to
diligently contest such matter (except to the extent settled in accordance with
the next following sentence). No matter shall be settled by an indemnifying
party without the consent of the indemnified party (which consent shall not be
unreasonably withheld).
14
(e) Survival. The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified Person and will survive the transfer of the
Registrable Securities.
(f) Contribution. If recovery is not available under the foregoing
indemnification provisions for any reason or reasons other than as specified
therein, any Person who would otherwise be entitled to indemnification by the
terms thereof shall nevertheless be entitled to contribution with respect to any
losses, claims, damages, liabilities or expenses with respect to which such
Person would be entitled to such indemnification but for such reason or reasons.
In determining the amount of contribution to which the respective Persons are
entitled, there shall be considered the Persons' relative knowledge and access
to information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or omission, and
other equitable considerations appropriate under the circumstances. It is hereby
agreed that it would not necessarily be equitable if the amount of such
contribution were determined by pro rata or per capita allocation. The liability
of each holder of Registrable Securities will be in proportion to and limited to
the net amount received by such holder from the sale of Registrable Securities
pursuant to such registration statement. No party shall be entitled to
contribution hereunder if such party is found guilty of having committed
fraudulent misrepresentation except insofar as the same is caused by a
fraudulent misrepresentation by any holder of Registrable Securities for use
therein by the Company.
SECTION 12. Participation in Underwritten Registrations. No Person may
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
SECTION 13. Miscellaneous.
(a) Rule 144. The Company shall timely file the reports, if any,
required to be filed by it under the Securities Act or the Exchange Act
(including, if required, the reports under Sections 13 and 15(d) of the Exchange
Act referred to in subparagraph (c)(1) of Rule 144). Upon the request of any
holder of Registrable Securities, the Company shall: (i) deliver to such holder
a written statement as to its compliance with the reporting requirements of Rule
144, as such rule may be amended from time to time, and (ii) take such further
action, including, without limitation, supply and make publicly available any
other information in the possession of or reasonably obtainable by the Company,
with the purpose of allowing such holder to avail itself of Rule 144 or any
other rule or regulation of the Commission allowing it to sell securities
without registration under the Securities Act.
(b) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of HIIC.
The waiver by any party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any other provision of this
Agreement or of any further breach of the provision so waived or of any other
provision of this Agreement. No extension of time for the performance of any
obligation or act hereunder shall be deemed an extension of time for the
performance of any other obligation or act. The waiver by any party of any of
the conditions precedent to its obligations under this Agreement shall not
preclude it from seeking redress for breach of this Agreement.
15
(c) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities; provided that
securities shall cease to be Registrable Securities under the circumstances
provided in Section 1(z).
(d) Remedies. If any party to this Agreement obtains a judgment
against any other party hereto by reason of any breach of this Agreement or the
failure of such other party to comply with the provisions hereof, reasonable
attorneys' fees and court costs shall be included in such judgment.
(e) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, and the remaining provisions of this
Agreement shall continue to be binding and in full force and effect.
(f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed to be an original, and all of which shall be taken to be one and
the same instrument with the same effect as if each of the parties hereto had
signed the same signature page. Any signature page of this Agreement may be
detached from any counterpart of this Agreement without impairing the legal
effect of any signature thereon and may be attached to another counterpart of
this Agreement identical in form hereto and having attached to it one or more
additional signature pages.
(g) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and shall not be deemed to limit, characterize
or interpret any provision of this Agreement.
(h) Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement and the exhibits and schedules
hereto will be governed by the internal law, and not the law of conflicts, of
Bermuda.
(i) Notices. All notices and other communications which are required
or permitted to be given or delivered under or by reason of the provisions of
this Agreement shall be in writing and shall be delivered personally, mailed by
certified or registered mail, return receipt requested, sent by reputable
overnight courier or sent by confirmed telecopier, addressed as follows:
(i) if to the Company, at:
Sky Games International, Ltd.
845 Crossover Lane, Suite D-215
Memphis, Tennessee 38117
Facsimile No.: 901-537-3801
Attention: President
with a copy to:
16
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Facsimile No.: 312-715-4800
Attention: Andrew W. McCune
(ii) if to HIIC, at:
Harrah's Interactive Investment Company
1023 Cherry Road
Memphis, Tennessee 38117
Facsimile No.: 901-762-8914
Attention: John M. Boushy
with a copy to:
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Facsimile No.: 901-762-8735
Attention: John W. McConomy
or to such other address and/or such other addressee as any of the above shall
have specified by notice hereunder. Each notice or other communication which
shall be delivered personally, mailed or telecopied in the manner described
above shall be deemed sufficiently given, served, sent, received or delivered
for all purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt or the affidavit of messenger being deemed
conclusive, but not exclusive, evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation. The parties hereto
agree that any notice or other communication required or permitted to be given
or delivered hereunder to HIIC and/or its Affiliates shall be deemed properly
given to HIIC and/or any or all of HIIC's Affiliates if given or delivered to
HIIC in accordance with the provisions of this Section 13(i).
(j) Entire Agreement. This Agreement constitutes the sole and entire
agreement of the parties with respect to the subject matter hereof.
* * * * *
17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
THE COMPANY:
SKY GAMES INTERNATIONAL LTD.
By: /s/ Laurence Geller
-------------------------
Its: Chief Executive Officer
------------------------
HIIC:
HARRAH'S INTERACTIVE INVESTMENT COMPANY
By: /s/ John M. Boushy
-------------------------
Title: Senior Vice President
----------------------
18
EXHIBIT 4
[EXECUTION COPY]
----------------
FUNDING AGREEMENT
FUNDING AGREEMENT (the "Funding Agreement") dated as of the 13th day of
May, 1997 among Interactive Entertainment Limited, a Bermuda exempted company
("IEL" or "Borrower"), and Sky Games International Ltd., a Bermuda exempted
company ("SGI"), Harrah's Interactive Investment Company, a Nevada corporation
("HIIC" or "Lender"), and SGI Holding Corporation Limited, a Bermuda exempted
company ("SGIH").
RECITALS
WHEREAS, SGI is the parent of SGIH; and
WHEREAS, SGIH and SGI have requested that (i) prior to the amalgamation of
IEL and SGIH (the "Subsidiary Amalgamation"), Lender provide IEL with all or a
portion of the funds required to permit IEL to carry on its day-to-day business
activities by means of a loan to Borrower and (ii) following the Subsidiary
Amalgamation, Lender assist in providing funding to IEL by means of a purchase
of shares of common stock, par value Cdn. $.01 per share, of SGI (the "Shares");
and
WHEREAS, the loan will provide IEL with the funds prior to the Subsidiary
Amalgamation and the purchase of equity of SGI will provide SGI with funds to
contribute to IEL, in each case, in order to permit IEL to carry on IEL's day to
day business activities; and
WHEREAS, Lender is willing to make such loan and to purchase such equity,
although Lender is under no obligation to do so; and
WHEREAS, Lender's agreement to make the loan is conditioned on the guaranty
of such loan by SGIH, the receipt of a stock pledge from SGIH and a security
agreement and SGI's grant of warrants to Lender ("Warrant Rights") to purchase
the capital stock of SGI under certain terms, and the issuance to Lender of a
promissory note in the amount of the loan convertible into capital stock of SGI,
and
WHEREAS, Borrower is willing to borrow such funds and enter into the other
credit accommodations herein and to commit to sell its equity on the terms and
subject to the conditions set forth herein. Except where otherwise noted, all
monetary amounts set forth herein are denominated in United States currency.
AGREEMENT
In consideration of the mutual covenants and agreements set forth herein,
the parties hereto hereby agree as follows:
1. Loan. Lender agrees to make a loan to Borrower in the aggregate
principal amount of $1,000,000 (the "Loan") on the terms and subject to the
conditions set forth herein and in the Financing Agreements. The Convertible
Promissory Note attached hereto as Exhibit A, the Pledge Agreement attached as
Exhibit B, the Guaranty attached as Exhibit C, the Warrant Agreement attached as
Exhibit D, the Security Agreement attached as Exhibit E and this Funding
Agreement are referred to herein as the "Financing Agreements".
2. Consideration for Lending. Borrower and SGIH acknowledge and agree
that they are directly benefited by the Loan advances since the utilization of
the Loan proceeds by IEL for working capital purposes will assist IEL to
continue to operate and develop its business.
3. Use of Proceeds. The Loan is to be used only for the working capital
needs of IEL and shall not be distributed to the shareholders of Borrower.
4. Funding of Loan.
a. Subject to compliance with the terms hereof and the Financing
Agreements, Lender shall advance the Loan to IEL from time to time as required
by IEL's manager and HIIC's affiliate, Harrah's Interactive Entertainment
Company ("HIEC"), (each, a "Funding Date") during the period from the date
hereof through the earlier of (i) the consummation of the Subsidiary
Amalgamation and (ii) June 21, 1997. Funding shall occur as requested by HIEC as
necessary to fund IEL's immediate working capital needs. Upon consummation of
the Subsidiary Amalgamation, Outstanding Amounts (as defined in the Note) under
the Note shall automatically convert into shares of common stock, $.01 par
value, of SGI ("Common Stock") and HIIC shall receive a warrant to purchase
shares of Common Stock in an amount equal to the difference between (x) one
million shares of Common Stock and (y) any Common Stock received pursuant to the
conversion of Outstanding Amounts under the Note.
b. Upon the advice of HIEC, IEL shall request funds on behalf of the
Borrower by delivering a Notice of Borrowing to Lender (with a copy to SGIH)
identifying (i) the total amount of the Loan to be funded and (ii) the Funding
Date. Within three (3) days of receipt of a Notice of Borrowing, SGIH and SGI
shall cause their respective Chief Executive Officer to deliver to HIIC
Officer's Certificates of SGIH and SGI which shall state that, as of the date
thereof and on the Funding Date, the representations set forth herein shall be
true and correct and no default of SGI or SGIH exists under the Note.
c. Following receipt and review of the required documentation, Lender
shall advance the Loan requested on the Funding Date if such documentation is
reasonably satisfactory to Lender in all material respects.
d. If either or both of SGIH and SGI fail to timely deliver the
Officer's Certificate, HIIC may, at its sole discretion (i) declare this
Agreement in default; or (ii) elect to advance the funds requested.
e. IEL may prepay any amounts outstanding under the Loan at any time
and from time to time. Any such prepayments shall be used to repay the Loan with
the earliest advances under the Loan to be repaid first.
5. Purchase of Equity.
a. Subject to compliance with and possible reduction pursuant to the
terms hereof and the consummation on the Subsidiary Amalgamation, HIIC hereby
subscribes for and agrees to purchase from SGI during the period from the day
after the Subsidiary Amalgamation through the 90th day after the Subsidiary
Amalgamation (the "Commitment Period") up to 650,000 Shares (the "Equity
Commitment") at a price of $1.00 per Share (the "Subscription Price")when
requested by IEL in accordance with the schedule set forth herein (each also, a
"Funding Date") as required to fund the working capital needs of IEL. Subject to
possible reduction as set forth below, IEL shall be able to require Lender to
purchase a number of Shares equal to one-third of the Equity Commitment on each
of the 30th, 60th and 90th days (or first business day thereafter) after the
Subsidiary Amalgamation; provided any amounts which are not required to be
purchased on any such scheduled date may be required to be purchased at any
remaining scheduled date. The Subscription Price payable by Lender shall be
payable in cash or other immediately available funds. In the event that IEL
fails to satisfy its obligations under the Note upon maturity thereof, such
failure shall be deemed
2
to be "exigent circumstances" as described in Section 2.4(b) of the Shareholders
Agreement dated December 30, 1994 among SGIH, HIIC and IEL.
b. Borrower shall deliver a Notice of Exercise to Lender identifying
(i) the portion of the Equity Commitment required to be exercised and (ii) the
Funding Date. Within three (3) days of receipt of a Notice of Exercise, SGI and
IEL shall cause their respective Chief Executive Officer to deliver to HIIC
Officer's Certificates of SGI and IEL which shall state that, as of the date
thereof and on the Funding Date, the representations set forth herein shall be
true and correct and no default of SGI or IEL exists under this Agreement.
c. Following receipt and review of the required documentation, Lender
shall pay the Subscription Price for the portion of the Equity Commitment
required to be exercised on the Funding Date if such documentation is reasonably
satisfactory to Lender in all material respects and provided that all the
conditions contained herein are satisfied in all material respects.
d. When Lender shall make full payment to SGI for the Shares
subscribed by Lender, and such payment is received by SGI, the proper officers
of SGI shall execute and deliver to Lender a certificate representing said
Shares and the Shares shall be validly issued, fully paid and non-assessable.
e. Any then unexercised portions of the Equity Commitment shall be
reduced in an amount equal to the dollar amount of all cash proceeds, net of any
underwriter or brokers discounts, allowances, fees or commissions, to SGI from
the sale of Shares or securities convertible into Shares during the Commitment
Period.
f. If SGI shall at any time prior to the exercise of the Equity
Commitment, (i) pay a dividend in Shares or make a pro rata distribution to all
of its shareholders in Shares, (ii) subdivide its outstanding Shares into a
greater number of Shares, or (iii) combine its outstanding Shares into a smaller
number of Shares, the Subscription Price in effect immediately after the record
date for such dividend or distribution or the effective date of such subdivision
or combination shall be adjusted so that it shall equal the price determined by
multiplying the Subscription Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the number of Shares outstanding
immediately before such dividend, distribution, subdivision or combination, and
the denominator of which shall be the number of Shares outstanding immediately
after such dividend, distribution, subdivision or combination. Such
adjustments shall be made successively whenever any event specified above shall
occur.
6. Representations by IEL, SGIH and SGI.
a. Authority. IEL, SGIH and SGI have all requisite corporate power
and authority to execute this Agreement and the other Financing Agreements to
which each is a party or by which each is bound in connection with the
transactions contemplated by this Agreement. IEL, SGI and SGIH have each taken
all necessary action to authorize the execution, delivery and performance of
this Agreement and the other Financing Agreements to which each is a party or by
which each is bound and to consummate the transactions contemplated hereby and
thereby.
b. No Violation. Neither the execution and delivery of the Financing
Agreements, nor any other agreement, certificate or instrument to be executed or
delivered in connection therewith by IEL, SGI or SGIH nor the consummation of
the transactions contemplated hereunder or thereunder or the compliance with or
performance of the terms and conditions herein or therein, is prevented by,
limited by, in conflict in
3
any material respect with, or will result in a breach or violation of, or a
default (with due notice or lapse of time or both) under, which would have a
material adverse effect on IEL, SGI or SGIH, or the creation or imposition of
any lien, charge, or encumbrance of any nature whatsoever upon any of its
property or assets by virtue of, the terms, conditions or provisions of: (i)
each of their respective organizational documents; (ii) any indenture, evidence
of indebtedness, loan or financing agreement, or other material agreement or
instrument of whatever nature to which each is a party or by which each is
bound; or (iii) any provision of any existing law, rule, regulation, order,
writ, injunction or decree of any court, gaming authority or governmental
authority to which each is subject.
c. Enforceability. This Agreement and each of the other Financing
Agreements, when executed and delivered by each of IEL, SGI and SGIH, will
constitute a legal, valid and binding obligation of each of IEL, SGI and SGIH,
enforceable against each of IEL, SGI and SGIH in accordance with the respective
terms of each such agreement (except to the extent that enforcement may be
affected by laws relating to bankruptcy, reorganization, insolvency and
creditors rights and by the availability of injunctive relief, specific
performance and other equitable remedies).
d. No Defaults. None of IEL, SGI, or SGIH is in violation of or in
default with respect to any material agreement, or applicable laws and/or
regulations which materially and adversely affect the business, financial
condition or property of IEL, SGI or SGIH.
e. No Untrue Statements. All statements, representations and
warranties made by IEL, SGI and SGIH in this Agreement and the Financing
Agreements (i) are and shall be true, correct and complete in all material
respects, at the time they were made and on and as of each Funding Date, (ii) do
not and shall not contain any untrue statement of a material fact, and (iii) do
not and shall not omit to state a material fact necessary in order to make the
information contained therein not misleading or incomplete. IEL, SGI and SGIH
understand that all such statements, representations and warranties shall be
deemed to have been relied upon by Lender as a material inducement to enter into
this Agreement and the Financing Agreements.
f. Solvency. IEL, SGI and SGIH have generally been paying their
obligations as they come due, are not insolvent on the date hereof, and, after
giving effect to the transactions contemplated by this Agreement and the
Financing Agreements, will not be rendered insolvent or unable to pay their
obligations as they come due. Each of IEL, SGI and SGIH has and, after giving
effect to the transactions contemplated by this Agreement and the Financing
Agreements, will have adequate capital to operate its facilities and conduct its
business in the manner in which it is currently being conducted, and, after
giving effect to the transactions contemplated by such Agreements, neither IEL,
nor SGI, nor SGIH is or will be engaged in a business or transaction for which
the remaining assets of such party are unreasonably small in relation to the
business or transaction. Neither IEL, nor SGI, nor SGIH is subject to
liabilities, and the Loan does not represent indebtedness, and neither IEL, nor
SGI, nor SGIH will incur debts that it believes, or reasonably should believe
are, beyond such party's ability to pay as such debts mature.
g. Value of Collateral. The fair market value of the consideration
received by IEL and SGIH hereunder, including without limitation, the Loan,
exceeds the fair market value of the liens and security interests granted to
Lender as set forth in Exhibits B and E.
h. No Intent to Defraud. None of IEL, SGI, or SGIH is entering into
the transactions contemplated herein with any actual intent to hinder, delay or
defraud any creditor.
4
7. Representations by HIIC.
a. Authority. HIIC has all requisite corporate power and authority to
execute this Agreement and the other Financing Agreements to which it is a party
or by which it is bound in connection with the transactions contemplated by this
Agreement. HIIC has taken all necessary action to authorize the execution,
delivery and performance of this Agreement and the other Financing Agreements to
which it is a party or by which it is bound and to consummate the transactions
contemplated hereby and thereby.
b. No Violation. Neither the execution and delivery of the Financing
Agreements, nor any other agreement, certificate or instrument to be executed or
delivered in connection therewith by HIIC nor the consummation of the
transactions contemplated hereunder or thereunder or the compliance with or
performance of the terms and conditions herein or therein, is prevented by,
limited by, in conflict in any material respect with, or will result in a breach
or violation of, or a default (with due notice or lapse of time or both) under,
which would have a material adverse effect on HIIC, or the creation or
imposition of any material lien, charge, or encumbrance of any nature whatsoever
upon any of its property or assets by virtue of, the terms, conditions or
provisions of: (i) its organizational documents; (ii) any indenture, evidence of
indebtedness, loan or financing agreement, or other material agreement or
instrument of whatever nature to which it is a party or by which it is bound; or
(iii) any provision of any existing law, rule, regulation, order, writ,
injunction or decree of any court, gaming authority or governmental authority to
which each is subject.
c. Enforceability. This Agreement and each of the other Financing
Agreements, when executed and delivered by HIIC, will constitute a legal, valid
and binding obligation of HIIC, enforceable against HIIC in accordance with the
respective terms of each such agreement (except to the extent that enforcement
may be affected by laws relating to bankruptcy, reorganization, insolvency and
creditors rights and by the availability of injunctive relief, specific
performance and other equitable remedies).
d. No Defaults. HIIC is not in violation of or in default with
respect to any material agreement, or applicable laws and/or regulations which
materially and adversely affect the business, financial condition or property of
HIIC.
e. No Untrue Statements. All statements, representations and
warranties made by HIIC in this Agreement and the Financing Agreement (i) are
and shall be true, correct and complete in all material respects, at the time
they were made and on and as of each Funding Date, (ii) do not and shall not
contain any untrue statement of a material fact, and (iii) do not and shall not
omit to state a material fact necessary in order to make the information
contained therein not misleading or incomplete. HIIC understands that all such
statements, representations and warranties shall be deemed to have been relied
upon by Borrower and SGIH as a material inducement to enter into this Agreement
and the Financing Agreements.
f. Investment Intent. All Shares acquired by or for HIIC pursuant to
this Agreement are being or have been acquired solely for investment and not
with a view to the distribution thereof or with any intention of distributing or
reselling any such Shares, and that, irrespective of any other provisions of
this Agreement, any sale or other transfer of such Shares by HIIC will be made
only in compliance with all applicable federal and state securities laws,
including without limitation the Securities Act of 1933, as amended (the "Act").
SGI and HIIC acknowledge that the Shares acquired pursuant to the Financing
Agreements shall be covered by a registration rights agreement between SGI and
HIIC, pursuant to which HIIC shall have the right to have the Shares acquired
registered upon HIIC's demand, subject to the terms and conditions thereof.
5
g. Nature of Shares. All Shares acquired by or for HIIC will not be
registered under the Act and must be held by HIIC until such Shares are
registered under the Act or an exemption from such registration is available.
SGI will have no obligation to take any actions that may be necessary to make
available any exemption from registration under the Act.
h. Rule 144. HIIC is familiar with Rule 144 promulgated by the
Securities and Exchange Commission under the Act, which establishes guidelines
governing, among other things, the resale of "restricted securities" (securities
such as the Shares, which are acquired from the issuer of such securities in a
transaction not involving any public offering). In connection with a sale or
other transfer of the Shares pursuant to an exemption from registration under
the Act, or if available, under Rule 144 or pursuant to some other exemption,
HIIC may be required by SGI to deliver to SGI an opinion from counsel for HIIC,
and/or receive an opinion from counsel for SGI, to the effect that all
applicable federal and state securities law requirements have been met.
i. Access to Information. In order to adequately evaluate the merits
and risks of an investment in SGI, HIIC has had an opportunity to (i) ask
questions and receive answers from SGI and its representatives concerning SGI
and HIIC's investment therein, and (ii) obtain any additional information which
HIIC has requested with respect to SGI and HIIC's investment therein. HIIC
understands that no federal or state agency has recommended or endorsed the
purchase of Shares or made any determination or finding as to the fairness of
the provisions of this Agreement. HIIC understands and is cognizant of all the
risk factors related to the purchase of the Shares, and HIIC's knowledge and
experience in financial and business matters is such that HIIC is capable of
evaluating the risks of an investment in the Shares.
8. Covenant. SGI, SGIH and HIIC each agree to use their reasonable
best efforts and to do all things necessary to effect the Subsidiary
Amalgamation and the amalgamation of SGI and IEL as promptly as practicable.
9. Conditions. The advance of Loans shall be conditioned upon:
a. on the initial Funding Date only receipt by Lender of all of the
following:
(i) Evidence of the authority for each of IEL, SGI and SGIH to
execute, deliver and perform the Financing Agreements to
which each is a party;
(ii) Executed Convertible Promissory Note (the "Note") - Exhibit
A;
(iii) Executed Guaranty of the Note of SGI and SGIH - Exhibit C;
(iv) Executed Pledge and Security Agreement of IEL Shares
acquired by SGIH subsequent to the date hereof - Exhibit B;
(v) Executed copy of Security Agreement - Exhibit E;
(vi) Executed Warrant Agreement - Exhibit D;
(vii) Opinion of Counsel for SGI and SGIH;
(viii) Resolutions of the Board of Directors of IEL, SGI and SGIH,
certified by the Secretary thereof, authorizing execution of
the Financing Agreements and all transactions and
obligations contained therein; and
(ix) the holders of the Shares which are being held in escrow by
Montreal Trust Company of Canada pursuant to the Escrow
Agreement dated as of May 27, 1992 having entered into a
binding agreement effective as of the date of execution to
have SGI redeem their Shares at a redemption ratio of 1
newly issued Share for every 3 escrow Shares redeemed; and
6
b. on each Funding Date, including the initial Funding Date, each of
the following conditions have been satisfied in all material respects:
(i) there not being an uncured Event of Default under this
Agreement;
(ii) there not being a material uncured default under the
Software License and Software Services Agreement and the
Services Agreement, each dated November 7, 1995, between IEL
and Singapore Airlines Ltd.;
(iii) no bankruptcy, reorganization or insolvency proceedings,
including, without limitation, an assignment for the benefit
of creditors having been instituted by or against any of
SGI, SGIH or IEL and, if instituted against any of SGI, SGIH
or IEL, such proceedings having been consented to (except
for any of the foregoing due to HIIC's failure to fund its
obligations to IEL or to advance the Loan when required
hereby);
(iv) there not having been a material adverse change from the
existing 1997 Annual IEL business plan as adopted by the
Board of Directors of IEL;
(v) there not being a material adverse change in the financial
condition of SGI, on a stand alone basis prior to the
amalgamation of IEL with and into SGI, except as a result of
the writedown of SGI's real estate assets;
(vi) following execution of binding documents with respect to
such transaction, there not being a material breach of the
representations and warranties in the agreements to effect
the amalgamation of IEL and SGIH or the amalgamation of SGI
and IEL; and
(vii) there not being any litigation which would or could
reasonably be expected to have the effect of halting or
materially delaying the amalgamation of IEL and SGIH or the
amalgamation of SGI and IEL.
10. Default. Each of the following shall constitute an "Event of Default"
under this Funding Agreement:
a. the failure of IEL to pay in full any amount due under the Note by
the date the same is due, as provided therein, and such failure shall continue
for five (5) days after written notice from HIIC to IEL of such failure, or
IEL's failure to pay in fill any amount due hereunder upon maturity of the Note,
by acceleration or otherwise:
b. the failure of IEL to perform, satisfy and observe in all material
respects, when due, any of the obligations, covenants, conditions and
restrictions under the Financing Agreements or the failure of any
representations and warranties thereunder to be true and correct in any material
respect, not involving the payment of money, and such failure shall continue for
fifteen (15) days after written notice from HIIC to IEL of such failure, or if
said failure cannot reasonably be cured within said fifteen (15) day period, IEL
shall not have pursued the cure with reasonable diligence and shall not have
cured such failure within a reasonable time after the written notice from HIIC
to IEL or SGI and SGIH described above;
c. an uncured default by IEL shall exist under the other Financing
Agreements; or
d. an uncured default by either or both of SGI or SGIH shall exist
under any of the Financing Agreements.
7
11. General.
a. Notices. All notices and other communications to be delivered or
made hereunder shall be in writing and shall be (i) delivered personally, (ii)
sent by post prepaid certified mail, return receipt requested, (iii) sent by
express courier service, or (iv) sent by facsimile at the following addresses or
such other addresses described in a written notice as provided herein:
IEL and HIIC: 1023 Cherry Road
Memphis, TN 38117
Attn: John Boushy
Facsimile No.: 901-762-8914
With a copy to: John W. McConomy, Esq.
1023 Cherry Road
Memphis, TN 38117
Facsimile No.: 901-762-8735
SGI and SGIH: 595 Howe Street, Suite 1115
Vancouver, B.C. V6C 2T5
Attn: Malcolm P. Burke
Facsimile No.: 604-687-8678
With a copy to: Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attn: Andrew W. McCune, Esq.
Facsimile No.: 312-715-4800
All such notices and communications shall be deemed effective, if mailed, upon
the expiration of the fifth (5th) day following the date of mailing (except that
any notice of change of address shall be effective only upon receipt by the
party to whom such notice is addressed), if delivered personally or delivered by
courier, upon receipt or refusal of delivery, and if by facsimile, upon the
first business day following confirmed transmission; provided such notice or
communication is also mailed in accordance with the foregoing requirements
within two (2) days of delivery by facsimile.
b. Counterparts. This Agreement and the Financing Agreements may be
executed by the parties hereto in any number of separate counterparts with the
same as if the signatures were upon the same instrument. All such counterparts
shall together constitute but one and the same document.
c. Choice of Law and Forum. This Agreement and the Financing
Agreements shall be governed by and construed in accordance with the laws of the
State of Tennessee. IEL, SGIH and SGI further agree that the determination of
any action relating to this Agreement or any of the Financing Agreements
delivered in favor of Lender pursuant to the terms thereof shall be either an
appropriate court of the State of Tennessee or the United States District Court
for the Western District of Tennessee.
d. Successors and Assigns. All of the terms, covenants, warranties and
conditions contained in this Agreement and the Financing Agreements shall be
binding upon and inure to the sole and exclusive benefit of the parties hereto
and their respective successors and assigns.
8
e. Further Assurances. Borrowers, SGI and SGIH will do, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged and
delivered, such amendments or supplements hereto or to any of the Financing
Agreements and such further documents, instruments and transfers as the Lender
may require in connection with or to effect the transactions contemplated hereby
or in any of the Financing Agreements.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures on the
day and date first above written.
INTERACTIVE ENTERTAINMENT LIMITED HARRAH'S INTERACTIVE INVESTMENT COMPANY
By:/s/ Malcolm Burke By:/s/ John Boushy
------------------------------ ----------------------
Its:Vice President Its:Senior Vice President
----------------------------- ---------------------
SGI HOLDING CORPORATION LIMITED
By:/s/ Malcolm Burke
------------------------------
Its:President
-----------------------------
SKY GAMES INTERNATIONAL LTD.
By:/s/ Malcolm Burke
------------------------------
Its:President
-----------------------------
9
EXHIBIT 5
[EXECUTION COPY]
----------------
WARRANT AGREEMENT
-----------------
THIS WARRANT AGREEMENT (this "Agreement") is made and entered into as of
May 13, 1997 between Sky Games International Ltd., a Bermuda exempted company
("SGI"), and Harrah's Interactive Investment Company, a Nevada corporation (the
"Warrantholder"). This Agreement is made in connection with the issuance of
warrants to purchase shares of common stock, par value Cdn. $.01 per share, of
SGI (such shares of SGI or its successor pursuant to the Amalgamation of SGI and
SGI Holding Corporation Limited, a Bermuda exempted company, are referred to
herein as the "Shares") by the Warrantholder as set forth on Exhibit A attached
hereto. The Warrant to be issued to the Warrantholder pursuant to this
Agreement hereinafter may be referred to as the "Warrant." The Warrant entitles
the Warrantholder to purchase up to the number of Shares set forth herein at the
Exercise Price (as defined in Section 6 hereof). There shall be no change in the
number of Shares issuable pursuant to this Warrant except as provided in Section
7 hereof. Except where otherwise noted, all monetary amounts set forth herein
are denominated in United States currency.
Section 1. Form of Warrant. The Warrant shall be represented by a
certificate (the "Warrant Certificate") which shall be in the form of Exhibit B
attached hereto, including the exercise form comprising part of Exhibit B.
Section 2. Transfer or Exchange of Warrant.
2.1 Warrant Register. SGI shall number and register the Warrant
Certificate in a Warrant register. SGI shall be entitled to treat the registered
owner of the Warrant as the owner in fact thereof for all purposes and shall not
be bound to recognize any equitable or other claim to or interest in such
Warrant on the part of any other person.
2.2 Transfer. The Warrant shall be transferable only on the books
of SGI, maintained at its principal office, upon delivery of the Warrant
Certificate representing the Warrant duly endorsed by the Warrantholder or by
his duly authorized attorney or representative, or accompanied by proper
evidence of succession, assignment or authority to transfer. Upon each requested
registration of transfer and subject to the restrictions on transfer set forth
in Section 13 hereof, SGI shall deliver a new Warrant Certificate to the person
entitled thereto at the same Exercise Price, with the same Termination Date (as
hereinafter defined) and otherwise of like tenor as the Warrant so transferred
or assigned.
Section 3. Terms of Warrant; Exercise of Warrant.
3.1 Terms of Warrant. Subject to the terms and conditions of this
Agreement, the Warrantholder shall have the right and option to purchase from
SGI the number of validly issued, fully paid and nonassessable Shares set forth
on Exhibit A attached hereto which such Warrantholder may at that time be
entitled to purchase on exercise of the Warrant. The Warrant may be exercised in
whole at any time or in part from time to time on or after the date of the
consummation of the amalgamation (the "Subsidiary Amalgamation") of SGI Holding
Corporation Limited, a Bermuda exempted company, and Interactive Entertainment
Limited, a Bermuda exempted company (the "Commencement Date"). The right to
exercise such Warrant shall terminate without further notice at 5:00 p.m.
Memphis time on the ninetieth (90th) day after the Commencement Date (the
"Termination Date"). Closing of such exercise shall be subject to satisfaction
of the conditions set forth in Section 3.3 hereof.
3.2 Method of Exercise.
(a) Upon compliance with the terms and conditions of this
Agreement, the Warrant to purchase represented by the Warrant shall be
exercisable at the election of the Warrantholder, either in full or from time to
time in part. In the event that the Warrant is exercised with respect to fewer
than all of the Shares or other securities purchasable on such exercise at any
time prior to the Termination Date, a new Warrant Certificate evidencing the
remainder of the Warrant shall be issued by SGI at the same Exercise Price, with
the same Termination Date, and otherwise of like tenor as the Warrant that has
been partially exercised. SGI shall deliver the new Warrant Certificate pursuant
to the provisions of Sections 1 and 2 hereof.
(b) The Warrant shall be exercised by surrender to SGI, at its
principal office, of the Warrant Certificate evidencing the Warrant, together
with a duly completed and executed form of election to purchase attached
thereto, payment to SGI of the Exercise Price for all of the Shares for which
the Warrant is then exercised and satisfaction of the other conditions set forth
in Section 3.3. Payment of the Aggregate Exercise Price (as hereinafter defined)
shall be made in cash, certified bank check, cashier's check, wire transfer or
otherwise in immediately available funds. All Warrant Certificates surrendered
upon exercise of Warrants shall be canceled by SGI.
3.3 Issuance of the Shares. Within ten (10) business days after
all of (i) the surrender of the Warrant Certificate, (ii) payment of the
Aggregate Exercise Price and (iii) delivery of the Exercise Form attached to the
Warrant Certificate, SGI shall issue and cause to be delivered to the
Warrantholder a certificate for the number of Shares so purchased upon the
exercise of the Warrant together with a Warrant Certificate for the portion of
the Warrant not exercised, if any. All Shares will, upon issuance, be validly
issued, fully paid and nonassessable, and free from all taxes, liens and charges
with respect to the issuance thereof (other than income taxes).
Section 4. Mutilated or Missing Warrant Certificate. If any Warrant
Certificate is mutilated, lost, stolen or destroyed, SGI shall, in the case of a
mutilated Warrant Certificate, issue a new Warrant Certificate of like tenor
upon surrender of such mutilated Warrant Certificate, and in case of the loss,
theft or destruction of any Warrant Certificate, at the request of the
Warrantholder, issue and deliver in exchange and substitution for the
certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent right or interest, but only upon receipt of
evidence reasonably satisfactory to SGI of such loss, theft or destruction of
such Warrant Certificate and reasonable and customary indemnity and bond, if
requested, also reasonably satisfactory to SGI. An applicant for such a
substitute Warrant Certificate also shall comply with such other reasonable
regulations and pay such other reasonable charges as SGI may prescribe to cover
SGI's expenses in processing the mutilated Warrant Certificate or replacing the
lost, stolen or destroyed Warrant Certificate.
Section 5. Certain Covenants.
5.1 Reservation of Shares. SGI shall provide for the authorization
and reservation of Shares for issuance upon the exercise of the Warrant.
5.2 No Impairment. SGI shall not, by amendment of its Memorandum of
Association or Bye-Laws or through reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other agreement or voluntary act, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by SGI.
2
Section 6. Exercise Price. The Shares shall be purchasable upon the
exercise of the Warrant at a price per Share of SGI equal to $1.00 per Share.
The Exercise Price shall be subject to adjustments required pursuant to Section
7 hereof. The Exercise Price multiplied by the number of Shares issuable upon
exercise of the Warrant may be referred to herein as the "Aggregate Exercise
Price."
Section 7. Adjustment of Exercise Price and Number of Interests. The
number and kind of securities purchasable upon the exercise of each Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of the events set forth in this Section 7.
7.1 Mechanical Adjustments--SGI.
(a) If SGI shall at any time prior to the exercise of the
Warrant issued hereby (i) pay a dividend in Shares or makes a pro rata
distribution to all of its shareholders in Shares, (ii) subdivide its
outstanding Shares into a greater number of Shares, or (iii) combine its
outstanding Shares into a smaller number of Shares, the Exercise Price in effect
immediately after the record date for such dividend or distribution or the
effective date of such subdivision or combination shall be adjusted so that it
shall equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the
number of Shares outstanding immediately before such dividend, distribution,
subdivision or combination, and the denominator of which shall be the number of
Shares outstanding immediately after such dividend, distribution, subdivision or
combination. Such adjustments shall be made successively whenever any event
specified above shall occur.
(b) If SGI shall at any time prior to the exercise of the
Warrant issued hereby declare a distribution (other than a distribution
consisting solely of Shares) or otherwise distribute pro rata to all of its
shareholders any assets, cash, property, rights, evidences of indebtedness or
securities (other than Shares), a Warrantholder holding the unexercised Warrant
shall thereafter be entitled, in addition to the Shares properly receivable upon
the exercise thereof, to receive at no additional cost, upon the exercise of the
Warrant, the same property, assets, cash, rights, evidences of indebtedness or
securities that it would have been entitled to receive at the time of such
distribution as if the Warrant had been exercised immediately prior to such
distribution.
(c) No adjustment need be made in connection with the issuance
of any Shares or other securities of SGI or a successor to the business of SGI
in a bona fide public offering pursuant to a firm commitment underwriting
managed by a nationally recognized investment banking firm which is a member of
the National Association of Securities Dealers, Inc. or for a price determined
to be reasonable by the Board of Directors of SGI.
(d) In case any event shall occur as to which the provisions of
Section 7.1 are not strictly applicable but the failure to make any adjustment
would not fairly protect rights represented by the Warrant in accordance with
the essential intent and principles of such sections, then, in each case, SGI
shall appoint a nationally recognized firm of certified public accountants
(which may be the regular auditors of SGI), which shall give their opinion upon
the adjustment, if any, on a basis consistent with the essential intent and
principles established in Section 7, necessary to preserve, without dilution,
the purchase rights represented by the Warrant. Upon receipt of such opinion,
SGI will promptly mail a copy thereof to the holder of the Warrant and shall
make the adjustments described therein.
7.2 Notice of Adjustment. Whenever the number of Shares
purchasable upon the exercise of the Warrant or the Exercise Price of such
Shares is to be adjusted, as herein provided, SGI shall give
3
reasonable advance notice to the Warrantholder (at least 20 days prior to the
date on which the event requiring adjustment is expected to occur) by first
class mail, postage prepaid, with a certificate of SGI, confirmed as to
mathematical accuracy by a firm of independent certified public accountants
selected by SGI (who may be the regular auditors employed by SGI), setting forth
the number of Shares purchasable upon the exercise of the Warrant and the
Exercise Price of such Shares after such adjustment and a brief statement of the
facts requiring such adjustment and the computation by which such adjustment was
made.
7.3 Reorganizations. In case of any capital reorganization, other
than in the cases referred to in Section 7.1 hereto, or the consolidation or
merger of SGI with or into another entity (other than a merger or consolidation
in which SGI is the continuing entity and which does not result in any
reclassification of the outstanding Shares or the conversion of such outstanding
Shares into shares of stock or other securities or property), or the sale of the
property of SGI as an entirety or substantially as an entirety (collectively
such actions hereinafter being referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of a Warrant (in lieu of the number of
Shares theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the number of Shares which would
otherwise have been deliverable upon the exercise of such Warrant would have
been entitled upon such Reorganization if such Warrant had been exercised in
full immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as reasonably determined by a nationally recognized
independent certified public accounting firm selected by SGI (who may be the
regular auditors employed by SGI), shall be made in the application of the
provisions herein set forth with respect to the rights and interests of the
Warrantholder so that the provisions set forth herein shall thereafter be
applicable, as nearly as possible, in relation to any shares or other property
thereafter deliverable upon exercise of the Warrant. SGI shall not effect any
such Reorganization unless upon or prior to the consummation thereof the
successor entity, or if SGI shall be the surviving entity in any such
Reorganization and is not the issuer of the shares of stock or other securities
or property to be delivered to holders of Shares outstanding at the effective
time thereof, then such issuer shall assume by written instrument the obligation
to deliver to the Warrantholder such shares of stock, securities, cash or other
property as the Warrantholder shall be entitled to purchase in accordance with
the foregoing provisions. No provision of this Warrant and no right or option
granted or conferred hereunder shall in any way limit, affect or abridge the
exercise by SGI of any of its corporate rights or powers to recapitalize, amend
its Memorandum, reorganize, consolidate or merge with or into another
corporation, or to transfer all or any part of its property or assets, or the
exercise of any other of its corporate rights and powers.
7.4 Statement on Warrants. Irrespective of any adjustments in the
Exercise Price or the number or kind of Shares purchasable upon the exercise of
the Warrants, Warrants theretofore or thereafter issued may continue to express
on their face the same price and number and kind of Shares as are stated in the
Warrant initially issuable pursuant to this Agreement and such shall not in any
way affect the adjusted Exercise Price or number of Shares issuable upon
exercise.
Section 8. SGI's Representations and Warranties. SGI hereby represents and
warrants to each Warrantholder as of the date hereof as follows:
8.1 Status. SGI is an exempted company duly formed, validly
existing and in good standing under the laws of Bermuda.
8.2 Power. SGI has all requisite corporate power and authority to
own and operate its properties, to carry on its business as now conducted, and
to enter into this Agreement and to carry out its obligations under this
Agreement. All corporate or similar action required to be taken by SGI in
connection with the execution, delivery and performance of this Agreement has
been duly taken.
4
8.3 No Conflicts. Neither the execution and delivery of this
Agreement nor the performance by SGI of any of SGI's obligations hereunder, will
(i) conflict with, result in a breach of, or constitute (with notice, lapse of
time or both) a default under, or result in the creation or imposition of any
lien, charge, security interests or other encumbrance upon any of SGI's property
pursuant to the terms of any indenture, mortgage, deed of trust, security
agreement, loan agreement, license, lease, undertaking or any other agreement,
instrument or document to which SGI is a party, by which SGI is bound or to
which any of SGI's properties are subject, the conflict with, breach of or
default under, or the creation or imposition of which, would have an adverse
effect on the ability of SGI to fully and timely perform any of its obligations
under this Agreement, or (ii) violate the Memorandum of Association or Bye-Laws,
or (iii) violate any provision of any federal, state or local law, rule or
regulation to which SGI is subject, or any judgment, writ, decree, injunction or
order to which SGI is a party or by which SGI is bound, which violation would
have an adverse effect on the ability of SGI to perform its obligations
hereunder, or a material adverse effect on the business, assets or financial
condition of SGI.
8.4 Binding Obligation. This Agreement constitutes the legal, valid
and binding obligation of SGI, enforceable in accordance with its terms.
Section 9. Warrantholder's Representations and Warranties. The holder of
this Warrant, by the acceptance hereof, represents that it is acquiring this
Warrant and Shares purchasable upon exercise of the Warrant for its own account
for investment and not with a view to, or for sale in connection with, any
distribution hereof or of any of the Shares or other securities issuable upon
the exercise thereof, and not with any present intention of distributing any of
the same. Upon exercise of this Warrant, the holder shall, if requested by SGI,
confirm in writing, in a form satisfactory to SGI, that Shares purchasable upon
exercise of the Warrant so purchased are being acquired solely for the holder's
own account and not as a nominee for any other party, for investment, and not
with a view toward distribution or resale and that such holder is an Accredited
Investor. If such holder cannot make such representations because they would be
factually incorrect, it shall be a condition to such holder's exercise of the
Warrant that SGI receive such other representations as SGI considers reasonably
necessary to assure SGI that the issuance of its securities upon exercise of the
Warrant shall not violate any United States or state securities laws.
Section 10. Information to Warrantholder. In addition to any other rights
to notice pursuant to this Agreement, SGI shall provide the following
information to the Warrantholder after the Commencement Date:
(i) information regarding any distribution by SGI to the
owners of any equity securities of SGI;
(ii) information regarding the granting to owners of any
equity securities of SGI, including holders of Shares, of any rights to
subscribe for or purchase any equity securities of SGI since the date of this
Agreement;
(iii) information regarding any amendment to the Memorandum of
Association or Bye-Laws of SGI since the date of this Agreement;
(iv) information regarding any proposed reclassification or
change in any Shares or any consolidation, merger, or sale of substantially all
of the assets, property or business of SGI; or
5
(v) such written information, documents and reports as have
been delivered to all shareholders of SGI since the date of this Agreement; and
(vi) such additional information as the Warrantholder may
reasonably request.
Section 11. Warrantholder Not a Shareholder. The Warrantholder, as the
holder of the Warrant, shall not be, and shall not have any of the rights or
privileges of, a Shareholder of SGI with respect to the Shares purchasable
hereunder, unless and until the Shares shall have been issued and delivered to
such Warrantholder in accordance with this Warrant Agreement.
Section 12. Notices. Any notices or other communications required or
permitted to be given hereunder shall be in writing and either delivered in
person, sent by courier, sent by mail, registered or certified mail, postage
prepaid, return receipt requested, or sent by facsimile transmission and
addressed to SGI at 595 Howe Street, Suite 1115, Vancouver, British Columbia V6C
2T5, Canada, Attn: Malcolm P. Burke, facsimile no.: 604-687-8678 (with a copy to
Altheimer & Gray, 10 South Wacker Drive, Suite 4000, Chicago, Illinois 60606,
Attn: Andrew W. McCune, facsimile no.: 312-715-4800) and to the Warrantholder as
set forth on the signature page to this Agreement, or such other address as
either party may from time to time specify in writing to the other in the manner
aforesaid. Such notices or communications shall be deemed delivered upon
personal or courier delivery or refusal of such delivery, five (5) business days
after being sent by mail, as set forth above or the first business day following
confirmed transmission if sent by facsimile transmission; provided such notice
or other communication is also mailed in accordance with the foregoing
requirements within two (2) days of delivery by facsimile.
Section 13. Successors and Assigns/Assignment.
13.1 Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their permitted
successors and assigns hereunder; provided, however, that neither this Agreement
nor the Warrant Certificate may be sold, assigned or transferred by any
Warrantholder (i) in the absence of an effective registration statement or an
exemption from such requirement under the Act, qualification or exemption from
such requirement under any applicable state laws or an opinion of counsel in
form and substance satisfactory to SGI that registration is not required under
the Act and under any applicable state laws; (ii) except as permitted pursuant
to and in compliance with the applicable gaming laws and regulations; and (iii)
with prior consent of SGI.
13.2 Assignment. Neither this Agreement, any Warrant nor any
Warrant Certificate may be sold, assigned or otherwise transferred, except to an
Affiliate of Warrantholder, unless SGI shall have consented thereto. It shall be
a condition to such assignment that the assignee execute a copy of this
Agreement. SGI may not be sell, assign or otherwise transfer this Agreement,
except to an Affiliate of SGI, unless the Warrantholder shall have consented
thereto. As used herein, an "Affiliate" is any person or entity which controls a
party to this Agreement, which that party controls, or which is under common
control with that party. "Control" means the power, direct or indirect, to
direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise.
Section 14. Fractional Shares. Fractional Shares shall not be issued to
the Warrantholder on exercise of any Warrant. In lieu thereof, the Warrantholder
shall receive the nearest whole number of Shares to which the Warrantholder is
entitled on such exercise.
6
Section 15. Applicable Law. This Agreement, the Warrant and the Warrant
Certificate issued hereunder shall be governed by and construed in accordance
with the laws of the State of Tennessee, without giving effect to the conflicts
of laws principles thereof.
Section 16. No Third Party Benefits. This Agreement shall not be construed
to give to any person or entity, other than SGI and the Warrantholder, any legal
or equitable right, remedy or claim under this Agreement, the Warrant or the
Warrant Certificates, and this Agreement, the Warrants and the Warrant
Certificates shall be for the sole and exclusive benefit of SGI and the
Warrantholder.
Section 17. Counterparts. This Agreement may be executed in any number of
counterparts or duplicate originals, each of which shall be an original, but all
of which together shall constitute one instrument.
Section 18. Entire Understanding. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters set forth
herein and supersedes all prior agreements, understandings and arrangements with
respect to the matters herein. This Agreement cannot be modified except by a
written instrument signed by SGI and the Warrantholder.
Section 19. Attorneys' Fees. If an action is instituted by any of the
parties hereto in any court of law or equity pertaining to the interpretation or
enforcement of any of the provisions of this Agreement, the prevailing party
shall be entitled to recover, in addition to any judgment or decree rendered
therein, all court costs and reasonable attorneys' fees and expenses.
Section 20. Specific Performance/Cumulative Remedies. SGI acknowledges
that, if it breaches any of its obligations hereunder, the Warrantholder shall
suffer irreparable injury for which damages shall be insufficient, and that the
Warrantholder, individually or as a group, shall have the right of specific
performance of such obligations. Notwithstanding the foregoing, the remedies
available to the Warrantholder in the event of a breach by SGI of this Agreement
shall be cumulative of those at law, equity or otherwise.
7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be duly executed as of the day and year first above
written.
SKY GAMES INTERNATIONAL LTD.
By: /s/ Malcolm P. Burke
----------------------
Name:Malcolm P. Burke
----------------------
Title:President
---------------------
HARRAH'S INTERACTIVE INVESTMENT COMPANY
By: /s/ John M. Boushy
----------------------
Name:John M. Boushy
----------------------
Title:Senior Vice President
---------------------
Address: 1023 Cherry Road
Memphis, Tennessee 38117
Facsimile: 901-762-8914
8
EXHIBIT A
---------
WARRANTHOLDER
-------------
Name Shares Issuable on Exercise
- ---- ---------------------------
Harrah's Interactive Investment The number of Shares equal to
Company 1,000,000 Shares less the number of
Shares issued pursuant to conversion
of that certain Convertible Secured
Promissory Note dated the date hereof
issued under that certain Funding
Agreement dated the date hereof
between SGI and IEL, as borrower, and
Warrantholder, as lender.
If SGI shall at any time prior to the
exercise of the Warrant (i) pay a
dividend in Shares or makes a pro
rata distribution to all of its
Shareholders in Shares, (ii)
subdivide its outstanding Shares into
a greater number of Shares, or (iii)
combine its outstanding Shares, the
Exercise Price in effect immediately
after the record date for such
dividend shall be adjusted so that it
shall equal the price determined by
multiplying the Exercise Price in
effect immediately prior thereto by a
fraction, the numerator of which
shall be the number of Shares
outstanding immediately before such
dividend, distribution, subdivision
or combination. Such adjustments
shall be made successively whenever
any event specified shall occur.
A-1
EXHIBIT B
---------
WARRANT CERTIFICATE
-------------------
No. 1
THE SECURITIES EVIDENCED BY THIS CERTIFICATE AND THE SECURITIES THAT MAY BE
ACQUIRED UPON ITS EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY BE ACQUIRED UPON ITS EXERCISE
MAY BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER THE ACT AND QUALIFICATION UNDER ANY
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM, OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO SGI THAT SUCH REGISTRATION OR QUALIFICATION
OR BOTH IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES OF
SKY GAMES INTERNATIONAL LTD.
VOID AFTER 5:00 P.M. MEMPHIS TIME
ON
____________ __, 1997
This Warrant Certificate certifies that, for value received, Harrah's
Interactive Investment Company, a Nevada corporation (the "Warrantholder"), the
registered holder hereof, or its permitted assigns, is entitled to purchase
______________ from SKY GAMES INTERNATIONAL, a Bermuda exempted company ("SGI"),
the Shares of SGI or such other number of Shares as the Warrantholder then is
entitled to purchase pursuant to the Warrant Agreement (as hereinafter defined).
The right granted herein may be exercised at the times and in the amounts on and
after the Commencement Date (as such date is defined in the Warrant Agreement)
specified in the Warrant Agreement and shall terminate at the Termination Date
(as such date is defined in the Warrant Agreement) specified in the Warrant
Agreement. Closing of such exercise is subject to the satisfaction of several
conditions set forth in the Warrant Agreement. The purchase price for each
Share upon exercise of this Warrant initially shall be as set forth in the
Warrant Agreement (the "Exercise Price"). The Exercise Price and the number of
Shares of SGI purchasable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in the Warrant Agreement.
Subject to the terms of the Warrant Agreement, this Warrant may be
exercised in whole or in part by presentation of this Warrant Certificate with
the Exercise Form and Investment Certificate attached hereto duly completed and
executed and simultaneous payment of the Exercise Price for all of the Shares
for which the Warrant is then exercised at the principal office of SGI. Payment
of such Exercise Price shall be made to SGI in cash, by certified bank or
cashier's check made payable to the order of SGI or other immediately available
funds.
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement dated as of May __, 1997 (the "Warrant Agreement"), between SGI and
the Warrantholder named therein, and is subject to the terms and provisions
contained in the Warrant Agreement, to, which the Warrantholder consents by
acceptance hereof.
B-1
This Warrant Certificate is transferable at the office of SGI in the manner
and subject to the limitations set forth in the Warrant Agreement.
Neither this Warrant Certificate nor the Warrant entitles the Warrantholder
to any of the rights of a partner or a Shareholder of SGI.
IN WITNESS WHEREOF, SGI has caused this Warrant Certificate to be duly
executed and delivered by its duly authorized officer as of May __, 1997.
SKY GAMES INTERNATIONAL LTD.
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
B-2
EXHIBIT C
---------
TO WARRANT CERTIFICATE
----------------------
EXERCISE FORM
-------------
The undersigned hereby irrevocably elects to exercise the Warrant represented by
Warrant Certificate No. 1 dated as of May __, 1997, of Sky Games International
Ltd. ("SGI"), and pursuant to the terms of that certain Warrant Agreement dated
as of May __, 1997 between SGI and the Warrantholder, hereby tenders to SGI the
aggregate payment therefor of $_____________, for ____ Shares of Common Stock,
par value Cdn. $.01.
Name_________________________________
Address_______________________________
Signature______________________________
Date__________________________________
(Signature must conform in all respects to name of Warrantholder on the face of
the Warrant Certificate.)
C-1
EXHIBIT 6
CONVERTIBLE SECURED
PROMISSORY NOTE
$1,000,000 Memphis, Shelby County, Tennessee
May 13, 1997
This PROMISSORY NOTE (this "Note") is executed as of this 13th day of
May, 1997, by Interactive Entertainment Limited, a Bermuda exempted company
("IEL"), whose address is c/o Harrah's Interactive Entertainment Company, 1023
Cherry Road, Memphis, Tennessee 38117 (facsimile no.: 901-762-8914), in favor of
Harrah's Interactive Investment Company, a Nevada corporation ("HIIC" or
"Holder"), whose legal address is 1023 Cherry Road, Memphis, Tennessee 38117.
1. Promise to Pay. For value received, Maker hereby promises to pay
to the order of Holder the principal sum equal to the lesser of $1,000,000 or
the aggregate amounts advanced hereunder ("Loan Amount") pursuant to the terms
and conditions of that certain Funding Agreement between, inter alia, Maker and
Holder dated contemporaneously herewith (the "Funding Agreement") and related
Financing Agreements (as defined in the Funding Agreement), together with
interest thereon at the rate as hereinafter specified, all in lawful money of
the United States of America which constitutes legal tender for payment of
debts, public and private, at the time of payment.
2. Interest Rate. Interest on the unpaid principal balance of this
Note outstanding from the date hereof and from time to time shall be paid at a
rate equal to the prime rate, plus two percent (2%) per annum ("Interest Rate").
The prime rate shall be that as published from time to time in The Wall Street
Journal. Interest payable hereunder shall be calculated on a 360-day year based
on the actual number of days for which any amounts payable hereunder remain
outstanding.
3. Maturity Date. The "Maturity Date" shall mean June 21, 1997. The
entire outstanding principal balance of this Note, together with all accrued but
unpaid interest, shall, if not previously paid (including by way of conversion
into Shares (as herein defined) pursuant to Section 7 hereof), be finally due
and payable on the Maturity Date.
4. Payment Schedule. Interest shall accrue on the outstanding
principal balance hereunder at the Interest Rate. Payments of interest only
shall be payable by withholding amounts equal to accrued and unpaid interest
from each advance hereunder subsequent to the initial advance until the Maturity
Date, at which time the entire outstanding principal balance of this Note
together with all accrued but unpaid interest hereunder shall, if not previously
paid, be fully due and payable.
5. Prepayment Privilege. Maker shall have the right to prepay all or
any portion of the Loan Amount, plus an accrued and unpaid interest thereon, at
any time; provided, however, that Maker shall give Holder at least five (5)
days' prior written notice of any proposed prepayment.
6. Security. The obligations of Maker under this Note shall be
secured by the Security Agreement dated as of the date hereof attached as
Exhibit E to the Funding Agreement and guaranteed by the Guaranty dated as of
the date hereof attached as Exhibit C to the Funding Agreement, and any and all
other documents which may be delivered in connection with the granting or
perfection of such security or which may secure this Note from time to time
(collectively, the "Security Documents"). Maker agrees to take such other
action and execute such other documents as may be requested by Holder to perfect
its security interest in such collateral.
7. Conversion. Effective immediately upon consummation of the
amalgamation of IEL and SGI Holding Corporation Limited ("SGIH"), the
outstanding Loan Amount and accrued interest due hereunder as of the date of
such amalgamation (the "Outstanding Amount") shall automatically convert into
the number of shares of common stock, par value Cdn$.01 per share, of SGI
("Shares") at the conversion price per Share of $1.00 (the "Conversion Price")
without any further action required by either Maker or Holder.
In the event of any capital reorganization or reclassification of the
Shares, any consolidation or merger of Maker with or into a corporation, limited
partnership, limited liability company or other entity or any sale, lease or
other disposition of all or substantially all of the assets of Maker, that is
effected in such a manner that holders of Shares are entitled to receive
securities and/or property (including cash) with respect to or in exchange for
Shares and that does not result in a prepayment by Maker pursuant to Section 5,
Maker shall, as a condition precedent to such transaction, cause effective
provision to be made so that Holder, or an affiliate of Holder, shall have the
right thereafter to convert this Note for the kind and amount of securities
and/or other property receivable upon such event by a holder of the number of
Shares for which this Note could have been converted immediately prior to such
event.
In the event that SGI shall at any time prior to the exercise of the
conversion of the Note, (i) pay a dividend in Shares or make a pro rata
distribution to all of its shareholders in Shares, (ii) subdivide its
outstanding Shares into a greater number of Shares, or (iii) combine its
outstanding Shares into a smaller number of Shares, the Conversion Price in
effect immediately after the record date for such dividend or distribution or
the effective date of such subdivision or combination shall be adjusted so that
it shall equal the price determined by multiplying the Conversion Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the number of Shares outstanding immediately before such dividend, distribution,
subdivision or combination, and the denominator of which shall be the number of
Shares outstanding immediately after such dividend, distribution, subdivision or
combination. Such adjustments shall be made successively whenever any event
specified above shall occur.
8. Application of Payments. All payments hereunder shall be applied
first to the payment of late charges on defaulted payments as hereinafter
provided; second, to the payment of accrued and unpaid interest on the principal
of this Note, including interest accrued at the Default Rate as hereinafter
provided; and third, to the reduction of principal of this Note.
9. Default Interest Rate and Late Charge on Defaulted Payments. Any
payment not make within five (5) days after the same is due hereunder, and
including the entire balance of principal, interest and other sums due upon the
maturity hereof, by acceleration or otherwise, shall bear interest at three
percent (3%) above the then current Interest Rate ("Default Rate"), such
interest to accrue from the date due until paid. In addition, a late charge of
four cents ($.04) per dollar shall be due and payable on all sums not paid when
due but not on any sums due by reason of acceleration.
10. Default. Each of the following shall constitute an "Event of
Default" under this Note:
(a) the failure of Maker to pay in full any amount due hereunder by
the date the same is due, as provided herein, and such failure shall continue
for five (5) days after written notice from Holder to Maker of such failure, or
Maker's failure to pay in full any amount due hereunder upon maturity of this
Note, by acceleration or otherwise;
2
(b) the failure of Maker to perform, satisfy and observe in all
material respects, when due, any of the obligations, covenants, conditions and
restrictions under the Financing Agreements or the failure of any
representations and warranties thereunder to be true and correct in any material
respect, not involving the payment of money, and such failure shall continue for
fifteen (15) days after written notice from Holder to Maker of such failure, or
if said failure cannot reasonably be cured within said fifteen (15)-day period,
Maker shall not have pursued the cure with reasonable diligence and shall not
have cured such failure within sixty (60) days after the written notice from
Holder to Maker or SGI and SGIH described above;
(c) an uncured default by Maker shall exist under the Security
Documents; or
(d) an uncured default by either or both of SGI or SGIH shall exist
under any of the Financing Agreements.
11. Right to Accelerate on Event of Default. Upon any uncured Event
of Default hereunder, the entire balance of principal, accrued interest, and any
other sum owing hereunder shall, at the option of Holder, become at once due and
payable without prior notice or demand.
12. Waivers of Demand, etc. Maker and all parties now or hereafter
liable for the payment hereof, primarily or secondarily, directly or indirectly,
and whether as endorser, guarantor, surety, or otherwise, severally waive
demand, presentment, notice of dishonor or nonpayment, protest and notice of
protest, and diligence in collecting, and consent to extensions of time for
payment, renewals of this Note and acceptance of partial payments, whether
before, at, or after maturity, all or any of which may be made without notice to
any of said parties and without affecting their liability to Holder.
13. Costs of Collection. Maker and all parties now or hereafter
liable for the payment hereof agree, jointly and severally, to pay all costs and
expenses, including reasonable attorneys' fees, incurred in collecting this Note
or any part thereof.
14. No Usury Payable. The provisions of this Note and of all
Agreements between Maker and Holder are hereby expressly limited so that in no
contingency or event whatsoever shall the amount paid, or agreed to be paid, to
Holder for the use, forbearance, or retention of the Loan Amount ("Interest")
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, the performance or fulfillment of any provision hereof
or of any other agreement between Maker and Holder shall, at the time
performance or fulfillment of such provision shall be due, exceed the limit for
Interest prescribed by law, then, ipso facto, the obligation to be performed or
fulfilled shall be reduced to such limit. If, from any circumstance whatsoever,
Holder should ever receive as Interest an amount which would exceed the highest
lawful rate, the amount which would be excessive Interest shall be applied to
the reduction of the principal balance owing hereunder (or, at Holder's option,
or if no principal shall be outstanding, be paid over to Maker) and not to the
payment of Interest.
15. Severability of Provisions. If any provision hereof shall, for
any reason and to any extent, be invalid or unenforceable, then the remainder of
the instrument in which such provision is contained, the application of the
provision to other persons, entities or circumstances, and any other instrument
referred to herein shall not be affected hereby but instead shall be enforceable
to the maximum extent permitted by law.
16. Successors to Maker or Holder. The term "Maker" as used herein
shall include the original maker of this Note and any party who may subsequently
become primarily liable for the payments hereof. The term "Holder" as used
herein shall mean the original payee of this Note or, if this Note is
transferred, the then
3
holder of this note, provide that this Note shall not be transferred, negotiated
or assigned, except to an Affiliate of Holder, without the prior consent of
Maker, which consent shall not be unreasonably withheld, and, until written
notice is given to IEL designating another party as Holder, Maker may consider
the Holder to be the original payee or the party last designated as Holder in a
written notice to IEL. As used herein "Affiliate" is any person or entity which
controls a party to the Financing Agreements, which that person controls, or
which is under common control with that party. "Control" means the power, direct
or indirect, to direct or cause the direction of the management and policies of
a person or entity through voting securities, contract or otherwise.
17. Notices. All notices and other communications to be delivered or made
under this Note shall be in writing, signed by the party giving the same, and
shall be deemed properly given and shall be effective (i) five (5) business days
after mailed, if sent by registered or certified mail, postage prepaid, (ii)
when actually received or delivery is refused, if delivered personally or
delivered by courier, (iii) upon the first business day following confirmed
transmission, if transmitted by facsimile; provided such notice or communication
is also mailed in accordance with the foregoing requirement within two (2) days
of delivery by facsimile to the address set forth in the first paragraph of this
Note, or to such other address as a party may designate by written notice to the
other party.
18. Captions for Convenience. The captions to the Sections hereof are for
convenience only and shall not be considered in interpreting the provisions
hereof.
19. Governing Law. Regardless of the place of its execution, this Note
shall be construed and enforced in accordance with the laws of the State of
Tennessee.
4
MAKER:
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ Malcolm P. Burke
--------------------
Its: Vice President
--------------
HOLDER:
HARRAH'S INTERACTIVE INVESTMENT COMPANY
By: /s/ John M. Boushy
------------------
Its: Senior Vice President
---------------------
AGREEMENT AND ACKNOWLEDGMENT
Sky Games International Ltd., a Bermuda exempted company ("SGI"), hereby
acknowledges that the Outstanding Amount under this Note may convert into shares
of common stock, Cdn$.01 per share ("Shares"), of SGI under certain
circumstances and hereby agrees to issue Shares in accordance with the terms of
this Note in the event of any such conversion.
SKY GAMES INTERNATIONAL LTD.
By: /s/ Malcolm P. Burke
--------------------
Its: President
---------
5
EXHIBIT 7
[EXECUTION COPY]
----------------
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") dated as of May 13, 1997
is entered into by Interactive Entertainment Limited, a Bermuda exempted company
("Debtor") and Harrah's Interactive Investment Company, a Nevada corporation
(the "Secured Party").
Recitals:
--------
A. SGI Holding Corporation Limited ("SGIH") and Debtor have requested that
the Secured Party provide Debtor with a loan to Debtor (the "Loan"), which Loan
will provide Debtor with funds necessary to permit Debtor to carry on Debtor's
day-to-day business activities.
B. The Secured Party has agreed, although the Secured Party is under no
obligation to do so, to make such Loans and other financial accommodations to
Debtor from time to time which are pursuant to and reflected in the Funding
Agreement, the Convertible Promissory Note (the "Note"), the Pledge and Security
Agreement, the Guaranty, the Warrant Agreement, all of even date herewith
(collectively, with this Security Agreement, the "Financing Agreements").
C. Secured Party's agreement to make the Loan is conditioned on the
guaranty of such Loan by SGIH, the receipt of a security interest in all of the
assets of IEL as evidenced by this Security Agreement.
Agreements:
----------
NOW, THEREFORE, in consideration of the premises set forth therein, and to
induce Secured Party to make the Loan and financial accommodations to Debtor on
the terms and provisions and as reflected in the Note and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions. The following terms shall have the following meanings:
"Accounts" shall mean any "account," as such term is defined in the
Uniform Commercial Code.
"Chattel Paper" shall mean any "chattel paper," as such term is defined
in the Uniform Commercial Code.
"Collateral" is defined in Section 2 hereof.
"Contracts" shall mean all contracts, undertakings or other agreements
(other than rights evidenced by Chattel Paper or Documents) in or under which
Debtor may now or hereafter have any right, title or interest, including,
without limitation, with respect to an Account, any agreement relating to the
terms of payment or the terms of performance thereof.
"Copyrights" shall mean any of Debtor's copyrights, rights and interests
in copyrights, works protectible by copyrights, copyright registrations and
copyright applications and all renewals of any of the foregoing, all income,
royalties, damages and payments now or hereafter due or payable under or with
respect to any of the foregoing, including, without limitation, damages and
payments for past, present and future
infringements of any of the foregoing and the right to sue for past, present and
future infringements of any of the foregoing.
"Default" shall mean the occurrence of an uncured Event of Default.
"Documents" shall mean any "documents," as such term is defined in the
Uniform Commercial Code.
"Event of Default" shall mean an uncured event of default under the
Financing Agreements.
"Equipment" shall mean any "equipment," as such term is defined in the
Uniform Commercial Code and shall include motor vehicles, tractors, trailers and
other like property, whether or not the title thereto is governed by a
certificate of title or ownership.
"General Intangibles" shall mean any "general intangibles," as such
term is defined in the Uniform Commercial Code and shall include, without
limitation, all right, title and interest in or under any Contract, drawings,
materials and records, claims, literary rights, goodwill, rights of performance,
Copyrights, Trademarks, Patents, warranties, rights under insurance policies and
rights of indemnification.
"Goods" shall mean any "goods," as such term is defined in the Uniform
Commercial Code.
"Inventory" shall mean any "inventory," as such term is defined in the
Uniform Commercial Code.
"Investment Property" shall mean any "certificated security," or
"uncertificated security" as such terms are defined in the Uniform Commercial
Code.
"Patents" shall mean any of Debtor's patents and patent applications,
including, without limitation, the inventions and improvements described and
claimed therein, all patentable inventions and the reissues, divisions,
continuation, renewals, extensions and continuations-in-part of any of the
foregoing, and all income, royalties, damages and payments now or hereafter due
or payable under or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.
"Proceeds" shall mean "proceeds," as such term is defined in the
Uniform Commercial Code and shall include, without limitation, (a) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable with respect
to any of the Collateral, (b) any and all payments, in any form whatsoever, made
or due and payable from time to time in connection with any confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental authority, and (c) any and all other amounts from time to time paid
or payable under, in respect of or in connection with any of the Collateral.
"Trademarks" shall mean any of Debtor's trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, other business identifiers, prints and labels on
which any of the foregoing have appeared or appear, all registrations and
recordings thereof, and all applications in connection therewith and renewals
thereof, and all income, royalties, damages and payments now or hereafter due or
payable under or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.
2
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect from time to time in the State of Tennessee; provided, however, if, by
reason of mandatory provisions of law, the attachment, perfection or priority of
Secured Party's security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of
Tennessee, the term "Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
2. Grant of Security Interest. As collateral security for the Loan,
Debtor hereby pledges and grants to Secured Party a lien on and security
interest in and to all of Debtor's right, title and interest in the following
property and interests in property, whether now owned or hereafter acquired by
Debtor and wherever located (collectively, the "Collateral"):
(a) all Accounts;
(b) all Inventory;
(c) all General Intangibles;
(d) all Equipment;
(e) all Documents;
(f) all Contracts, including, without limitation, that certain Cross-
License Agreement, dated as of December 30, 1994, between Harrah's Interactive
Entertainment Company, a Nevada corporation and an affiliate of Secured Party
("HIEC"), and Sky Games International Ltd., a Bermuda exempted company f/k/a
Creator Capital Inc., an affiliate of SGIH ("SGI"), a copy of which is attached
as Exhibit A hereto;
(g) all Goods;
(h) all Investment Property;
(i) all bank and depositary accounts maintained by Debtor, all funds
on deposit therein, all investments arising out of such funds, all claims
thereunder or in connection therewith, and all cash, securities, rights and
other property at any time and from time to time received, receivable or
otherwise distributed in respect of such accounts; and
(j) all other tangible and intangible property of Debtor, including
without limitation, all Proceeds, products, accessions, rents, profits, income,
benefits, substitutions, additions and replacement of and to any of the property
described in this Section 2 including, without limitation, any proceeds of
insurance thereon and all rights, claims and benefits against any person
relating thereto) and all books, correspondence files, records, invoices and
other papers, including, without limitation, all tapes, cards, computer runs,
computer programs, computer files and other papers, documents and records in the
possession or under the control of Debtor or any computer bureau or service
company from time to time acting for Debtor.
3. Representations, Warranties and Covenants of Debtor. Debtor represents
and warrants to, and covenants with, Secured Party as follows:
3
(a) This Agreement is effective to create in favor of Secured Party a
valid security interest in and lien upon all of Debtor's right, title and
interest in and to the Collateral and, upon the filing of appropriate Uniform
Commercial Code financing statements, such security interest will be duly
perfected in all of the Collateral.
(b) Debtor has full right, power and authority to assign and transfer
its interest in the Collateral to Secured Party and to confer upon Secured Party
the rights, interests, powers and authorities herein granted and conferred.
(c) Debtor's interests in the Collateral are not subject to any
claim, setoff, lien or encumbrance of any nature, except as created hereby.
4. Agreements of Debtor. Debtor hereby agrees with Secured Party as
follows:
(a) Other Documents and Actions. Debtor shall give, execute, deliver,
file or record any financing statement, notice, instrument, agreement or other
document that may be necessary or desirable in the reasonable judgment of
Secured Party to create, preserve, perfect or validate the security interest
granted pursuant hereto or to enable Secured Party to exercise and enforce the
rights of Secured Party hereunder with respect to such security interest.
(b) Books and Records. Debtor shall maintain complete and accurate
books and records of the Collateral, including, without limitation, a record of
all payments received and all credits granted with respect to the Collateral and
all other dealings with the Collateral. Debtor shall permit any representative
of Secured Party to inspect such books and records at any time during reasonable
business hours and shall provide photocopies thereof to Secured Party upon the
request of Secured Party.
(c) Further Identification of Collateral. Debtor shall, when and as
often as reasonably requested by Secured Party, furnish to Secured Party,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
(d) Changes in Name; Location. Debtor shall notify Secured Party
promptly in writing prior to any change in Debtor's name, identity or corporate
structure or the proposed use by Debtor of any new trade name or fictitious
business name.
(e) Collections. Until notice from Secured Party to the contrary,
given at any time during any Default, Debtor shall, at its own expense, endeavor
to collect all amounts due with respect to any of the Accounts and shall take
such action with respect to such collection as Debtor may deem advisable.
5. Remedies. During the period of any Default:
(a) Secured Party shall have, in addition to other rights and
remedies provided for herein or otherwise available to it, all of the rights and
remedies of a Secured Party upon a default under the Uniform Commercial Code
(whether or not the Uniform Commercial Code applies to the affected Collateral)
and Secured Party may, without notice, demand or legal process of any kind
except as may be required by law, at any time or times (i) enter Debtor's
premises and take physical possession of the Collateral and maintain such
possession on Debtor's premises or remove the Collateral or any part thereof to
such other place or places as
4
Secured Party may desire, (ii) require Debtor to, and Debtor hereby agrees to,
assemble the Collateral as directed by Secured Party and make it available to
Secured Party at a place to be designated by Secured Party which is reasonably
convenient to Secured Party and Debtor and (iii) either (x) retain the
Collateral for Secured Party's own use and benefit, or (y) without notice except
as specified below, sell, lease, assign, grant an option or options to purchase
or otherwise dispose of the Collateral or any part thereof at public or private
sale, at any exchange, broker's board or at any of the offices of Secured Party
or elsewhere, for cash, on credit or for future delivery, and upon such other
terms as Secured Party may deem commercially reasonable. Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor and such sale may,
without further notice, be made at the time and place to which it was so
adjourned;
(b) Secured Party may make any reasonable compromise or settlement
deemed desirable with respect to any of the Collateral and may extend the time
of payment, arrange for payment in installments or otherwise modify the terms
of, any of the Collateral; and
(c) Secured Party may, in the name of Secured Party or in the name of
Debtor or otherwise, demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so;
6. Deficiency; Application of Proceeds. If the proceeds of sale,
collection or other realization of or upon the Collateral are insufficient to
cover the costs and expenses of such realization and the payment in full of the
amounts owed under the Notes, Debtor shall remain liable for any deficiency. The
proceeds of any collection, sale or other realization of all or any part of the
Collateral shall be applied: first, to payment of all expenses payable or
reimbursable by Debtor under the Notes; second, to payment of all accrued unpaid
interest on the Notes; third, to payment of principal of the Notes; and last,
any remainder shall be for the account of and paid to Debtor.
7. Power of Attorney. Debtor hereby irrevocably constitutes and appoints
Secured Party, with full power of substitution, as its true and lawful attorney-
in-fact with full irrevocable power and authority in the place and stead of
Debtor and in the name of Debtor or in its own name, from time to time in the
discretion of Secured Party, after an uncured Event of Default, solely for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary to accomplish the purposes of this Agreement.
8. Termination. This Agreement and the liens and security interests
granted hereunder shall terminate upon the satisfaction of the obligation under
the Note, including by way of conversion of amounts outstanding under the Note
into shares of common stock, Cdn. $.01 par value, of SGI in connection with the
amalgamation of IEL with and into SGIH.
9. Further Assurances. At any time and from time to time, upon the
request of Secured Party, and at the sole expense of Debtor, Debtor shall
promptly and duly execute and deliver any and all such further instruments,
documents and agreements and take such further actions as Secured Party may
reasonably require in order for Secured Party to obtain the full benefits of
this Agreement, including, without limitation, using Debtor's best efforts to
secure all consents and approvals necessary or appropriate for the assignment to
Secured Party of any Collateral held by Debtor or in which Debtor has any rights
not heretofore assigned, the filing of any financing or continuation statements
under the Uniform Commercial Code with respect to the Liens and security
interests granted hereby, transferring Collateral to Secured Party's possession
if a security interest in such Collateral can be perfected by possession,
placing the interest of Secured Party as lienholder
5
on the certificate of title of any motor vehicle and obtaining waivers of liens
from landlords and mortgagees. Debtor further hereby authorizes Secured Party to
file any such financing or continuation statement without the signature of
Debtor to the extent permitted by law.
10. Consent and Agreement of HIEC and SGI. HIEC's and SGI's consent to
this Security Agreement and to Debtor's encumbering its interest in the
Collateral as provided herein and HIEC's and SGI's agreement to the provisions,
terms and conditions hereof is evidenced by the Consent and Agreement of HIEC
and the Consent and Agreement of SGI attached hereto and made a part hereof.
11. No Assumption by Secured Party. Neither this Security Agreement nor
any action or actions on the part of Secured Party shall constitute an
assumption of any obligation, duty or liability on the part of Secured Party and
Debtor shall continue to be liable for all its obligations in connection with
the Collateral, Debtor hereby agreeing to perform each and all of its
obligations under the Collateral and to indemnify and hold Secured Party free
and harmless from and against any loss, cost, liability, damage or expense
(including without limitation attorneys fees and expenses) resulting from any
failure of Debtor to so perform.
12. General.
(a) No failure of Secured Party to avail itself of any of the terms
and conditions of this Security Agreement for any period of time shall be
construed to be a waiver of any of its rights hereunder and Secured Party shall
have the full right and authority to enforce this Assignment or any of its terms
at any time or times that Secured Party shall deem fit.
(b) Secured Party shall incur no liability to Debtor if any action
taken by Secured Party or in its behalf in good faith pursuant to this
Assignment or any of the other Financing Agreements shall prove to be in whole
or in part inadequate or invalid.
(c) All notices and other communications to be delivered or made
hereunder shall be in writing and shall be (i) delivered personally, (ii) sent
by postage prepaid certified mail, return receipt requested, (iii) sent by
express courier service, or (iv) sent by facsimile at the following addresses or
at such other addresses as shall be described in written notice as provided
herein:
Debtor: Interactive Entertainment Limited
595 Howe Street, Suite 1115
Vancouver, British Columbia V6C 2T5
Facsimile No.: 604-687-8678
With a copy to: Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attn: Andrew W. McCune, Esq.
Facsimile No.: 312-715-4800
Secured Party: Harrah's Interactive Investment Corporation
1023 Cherry Road
Memphis, Tennessee 38117
Attn: John M. Boushy
6
Facsimile No.: 901-762-8914
With a copy to: Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Attn: John W. McConomy, Esq.
Facsimile No.: 901-762-8735
All such notices and communications shall be effective, if mailed, upon
expiration of the fifth (5th) day following the date of mailing (except that any
notice of change of address shall be effective only upon receipt by the party to
whom such notice is addressed), and if delivered personally or delivered by
courier, upon receipt or refusal of delivery and if by facsimile, upon the first
business day following confirmed transmission; provided such notice or
communication is also mailed in accordance with the foregoing requirements
within two (2) days of delivery by facsimile.
(d) This Security Agreement and the other Financing Agreements shall
be governed by and construed in accordance with the laws of the State of
Tennessee. Debtor and Secured party further agree that the determination of any
action relating to this Security Agreement or any of the Financing Agreements
delivered in favor of Secured Party shall be either an appropriate court of the
State of Tennessee or the United States District Court for the Western District
of Tennessee.
(e) All of the rights of Secured Party under this Assignment shall be
cumulative and shall inure to the benefit of and may be enforced by Secured
Party and its successors and assigns. All obligations of Debtor, HIEC and SGI
hereunder shall be binding upon the legal representatives, successors and
Debtors of Debtor, HIEC and SGI.
(f) The section headings in this Security Agreement are for
convenience of reference only, are not to be considered in part hereof and shall
not limit or otherwise affect any of the terms hereof.
(g) This Security Agreement may be executed in any number of
counterparts each of which shall be deemed an original and all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, Debtor has executed this Security Agreement as of the
date first above written.
INTERACTIVE ENTERTAINMENT LIMITED
By:/s/ Malcolm P. Burke
--------------------
Name: Malcolm P. Burke
-----------------
Title: Vice President and Director
----------------------------
7
EXHIBIT A
CROSS-LICENSE AGREEMENT
8
CONSENT AND AGREEMENT
OF
SKY GAMES INTERNATIONAL LTD.
With respect to its interest in the Cross-License Agreement (the
"Agreement") referred to in the attached Security Agreement (the "Security
Agreement") from Interactive Entertainment Limited, a Bermuda exempted company
("Assignor"), to and for the benefit of Sky Games International Ltd., a Bermuda
exempted company f/k/a Creator Capital Inc., a Yukon Territory corporation
("Assignee"), the undersigned ("SGI") hereby: (a) consents to Assignor's
assignment of all of its right, title and interest in the Agreement as provided
in the Assignment and to Assignor's encumbering its interest in the Agreement as
provided therein; (b) confirms that the Exhibit A attached to the Agreement is a
true, correct and complete copy of the Agreement, the Agreement is in full force
and effect and constitutes and represents the entire agreement between Assignor
and SGI with respect to the rights and licenses contained therein, there have
been no modifications or additions thereto, written or oral, and there exists no
breach, default or event of default which, with the giving of notice or the
passage of time or both, would constitute a breach thereunder; (c) agrees to all
of the provisions, terms and conditions set forth in the Assignment as they
relate to SGI; (d) agrees to give the notices and certificates and observe and
perform the agreements of SGI provided therein; and (e) agrees to recognize
Assignee under the Agreement for all purposes as though Assignee were an
original party thereunder upon Assignee's assumption of the Agreement pursuant
to Section 5 or 6 of the Assignment.
IN WITNESS WHEREOF, SGI has executed this Consent and Agreement as of the
date first set forth in the Assignment.
SKY GAMES INTERNATIONAL LTD.
By:/s/ Malcolm P. Burke
--------------------
Name:Malcolm P. Burke
----------------
Title:President
---------
9
CONSENT AND AGREEMENT
OF
HARRAH'S INTERACTIVE ENTERTAINMENT COMPANY
With respect to its interest in the Cross-License Agreement (the
"Agreement") referred to in the attached Security Agreement (the "Security
Agreement") from Interactive Entertainment Limited, a Bermuda exempted company
("Assignor"), to and for the benefit of Harrah's Interactive Investment Company,
a Nevada corporation ("Assignee"), the undersigned ("HIEC") hereby: (a) consents
to Assignor's assignment of all of its right, title and interest in the
Agreement as provided in the Assignment and to Assignor's encumbering its
interest in the Agreement as provided therein; (b) confirms that the Exhibit A
attached to the Agreement is a true, correct and complete copy of the Agreement,
the Agreement is in full force and effect and constitutes and represents the
entire agreement between Assignor and HIEC with respect to the rights and
licenses contained therein, there have been no modifications or additions
thereto, written or oral, and there exists no breach, default or event of
default which, with the giving of notice or the passage of time or both, would
constitute a breach thereunder; (c) agrees to all of the provisions, terms and
conditions set forth in the Assignment as they relate to HIEC; (d) agrees to
give the notices and certificates and observe and perform the agreements of HIEC
provided therein; and (e) agrees to recognize Assignee under the Agreement for
all purposes as though Assignee were an original party thereunder upon
Assignee's assumption of the Agreement pursuant to Section 5 or 6 of the
Assignment.
IN WITNESS WHEREOF, HIEC has executed this Consent and Agreement as of the
date first set forth in the Assignment.
HARRAH'S INTERACTIVE ENTERTAINMENT COMPANY
By:/s/ John M. Boushy
--------------
Name:John M. Boushy
--------------
Title:Senior Vice President
---------------------
10
CROSS-LICENSE AGREEMENT
THIS CROSS-LICENSE AGREEMENT (this "Agreement") is made and entered into as
of the ____ of December 1994, by and among Creator Capital Inc., a Yukon
Territory corporation ("CCI"), Interactive Entertainment Limited, a Bermuda
exempted company ("the Venture"), and Harrah's Interactive Entertainment
Company, a Nevada corporation (the "Manager"). Sky Games International, Corp.
("SGIC"), a Nevada corporation and an Affiliate (as defined below) of CCI, and
SGI Holding Corporation Limited ("SGI Holding"), a Bermuda exempted company and
an Affiliate of CCI, are also executing this Agreement solely for the purposes
of making the representations, warranties, covenants and agreements specifically
made by them in Sections 5 and 8 of this Agreement and to become bound by the
provisions of Sections 7 and 10 of this Agreement, and neither SGIC nor SGI
Holding shall have any other liability or obligation under this Agreement. As
used herein, the term "Affiliate" shall mean an entity, including without
limitation a general partnership or a business trust, controlling, controlled by
or under common control with another entity (except that the Venture shall not
be deemed to be an Affiliate of either SGI Holding or the Manager or any of
their respective Affiliates).
W I T N E S S E T H :
WHEREAS, SGIC has purchased and/or developed software, in both object code
and source code format and including any and all documentation related thereto,
in connection with the development of a computer-based interactive video system
for the operation of gaming and related entertainment activities on-board
aircraft and other venues or locations (which software is described generally on
Schedule A attached hereto and hereby made a part hereof, and which is
memorialized in its current form on diskette(s) attached hereto as Exhibit 1)
and certain additional inventions (whether or not patentable), know-how, trade
secrets and other proprietary information related to or in connection with such
software (collectively, the "Software");
WHEREAS, CCI has acquired from SGIC all right, title and interest in and to
the Software pursuant to an Assignment Agreement (the "SGIC Assignment"), a copy
of which is attached hereto as Exhibit 2;
WHEREAS, the Venture has been recently formed as a Bermuda exempted company
by SGI Holding, which owns 80% of the issued and outstanding stock of the
Venture, and Harrah's Interactive Investment Company, a Nevada corporation and
an Affiliate of the
Manager, which owns the remaining 20% of the issued and outstanding stock of the
Venture, to develop, implement and operate gaming and other operations in the
pursuit of the "Company Business" (as defined in that certain Shareholders
Agreement, of even date herewith, among SGI Holding, Harrah's Interactive
Investment Company and the Venture, and as such Shareholders Agreement may be
amended from time to time (the "Shareholders Agreement"));
WHEREAS, the Venture has determined that it is in its best interest to
obtain a license to use the Software, and CCI desires to license the Software to
the Venture, on the terms and conditions stated herein;
WHEREAS, it is intended by the Venture that the further development of the
Software and the exploitation of the Software on behalf of the Venture primarily
will be undertaken by the Manager, acting as the manager of the Venture's
business pursuant to a Management Agreement of even date herewith, between the
Venture and the Manager (the "Management Agreement");
WHEREAS, to the extent that the Venture develops or acquires improvements
to the Software, CCI desires to obtain license rights thereto for the purpose of
engaging in business opportunities proposed by SGI Holding or its Affiliates
which are neither undertaken by the Venture nor in conflict with the business of
the Venture (as provided in the Shareholders Agreement), and the Venture desires
to license such rights to CCI, on the terms and conditions stated herein; and
WHEREAS, the Manager desires to obtain license rights to the Software and
the Venture Technology (as defined below) for the purpose of engaging in
business opportunities proposed by the Manager or its Affiliates which are
neither undertaken by the Venture nor in conflict with the business of the
Venture (as provided in the Shareholders Agreement), and CCI and the Venture
desire to license such rights to the Manager, on the terms and conditions stated
herein.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agrees as follows:
-2-
1. License from CCI to the Venture.
(a) License of Software. CCI hereby grants to the Venture an
exclusive (subject to the licenses and rights of use provided for in Sections 2
and 3), worldwide, royalty-free license to the Software for use by the Venture
in the development, implementation and operation of gaming and other pursuits
within the Company Business as such Company Business from time to time shall be
determined by the Venture.
(b) Improvements. The Venture acknowledges and understands that the
Software is not complete and that further development of the Software is
necessary for the implementation and operation of gaming. The Venture also
acknowledges and agrees that any further development, modification, improvement,
upgrading and maintenance of the Software (collectively, "Improvements") for use
within the Company Business shall be the sole responsibility of the Venture.
Except as otherwise provided herein, the Venture shall be the sole and exclusive
owner of all right, title and interest in and to any Improvements made by the
Manager on behalf of the Venture and of all copyrights (including audiovisual
copyrights), patents, patent applications, trademarks, trade secrets, rights of
priority, design rights and other intangible rights therein (collectively,
"Intellectual Property Rights"), and the Manager hereby assigns all such
Improvements and all Intellectual Property Rights therein to the Venture.
Notwithstanding any other provision of this Agreement to the contrary, CCI and
the Venture hereby acknowledge and agree that none of the computer or other
systems of the Manager or any of its Affiliates, as they now exist or as they
may be developed from time to time, nor any interfaces or other modifications
developed to facilitate the operation of the Software in conjunction with such
systems of the Manager or any of its Affiliates (even if the costs of developing
such interfaces or modifications are paid for by the Venture), shall be deemed
to be the property of CCI or the Venture or otherwise deemed to be Improvements,
all such systems and interfaces and modifications shall remain the property of
the Manager or its Affiliates, and CCI and the Venture hereby assign all rights
in all such systems and interfaces and modifications, including but not limited
to Intellectual Property Rights, to the Manager. In the event that the Venture
(or the Manager acting on behalf of the Venture) retains any third party for the
purpose of creating or developing Improvements, the Venture or the Manager shall
require such third party to assign to and transfer to the Venture in writing all
right, title and interest to such Improvements and all Intellectual Property
Rights therein (including without limitation software source code), unless CCI
otherwise shall give its prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed. CCI shall
-3-
neither license others to use the Software, nor use the Software for the benefit
of itself, any of its Affiliates or any other party, except as set forth in
Sections 2 and 3.
(c) Disclaimer of Warranties. EXCEPT AS SET FORTH IN SECTION 5(a),
ALL SOFTWARE PROVIDED AND LICENSED UNDER THE SECTION 1 OR UNDER SECTION 3 IS ON
AN "AS IS" BASIS, AND NEITHER CCI NOR ANY OF ITS AFFILIATES ASSUMES ANY
RESPONSIBILITY FOR THE RESULTS OR CONSEQUENCES THAT MAY BE OBTAINED FROM THE USE
OF THE SOFTWARE, INCLUDING WITHOUT LIMITATION ANY ECONOMIC RESULTS OR
CONSEQUENCES OR ANY INJURIES TO PERSONS OR PROPERTY. ON BEHALF OF ITSELF AND
ITS AFFILIATES, CCI HEREBY DISCLAIMS IN THEIR ENTIRETY ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(d) Right to Modify. The Venture and any third party acting on
behalf of the Venture (through the Manager during the term of the Management
Agreement) shall have the unrestricted right to modify, and create derivative
works based upon, the Software as the Venture or the Manager may desire and to
merge any portion of the Software into any other software, provided that any
portion of the Software so modified shall remain subject to the terms and
conditions of this Agreement. The Venture (through the Manager during the term
of the Management Agreement) may, but shall not be obligated to, contract with
CCI or any of its Affiliates to develop Improvements on terms and conditions
mutually agreeable to the Venture and CCI or its Affiliate.
(e) Right to Make and Distribute Copies. The Venture and any third
party acting on behalf of the Venture (including the Manager during the term of
the Management Agreement) shall have the right to make and distribute copies of
the Software and Improvements to the extent deemed necessary by or on behalf of
the Venture and to the extent required for archival back-up or disaster recovery
purposes, provided that each such copy shall remain subject to the terms and
conditions of this Agreement.
(f) Sublicenses. The Venture (through the Manager during the term of
the Management Agreement) shall have the right to grant sublicenses to other
(including to the Manager) to use the Software, provided that no such
sublicensee shall have the right to grant further sublicenses (sub-sublicenses)
without the prior written consent of CCI, which shall not be unreasonably
withheld, conditioned or delayed, and provided further that any sublicense
granted under this subsection shall be subject to this Agreement and shall not
include any
-4-
terms or conditions inconsistent with this Agreement. Any such sublicensee
shall be permitted to exercise any right provided to the Venture in this
Section 1 to the extent that the Venture so authorizes such sublicensee in
writing.
(g) Access to Source Code. The Venture (through the Manager during
the term of the Management Agreement) and such contractors as the Venture or the
Manager may retain shall have complete access to all source code included in the
Software for all purposes within the scope of the license rights granted hereby,
subject only to the confidentiality provisions of Section 6 hereof.
(h) Related Rights. To the extent CCI has Intellectual Property
Rights related to the Software that might otherwise be infringed by the
Venture's or the Manager's use in any manner of the Software within the license
granted in this Section 1 or in Section 3, respectively, CCI grants to the
Venture and the Manager, as the case may be, and their respective sublicensees
and customers, a royalty-free, worldwide, exclusive (subject to the licenses and
rights of use provided for in Sections 2 and 3) license to such Intellectual
Property Rights to enable the Venture, the Manager and their respective
sublicensees and customers to exercise the license rights granted in this
Section 1 and in Section 3, respectively.
2. License from the Venture to CCI.
(a) License of the Venture Technology. The Venture hereby grants to
CCI a nonexclusive, worldwide license to all Improvements, including any
Improvements to prior Improvements, if any (collectively, the "Venture
Technology"), which licensed rights may only be used or commercially exploited
to the extent, and only to the extent, that such use or exploitation is
specifically excluded from the Company Business through the exercise by Harrah's
Interactive Investment Company of any right of disapproval under Section
1.6(a)(xii) or Section 3.2(b) of the Shareholders Agreement, subject in each
case to the proviso set forth in each such section of the Shareholders
Agreement, and provided that the excluded use is actually undertaken by CCI or a
Permitted CCI Sublicensee (as defined below) within a reasonable time following
such disapproval. Such exploitation or use may not be expanded beyond the
specific use or exploitation specifically disapproved by Harrah's Interactive
Investment Company. The Venture hereby covenants and agrees not to grant any
license to the Venture Technology to any other person for use within the above-
described field of use without the prior written consent of CCI, which shall not
be unreasonably withheld, conditioned or delayed if and to the extent that CCI
is not making use of such license rights and does not then contemplate making
use of such license rights within a reasonable time.
-5-
CCI shall be permitted to use, modify and create derivative works based upon the
Software in connection with its exploitation or use of the Venture Technology
permitted hereby; provided, however, that no such use or exploitation shall
violate or conflict with the terms of Section 3.4 of the Shareholders Agreement.
Subject to Section 4(d), CCI shall pay or cause to be paid to the Venture
royalties for the use of the Venture Technology at the rate of two percent (2%)
of the Gross Revenues (as defined below) derived from such use during the term
of such license by CCI or any Permitted CCI Sublicensee. The provisions of
Section 4 shall apply to the calculation and payment of such royalties.
(b) Disclaimer of Warranties. EXCEPT AS SET FORTH IN SECTION 5(d), ALL
VENTURE TECHNOLOGY PROVIDED AND LICENSED UNDER THIS SECTION 2 OR UNDER SECTION 3
IS ON AN "AS IS" BASIS, AND THE VENTURE ASSUMES NO RESPONSIBILITY FOR THE
RESULTS OR CONSEQUENCES THAT MAY BE OBTAINED FROM THE USE OF THE VENTURE
TECHNOLOGY, INCLUDING WITHOUT LIMITATION ANY ECONOMIC RESULTS OR CONSEQUENCES
OR ANY INJURIES TO PERSONS OR PROPERTY. THE VENTURE HEREBY DISCLAIMS IN THEIR
ENTIRETY ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
(c) Right to Modify. In connection with its permitted exploitation of
the Venture Technology, CCI and any third party acting on its behalf shall have
the unrestricted right to modify, and create derivative works based upon, the
Venture Technology as CCI may desire and to merge any portion of such Venture
Technology into any other software or technology, provided that any portion of
the Venture Technology so modified shall remain subject in all respects to the
terms and conditions of this Agreement.
(d) Right to Make and Distribute Copies. In connection with its
permitted exploitation of the Venture Technology, CCI and any third party acting
on its behalf shall have the right to make and distribute copies of the Venture
Technology to the extent deemed necessary by or on behalf of CCI and to the
extent required for archival back-up or disaster recovery purposes, provided
that each such copy shall remain fully subject to the terms and conditions of
this Agreement.
(e) Sublicenses. In the event that CCI is permitted under Section 2(a)
to exploit any Software and its license rights with respect to any of the
Venture Technology, CCI shall have the right to grant a license to such Software
and a sublicense to such Venture Technology
-6-
to one or more of CCI's Affiliates or one or more ventures or entities in which
CCI or any of its Affiliates had an interest ("Permitted CCI Sublicensees"),
provided that no such Permitted CCI Sublicensee shall have the right to grant
further sublicenses (sub-sublicenses) to any person or entity (other than
another Permitted CCI Sublicensee) without the prior written consent of the
Venture, and provided further that any license or sublicense granted under this
subsection shall be subject to this Agreement and shall not include any terms or
conditions inconsistent with this Agreement. Any such sublicensee shall be
permitted to exercise any right provided to CCI in this Section 2 to the extent
that CCI so authorizes such sublicensee in writing. A copy of each sublicense
entered into pursuant to this Section shall be given to the Venture promptly
following its execution.
(f) Access to Source Code. To the extent that the Venture obtains
ownership of or access to any source code included in the Venture Technology,
CCI and such contractors as it may retain shall have complete access to such
source code for all purposes within the scope of the license rights granted
hereby, subject only to the confidentiality provisions of Section 6 hereof.
(g) Ownership of Modifications and Derivative Works. CCI shall be the
sole and exclusive owner of all modifications to or derivative works based upon
the Venture Technology and the Software made by or on behalf of CCI and of all
Intellectual Property Rights therein.
3. Licenses from the Venture and CCI to the Manager.
(a) Licenses of the Venture Technology and Software. The Venture
hereby grants to the Manager a nonexclusive, worldwide license to the Venture
Technology, and CCI hereby grants to the Manager a nonexclusive, worldwide
royalty-free license to the Software, which licensed rights may only be used or
commercially exploited to the extent, and only to the extent, that such use or
exploitation is specifically excluded from the Company Business through the
exercise by SGI Holding of any right of disapproval under Section 3.2(b) of the
Shareholders Agreement, subject to the proviso set forth in such section of the
Shareholders Agreement, and provided that the excluded use is actually
undertaken by the Manager or a Permitted Manager Sublicensee (as defined below)
within a reasonable time following such disapproval. Such exploitation or use
may not be expanded beyond the specific use or exploitation specifically
disapproved by SGI Holding nor shall such use or exploitation violate or
conflict with the terms of Section 3.4 of the Shareholders Agreement. The
Venture and CCI hereby severally covenant and agree not to grant any license to
the Venture Technology
-7-
or the Software, respectively, to any other person for use within the
above-described field of use without the prior written consent of the Manager.
Subject to Section 4(d), the Manager shall pay or cause to be paid to the
Venture royalties for the use of the Venture Technology at the rate of two
percent (2%) of the Gross Revenues (as defined below) derived from such use
during the term of such license by the Manager or any Permitted Manager
Sublicensee. The provisions of Section 4 shall apply to the calculation and
payment of such royalties.
(b) Right to Modify. In connection with its permitted exploitation of
the Venture Technology and the Software, the Manager and third party acting on
its behalf shall have the unrestricted right to modify, and create derivative
works based upon, the Venture Technology or the Software as the Manager may
desire and to merge any portion of the Venture Technology or the Software into
any other software or technology, provided that any portion so modified shall
remain subject in all respects to the terms and conditions of this Agreement.
(c) Right to Make and Distribute Copies. In connection with its
permitted exploitation of the Venture Technology and Software, the Manager and
any third party acting on its behalf shall have the right to make and distribute
copies of the Venture Technology and the Software to the extent deemed necessary
by or on behalf of the Manager and to the extent required for archival back-up
or disaster recovery purposes, provided that each such copy shall remain fully
subject to the terms and conditions of this Agreement.
(d) Sublicenses. In the event that the Manager is permitted under
Section 3(a) to exploit its license rights with respect to any the Venture
Technology and Software, the Manager shall have the right to grant a sublicense
to such Venture Technology and Software to one or more of the Manager's
Affiliates or one or more ventures or entities in which the Manager or any of
its Affiliates has an interest ("Permitted Manager Sublicensees"), provided that
no such Permitted Manager Sublicensee shall have the right to grant further
sublicenses (sub-sublicenses) to any person or entity (other than another
Permitted Manager Sublicensee) without the prior written consent of the Venture,
and provided further that any sublicense granted under this subsection shall be
subject to this Agreement and shall not include any terms or conditions
inconsistent with this Agreement. Any such sublicensee shall be permitted to
exercise any right provided to the Manager under this Section 3 to the extent
that the Manager so authorizes such sublicensee in writing. A copy of each
sublicense entered into pursuant to this Section shall be given to each of the
Venture and CCI promptly following its execution.
-8-
(e) Access to Source Code. The Manager and such contractors as it may
retain shall have complete access to all source code included in the Software
and (to the extent that the Venture obtains ownership of or access to any source
code included in the Venture Technology) the Venture Technology for all purposes
within the scope of the license rights granted hereby, subject only to the
confidentiality provisions of Section 6 hereof.
(f) Ownership of Modifications and Derivative Works. The Manager
shall be the sole and exclusive owner of all modifications to or derivative
works based upon the Venture Technology and the Software made by or on behalf of
the Manager and of all Intellectual Property Rights therein.
4. Provisions Generally Applicable to Royalty Payments.
(a) "Gross Revenue" Defined. As used herein, the term "Gross
Revenues" means all revenues of any kind derived by CCI or the Manager, as the
case may be, directly or indirectly, from the exploitation of the Venture
Technology and/or Software pursuant to Section 2 or 3 hereof, respectively,
determined in accordance with generally accepted accounting principles,
consistently applied, including without limitation: in the case of gaming
revenues, "gross revenues" as defined in Nevada Revised Statutes Section
413.0161 (other than subsection 2(b) thereof) as of the date of this Agreement
(and which for purposes of this Agreement shall be determined before the
distribution of any share of gross revenues to any party (such as an operator of
an airline, cruise ship, hotel or railroad (by way of illustration and not
limitation)) with which such licensee enters into an agreement for the operation
of gaming); gross receipts from merchandise sales in which such licensee is the
seller; rental or other payments from any lessee, consignee or concessionaires;
fees for acting as a sales or other agent on behalf of a third party; and any
monies collected from patrons as all or part of a charge for use of any gaming
devices; and in the case such licensee (or any permitted sublicensee thereof)
grants any sublicense as permitted by Section 2 or 3, respectively, "Gross
Revenues" shall be determined by reference to the revenues of such sublicensee
and not by reference to the revenues or receipts of the sublicensor from such
sublicensee. For purposes of the payment of royalties hereunder, "Gross
Revenues" realized in any currency than than U.S. Dollars shall be deemed
converted into U.S. Dollars using the selling rate of exchange prevailing as of
the opening of trading in New York, New York, on the date of payment of such
royalties; provided, however, that if the payment is made after the due date
therefor, the rate of exchange shall be the rate so prevailing on the date of
payment or the due date, whichever results in the higher amount of payment of
royalties.
-9-
(b) Payment of Royalties. Royalties payable to the Venture hereunder
shall be due and payable in United States currency on a quarterly basis on or
before the forty-fifth (45th) day following the end of each calendar quarter.
Each royalty payment shall be accompanied by a statement setting forth in
reasonable detail the basis for and determination of the royalties due. The
books and records of the licensee or its sublicensee relating to its Gross
Revenues for any calendar year shall be preserved for a period of not less than
eighteen (18) months after the end of such calendar year, and such books and
records will be available for inspection by the Venture and its designated
agents, accountants and attorneys during business hours upon reasonable advance
notice. The Venture shall have the right to audit the Gross Revenues of the
licensee and/or its sublicensee(s) on a not more frequent than annual basis for
purposes of determining compliance with the royalty obligations hereunder. Any
such audit shall be paid for by the Venture, unless such audit results in an
increase in the annual amount of royalties payable hereunder of five percent
(5%) or more, in which case the licensee or its sublicensee(s) shall pay for the
costs of such audit. Any such audit shall be conducted by the accounting firm
then responsible for auditing the financial statements of the Venture (unless
otherwise mutually agreed upon by the Venture and the licensee), and the
determination of such auditors shall be final and binding on all parties in the
absence of manifest error. Any adjustment payment by or to the Venture resulting
from such an audit shall be made, without interest or penalty except as provided
below, to the appropriate party within thirty (30) days after the delivery of
the audit report to the licensee and the Venture. In the event that any payment
due under this Section 4(b) is not made within fifteen (15) days of its due
date, such payment shall accrue interest at the lesser of the prime rate charged
from time to time by Citibank, N.A. to its best customers on unsecured
borrowings, plus two (2) percentage points, or the highest rate permitted by
applicable law. Notwithstanding the foregoing, no royalty payment payable in
respect of any calendar year may be challenged, through audit or otherwise, by
the Venture more than eighteen (18) months after the end of such calendar year.
(c) Liability for Taxes. Royalties payable hereunder shall be
exclusive of all taxes of any nature other than taxes imposed upon the Venture
and determined or measured by reference to its income. Whenever applicable, the
licensee or sublicensee paying any royalties hereunder shall be responsible for
any and all sales, value added, ad valorem, use, excise or similar tax or taxes
payable in respect of such royalties.
(d) Termination of Royalties. The respective obligations on the part
of CCI and the Manager to pay royalties pursuant to Sections 2(a) and 3(a) shall
terminate immediately upon any dissolution of the Venture other than by virtue
of its merger, amalgamation or
-10-
consolidation with another corporation or entity or the sale of all or
substantially all of its assets to another person or entity.
5. Representations and Warranties and Covenants.
(a) Representations and Warranties of CCI, SGIC and SGI Holding. CCI,
SGIC and SGI Holding jointly and severally represent and warrant that:
(i) Neither the Software as supplied hereunder, nor its normal
use for its intended purpose in combination with hardware or other software,
will infringe or violate any third-party patent, copyright, trade secret or
other right; no other rights or licenses concerning the Software have been
granted by any of them to any other party; and, subject to the recordation of
assignments in the United States Copyright Office (which have been executed and
will be filed for recordation within fifteen (15) days after the date of this
Agreement), CCI has good and marketable title to all Software free and clear of
any liens or encumbrances.
(ii) Each of them is a corporation duly organized and validly
existing under the laws of the Yukon Territory of Canada, in the case of CCI,
the laws of the State of Nevada, in the case of SGIC, or the laws of Bermuda as
an exempted company, in the case of SGI Holding.
(iii) Each of them has full legal power and right to carry on its
business as such is now being conducted and as proposed to be conducted. Each of
them has the legal power and right under the laws of the Yukon Territory, Nevada
and Bermuda, in the case of CCI, SGIC and SGI Holding, respectively, to enter
into and perform this Agreement and the transactions contemplated hereby; and
that the consummation of the transactions contemplated by this Agreement will
neither violate nor be in conflict with: (A) any provision of the Articles of
Continuation or Bylaws of CCI, the Articles of Incorporation or Bylaws of SGIC,
or the Memorandum of Association or Bye-Laws of SGI Holding; (B) any agreement
or instrument to which any of them is a party or by which any of them or any of
their Affiliates or any of their respective assets are bound; (C) any judgment,
order, ruling or decrees applicable to any of them or any of their Affiliates as
a party in interest or any law, rule or regulation applicable to any of them or
any of their Affiliates; or (D) any document, agreement or other arrangement
creating or relating to the creation or existence of any of them or any of their
Affiliates.
-11-
(iv) The execution, delivery and performance of this Agreement
and the transactions contemplated hereby have been duly and validly authorized
by all requisite corporate action on the part of each of them.
(v) This Agreement is a valid and binding obligation of each of
them and is enforceable in accordance with its terms against each of them,
subject to and limited by the effect of applicable bankruptcy, insolvency,
fraudulent transfer or conveyance, reorganization, receivership, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
rights of creditors generally.
(vi) No consent of any person not a party to this Agreement and
no consent of any governmental authority is required to be obtained on the part
of any of them in connection with or resulting from the execution or performance
of this Agreement.
(vii) None of them nor any of their Affiliates has incurred any
obligation or liability, contingent or otherwise, for brokers' or finder's fees
in respect of the matters provided for in this Agreement, and if any such
obligation or liability exists, it shall be the sole obligation of such party or
its Affiliate.
(viii) None of the statements, representations or warranties made
by any of them in this Agreement or in any exhibit or certificate delivered
pursuant to this Agreement contains any untrue statement of any material fact or
omits to state any material fact necessary to be stated in order to make the
statements, representations or warranties contained herein or therein not
materially misleading.
(b) Representations and Warranties of the Venture. The Venture
represents and warrants that:
(i) It is a corporation duly organized and validly existing under
the laws of Bermuda as an exempted company.
(ii) It has full legal power and right to carry on its business
as such is now being conducted and as proposed to be conducted, subject to
compliance with any applicable laws and regulations prohibiting or regulating
gaming. It has the legal power and right under the laws of Bermuda to enter into
and perform this Agreement and the transactions contemplated hereby; and that
the consummation of the transactions contemplated by this Agreement will neither
violate nor be in conflict with: (A) any provision of its Memorandum of
Association or Bye-Laws; (b) any agreement or instrument to which it is a party
or by
-12-
which it or any of its assets are bound; (C) any judgment, order, ruling or
decrees applicable to it as a party in interest or any law, rule or regulation
applicable to it; or (D) any document, agreement or other arrangement creating
or relating to its creation or existence.
(iii) The execution, delivery and performance of this Agreement
and the transactions contemplated hereby have been duly and validly authorized
by all requisite corporate action on the part of the Venture.
(iv) This Agreement is a valid and binding obligation of the
Venture and is enforceable in accordance with its terms against it, subject to
and limited by the effect of applicable bankruptcy, insolvency, fraudulent
transfer or conveyance, reorganization, receivership, moratorium or other
similar laws now or hereafter in effect relating to or affecting the rights of
creditors generally.
(v) No consent of any person not a party to this Agreement and
no consent of any governmental authority is required to be obtained on it part
in connection with or resulting from the execution or performance of this
Agreement.
(vi) It has not incurred any obligation or liability, contingent
or otherwise, for brokers' or finder's fees in respect of the matters provided
for in this Agreement.
(vii) None of the statements, representations or warranties made
by any it in this Agreement or in any exhibit or certificate delivered pursuant
to this Agreement contains any untrue statement of any material factor omits to
state any material fact necessary to be stated in order to make the statements,
representations or warranties contained herein or therein not materially
misleading.
(viii) It understands and acknowledges that the Software has not
been tested or verified by any testing laboratory or facility and that neither
CCI nor any of its affiliates has made or hereby makes any representation
or warranty with respect to the performance, adequacy or commercial viability of
any of the Software.
(c) Representations and Warranties of the Manager. The Manager
represents and warrants that:
(i) It is a corporation duly organized and validly existing
under the laws of the State of Nevada.
-13-
(ii) It has full legal power and right to carry on it business as
such is now being conducted and as proposed to be conducted. It has the legal
power and right under the laws of Nevada to enter into and perform this
Agreement and the transactions contemplated hereby; and that the consummation of
the transactions contemplated by this Agreement will neither violate nor be in
conflict with: (A) any provision of its Articles of Incorporation or Bylaws; (B)
any agreement or instrument to which it is a party or by which it or any of its
Affiliates or any of their respective assets are bound; (C) any judgment,
order, ruling or decrees applicable to it or any of its Affiliates as a party in
interest or any law, rule or regulation applicable to it or any of its
Affiliates; or (D) any document, agreement or other arrangement creating or
relating to the creation or existence of it or any of its Affiliates.
(iii) The execution, delivery and performance of this Agreement
and the transactions contemplated hereby have been duly validly authorized by
all requisite corporate action on the part of the Manager.
(iv) This Agreement is a valid and binding obligation of the
Manager and is enforceable in accordance with its terms against it, subject to
and limited by the effect of applicable bankruptcy, insolvency, fraudulent
transfer or conveyance, reorganization, receivership, moratorium or other
similar laws now or hereafter in effect relating to or affecting the rights of
creditors generally.
(v) No consent of any person not a party to this Agreement and
no consent of any governmental authority is required to be obtained on its part
in connection with or resulting from the execution or performance of this
Agreement.
(vi) Neither it nor any of its Affiliates has incurred any
obligation or liability, contingent or otherwise, for brokers' or finder's fees
in respect of the matters provided for in this Agreement, and if any such
obligation or liability exists, it shall be the sole obligation of the Manager
or its Affiliate.
(vii) None of the statements, representations or warranties made
by it in this Agreement or in any exhibit or certificate delivered pursuant to
this Agreement contains any untrue statement of any material fact or omits to
state any material fact necessary to be stated in order to make the statements,
representations or warranties contained herein or therein not materially
misleading.
(viii) It understands and acknowledges that the Software has not
been tested or verified by any testing laboratory or facility and that neither
CCI nor any of its Affiliates
-14-
has made or hereby makes any representation or warranty with respect to the
performance, adequacy or commercial viability of any of the Software.
(d) Additional Representations, Warranties and Covenants of the
Venture. The Venture represents and warrants and covenants that neither the
Venture Technology as supplied from time to time hereunder, nor its normal use
for its intended purpose in combination with hardware, the Software or other
software, will infringe or violate any third-party patent, copyright, trade
secret or other right. The preceding representation and warranty shall not apply
to any infringement to the extent it would have occurred from the use of the
Software without the Venture Technology contained therein or not in combination
with the Venture Technology.
6. Confidentiality.
(a) "Confidential Information" Defined. For purposes hereof, the term
"Confidential Information" of a party shall mean, (i) in the case of CCI, source
code of any and all Software and any and all documentation related thereto; and,
(ii) in the case of the Venture, source code of any and all software included in
the Venture Technology and any and all documentation related thereto.
(b) Confidentiality Obligations. Without the prior written consent
of CCI, the Venture and its other Obligated Parties (as defined below) and the
Manager (in its capacity as a license hereunder) and its other Obligated Parties
shall keep confidential and shall not disclose to any third party whatsoever or
use for any purpose whatsoever any Confidential Information of CCI, other than
uses contemplated by Section 1 or 3 hereof and disclosures made in conformity
with Section 6(d) hereof; and without the prior written consent of the Venture,
CCI and its other Obligated Parties and the Manager (in its capacity as a
licensee hereunder) and its other Obligated Parties shall keep confidential and
shall not disclose to any third party whatsoever or use for any purpose
whatsoever any Confidential Information of the Venture, other than uses
contemplated by Section 2 or 3 hereof and disclosures made in conformity with
Section 6(d) hereof, in any case except as follows:
(i) any Confidential Information of CCI or the Venture, as the
case may be, that the applicable Obligated Party can prove was:
(A) in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault of any
Obligated Party of CCI, the Venture or the Manager, as the case may be (provided
that any combination of items of
-15-
Confidential Information shall not be deemed within this exception merely
because individual items are part of the public domain, but only if the
combination itself and its principle(s) of operation or utility are part of the
public domain); or
(B) lawfully received by such Obligated Party without a
binder of confidentiality from an independent third party.
(ii) an Obligated Party of CCI, the Venture or the Manager, as
the case may be, may disclose any Confidential Information of another party to
the extent that it has been advised by counsel that such disclosure is necessary
to comply with laws or regulations; provided, that such Obligated Party shall
give the Venture or CCI, as the case may be, reasonable advance written notice
of such proposed disclosure, shall use its best efforts to secure confidential
treatment of any such Confidential Information and shall advise the Venture or
CCI, as the may be, in writing of the manner of the disclosure.
(c) Obligated Parties. For purposes hereof, the term "Obligated
Party" of a party shall mean CCI, the Venture or the Manager, as the case may
be, and the Affiliates, partners, directors, officers, principals, shareholders,
employees, independent contractors, consultants and agents of such party, and
any of such party's permitted sublicensees, successors and assigns and their
respective Affiliates, partners, directors, officers, principals, shareholders,
employees, independent contractors, consultants and agents. In the case of the
Venture, its Obligated Parties shall include the Manager (in its capacity as
manager under the Management Agreement) and its Affiliates, directors, officers,
shareholders, employees, independent contractors, consultants, agents,
successors and assigns, whether or not such persons would be included by virtue
of the above definition.
(d) Dissemination of Confidential Information. Any dissemination of
Confidential Information of a party by an Obligated Party of any other party to
any person, including without limitation other Obligated Parties of such other
party, shall be only to carry out the purposes of this Agreement and shall be
limited to the maximum extent possible consistent with carrying out such
purposes. Prior to receiving any such Confidential Information, any such person
shall agree in writing for the benefit of the other party to be bound by the
provisions of this Section 6, and Sections 10(d), 10(e) and 10(f) to the same
extent that such party is bound hereby. All such written agreements shall be
delivered to the party or parties in favor of which such agreements are made
within (5) days after the execution thereof.
-16-
(e) Safekeeping of Confidential Information. In recognition and
furtherance of the foregoing confidentiality obligations, each party agrees that
all of its Obligated Parties shall keep any and all records which contain any
Confidential Information of the other party in a safe and secure location.
(f) Injunctive Relief. It is expressly covenanted and agreed that,
in the event of a breach of this Section 6 by any Obligated Party of a party,
although the damage to the CCI or the Venture, as the case may be, will be
substantial, the same will be difficult to ascertain, money damages will not
afford an adequate remedy and CCI or the Venture, as the case may be, will
suffer irreparable injury. Therefore, in the event of any such breach, and in
addition to any other rights or remedies available at law, in equity or under
this Agreement, each of CCI and the Venture party shall have the right to obtain
specific performance of such obligations set forth in this Section 6 by way of
temporary and/or permanent injunctive relief without bond.
(g) Survival of Confidentiality Obligations. The provisions of this
Section 6 shall survive any termination of any license granted hereunder for a
period of three (3) years. Upon any termination of any license granted
hereunder, all Obligated Parties of the licensee shall promptly deliver to the
licensing party or parties all tangible manifestations of Confidential
Information of the licensing party or parties in its possession or under its
control, retaining no copies thereof. In the case of Confidential Information
that is commingled with other proprietary information to which the licensing
party or parties do not have rights, the Obligated Parties may, in lieu of
delivering such tangible manifestations to the licensing party or parties,
destroy all such tangible manifestations, and shall so certify in writing to the
licensing party or parties.
(h) Residual Rights and Independent Developments. The terms of
confidentiality contained in this Section 6 shall not be construed to limit any
party's right to independently develop or acquire products without the use of
another party's Confidential Information. Further, all parties shall be free to
use for any purpose the Residuals (as defined below) resulting from access to or
work with the Software, the Venture Technology and Confidential Information,
provided that such party shall maintain the confidentiality of the Confidential
Information as provided herein, and provided that such use does not infringe the
patent, copyright, trade secret or other rights of one of the parties to which
a license is not otherwise granted hereunder. The term "Residuals" means
information in intangible form, which may be retained in the heads of persons
who have had access to the Software, the Venture Technology and the Confidential
Information, including ideas, concepts, know-how,
-17-
techniques and general experience gained. No party hereto shall have any
obligation to limit of restrict the assignment of such persons or to pay
royalties for any work resulting from the use of Residuals, except as otherwise
expressly provided for herein.
7. Limitation of Liability. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT TO THE CONTRARY, EXCEPT IN CONNECTION WITH A BREACH OF SECTION 6
HEREOF, NO PARTY SHALL IN ANY CASE BE LIABLE TO ANY OTHER PARTY FOR SPECIAL,
INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR OTHER SIMILAR DAMAGES RELATED TO THIS
AGREEMENT OR ITS PERFORMANCE ARISING FROM BREACH OF WARRANTY, BREACH OF
CONTRACT, NEGLIGENCE OR ANY OTHER LEGAL OR EQUITABLE THEORY EVEN IF SUCH PARTY
OR ITS AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8. Infringement.
(a) CCI, SGIC and SGI Holding Indemnification Obligation. CCI, SGIC
and SGI Holding jointly and severally shall indemnify, defend and hold the
Venture and the Manager and their respective officers, directors, employees,
agents and licensees harmless from and against any and all damages (subject to
Section 7 hereof), liabilities, costs and expenses (including reasonable
attorneys' fees) resulting from the breach or untruthfulness of the
representations and warranties set forth in Section 5(a)(i) hereof (and
including amounts incurred in the settlement or avoidance of any claims based
thereon), provided that: (i) in the event of an infringement claim, CCI shall
have the right, but not the obligation, to procure at its expense the right to
use the infringing portion of the Software, or to replace the infringing portion
with an alternative item that meets applicable specifications, and (ii) CCI
shall be given prompt notice of the claim and the opportunity to control the
defense and/or settlement thereof, provided that the Venture or the Manager or
both, as the case may be, shall have the right to approve any settlement
involving other than a monetary payment, which approval shall not be
unreasonably withheld, conditioned or delayed.
(b) Venture Indemnification Obligation. Without limiting Sections
5(a)(i) and 8(a), the Venture shall indemnify, defend and hold CCI and the
Manager and their respective officers, directors, employees, agents and
licensees harmless from and against any and all damages (subject to Section 7
hereof), liabilities, costs and expenses (including reasonable attorneys' fees)
resulting from the breach or untruthfulness of the representations, covenants
and warranties set forth in Section 5(d) hereof (and including amounts incurred
in the
-18-
settlement or avoidance of any claims based thereon), provided: (i) in the event
of an infringement claim, the Venture shall have the right, but not the
obligation, to procure at its expense the right to use the infringing portion of
the Venture Technology, or to replace the infringing portion with an alternative
item that meets applicable specifications, and (ii) the Venture shall be given
prompt notice of the claim and the opportunity to control the defense and/or
settlement thereof.
(c) Infringement of Software. In the event of any infringement of the
Software by any third party by making, selling, copying or distributing the
Software or any portion thereof for a purpose that is within the Company
Business, the Venture will have the right at its sole cost and expense and for
its sole benefit to take any action or to commence any proceeding it deems
necessary against the infringing party or parties. CCI and the Manager (in its
capacity as a licensee) shall provide such cooperation and assistance in
connection therewith as may be reasonably requested by the Venture, and the
Venture shall promptly reimburse CCI or the Manager (in its capacity as a
licensee) for its costs and expenses incurred in connection with providing such
cooperation and assistance. If the Venture declines to take any action or
commence any proceeding against the infringing party or parties or if the
infringement arises out of activities not within the Company Business, CCI and
(if such infringement affects the Manager's actual or potential use or
exploitation of its license rights to Software) the Manager, as the case may be,
each will have the right at its sole cost and expense and for its sole benefit
to take any action or to commence any proceeding it deems necessary against the
infringing party or parties. The Venture shall provide such cooperation and
assistance in connection therewith as may be reasonably requested by CCI or the
Manager, and CCI or the Manager, as the case may be, shall promptly reimburse
the Venture for its costs and expenses incurred in connection with providing
such cooperation and assistance.
(d) Infringement of the Venture Technology. In the event of any
infringement of the Venture Technology by any third party, whether by making,
selling, copying or distributing the Venture Technology or any portion thereof
for a purpose that is within or without the Company Business, the Venture will
have the right at its sole cost and expense and for its sole benefit to take any
action or to commence any proceeding it deems necessary against the infringing
party or parties. CCI and the Manager (in its capacity as a licensee) shall
provide such cooperation and assistance in connection therewith as may be
reasonably requested by the Venture, and the Venture shall promptly reimburse
CCI or the Manager (in its capacity as a licensee) for its costs and expenses
incurred in connection with providing such cooperation and assistance. If the
Venture declines to take any action or commence any
-19-
proceeding against the infringing party or parties and such infringement affects
CCI's or the Manager's actual or potential use or exploitation of its license
rights to the Venture Technology, CCI or the Manager, as the case may be, each
will have the right at its sole cost and expense and for its sole benefit to
take any action or to commence any proceeding it deems necessary against the
infringing party or parties. The Venture shall provide such cooperation and
assistance in connection therewith as may be reasonably requested by CCI or the
Manager, and CCI or the Manager, as the case may be, shall promptly reimburse
the Venture for its costs and expenses incurred in connection with providing
such cooperation and assistance.
9. Term; Survival of Provisions.
(a) Term.
(i) The term of the license granted under Section 1 hereof shall
be co-extensive with the term of the Venture's corporate existence, which shall
include any period of liquidation and winding up following the dissolution or
authorization of the dissolution of the Venture; provided, however, that if the
Venture is merged or amalgamated with or consolidated into another corporation
or entity or sells all or substantially all of its assets to another corporation
or entity or otherwise is combined with another corporation or entity in a
merger, amalgamation, consolidation, sale of assets or other transaction
approved in accordance with or permitted by Section 1.6 of the Shareholders
Agreement, such license will continue in effect and the successor party to the
Venture shall, if necessary, be deemed to be the assignee of the Venture under
this Agreement. Notwithstanding any breach of this Agreement by the Venture, CCI
shall not be entitled to terminate the license rights granted under Section 1
hereof prior to the expiration of such license rights as provided in this
Section 9(a)(i); provided, however, that this provision shall not otherwise
limit the liability of the Venture for any such breach.
(ii) The terms of the licenses granted under Sections 2 and 3
will expire on December 31, 2093.
(b) Termination of CCI's License Rights for Breach. The license
granted to CCI under Section 2 may be terminated by the Venture upon a breach of
the royalty payment obligations set forth in Sections 2 and 4 which is not cured
within thirty (30) days after written notice of such breach from the Venture to
CCI.
(c) Termination of the Manager's License Rights for Breach. The
license granted to the Manager under Section 3 may be terminated by the Venture
upon a breach of
-20-
the royalty payment obligations set forth in Sections 3 and 4 which is not
cured within thirty (30) days after written notice of such breach from the
Venture to the Manager.
(d) Survival. Notwithstanding any termination or expiration of any
license granted hereunder, the representations, covenants and warranties of
clauses (a)(i), (d) and (e) of Section 5, the confidentiality provisions of
Section 6, the indemnification provisions of Section 8, the provisions of
Section 10 and all other provisions of this Agreement not required to terminate
with such license rights shall survive any such termination or expiration;
provided, however, that the provisions of Section 6 shall survive only for the
period specified in Section 6(g).
(e) Ownership Upon Dissolution of the Venture. Upon any dissolution of
the Venture or other cessation of its corporate existence other by virtue of its
merger, amalgamation or consolidation with another corporation or entity or the
sale of all or substantially all of its assets to another person or entity, all
right, title and interest in and to all Venture Technology, and to all
Intellectual Property Rights therein, shall vest in, and is hereby conditionally
assigned to, CCI and the Manager as joint owners with undivided interests. Each
of CCI and the Manager, as joint owners, shall be free to make, have made, use,
sell, copy, make derivative works based upon, perform, distribute and otherwise
exploit the Venture Technology in any manner desired without a duty of
accounting of profits to or royalties to the other resulting therefrom. Upon the
request of either CCI or the Manager, the Venture shall take all actions and
execute all documents reasonably necessary to effect and perfect the assignment
of the Venture Technology to CCI and the Manager as joint owners.
10. General Provisions.
(a) Notices; Payments. All notices and other communications required
or permitted to be given pursuant to this Agreement shall be in writing and
shall be personally delivered (by commercial courier or otherwise) or sent by
telecopy receipt of which is confirmed or sent first class mail, registered or
certified, return receipt requested, postage prepaid, addressed as follows:
-21-
If to CCI, SGIC or SGI Holding:
c/o Creator Capital Inc.
595 Howe Street, Suite 1115
Vancouver, British Columbia V6C 2T5
Canada
Attention: Mr. Malcolm P. Burke
Telecopier: (604) 687-8678
Telephone: (604) 689-1515
with a copy to:
Gordon R. Kanofsky, Esq.
Hughes Hubbard & Reed
350 South Grand Avenue
Los Angeles, California 90071-3442
United States of America
Telecopier: (213) 613-2950
Telephone: (213) 613-2876
If to the Venture:
Interactive Entertainment Limited
c/o Creator Capital Inc.
595 Howe Street, Suite 1115
Vancouver, British Columbia V6C 2T5
Canada
Attention: Mr. Malcolm P. Burke
Telecopier: (604) 687-8678
Telephone: (604) 689-1515
with copies to:
Gordon R. Kanofsky, Esq.
Hughes Hubbard & Reed
350 South Grand Avenue
Los Angeles, California 90071-3442
United States of America
Telecopier: (213) 613-2950
Telephone: (213) 613-2876
-22-
and
John W. McConomy, Esq.
Associate General Counsel
The Promus Companies Incorporated
1023 Cherry Road
Memphis, Tennessee 38117-5423
United States of America
Telecopier: (901) 762-8735
Telephone: (901) 762-8737
If to the Manager:
Harrah's Interactive Entertainment Company
c/o The Promus Companies Incorporated
1023 Cherry Road
Memphis, Tennessee 38117-5423
United States of America
Attention: Mr. John M. Boushy
Telecopier: (901) 762-8914
Telephone: (901) 762-8944
with a copy to:
John W. McConomy, Esq.
Associate General Counsel
The Promus Companies Incorporated
1023 Cherry Road
Memphis, Tennessee 38117-5423
United States of America
Telecopier: (901) 762-8735
Telephone: (901) 762-8737
Notices and other communications shall be deemed delivered, (i) in the case of
personal delivery, on the date of their receipt at the address(es) specified
above for delivery, (ii) in the case of a telecopy, upon confirmation of its
receipt, and (iii) in the case of mail, at the earlier of the time of receipt or
five days after the mailing thereof. Any payments required to be made pursuant
to this Agreement shall be made and delivered in person or by mail in the same
manner as provided above for notices and other communications. Any party may
change its address for the giving of notices, other communications and payments
by notice given in accordance with this Section.
-23-
(b) Assignment. Except in connection with assignments or deemed
assignments permitted by Section 9(a)(i) hereof or required or permitted by the
terms of the Shareholders Agreement, the Venture shall not have the right to
assign it interests under this Agreement without the prior written consent of
CCI, which may be given or denied in CCI's sole discretion. Except for an
assignment to an Affiliate of such party who agrees in writing to be bound by
this Agreement, neither CCI nor the Manager shall have the right to assign their
respective interests under this Agreement without the prior written consent of
the Venture, which may be given or denied in the Venture's sole discretion. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective permitted successors, legal representatives and assigns.
(c) Severability. The provisions of this Agreement shall be deemed
severable. If any provision hereof shall be found invalid, illegal, void
or unenforceable, in whole or in part, the remaining provisions or portions
thereof shall remain in full force and effect to the maximum extent permissible.
To the maximum extent permitted by applicable law, each party hereby waives any
provision of law which renders any provision of this Agreement invalid, illegal,
void or unenforceable.
(d) Governing Law. THIS AGREEMENT AND ALL RELATIONS OF THE PARTIES
IN CONNECTION HEREWITH SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEVADA, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS OR
CHOICE OF LAW RULES OR LAWS OF SUCH JURISDICTION.
(e) Forum Selection. THE PARTIES AGREE THAT ANY LEGAL SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE COMMENCED IN
A STATE OR FEDERAL COURT OF OR IN CLARK COUNTY, NEVADA, WHICH THE PARTIES AGREE
IS THE SOLE AND EXCLUSIVE VENUE FOR THE CONVENIENCE OF THE PARTIES FOR PURPOSES
OF THIS AGREEMENT, AND EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
AND VENUE OF SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING AND WAIVES ANY
RIGHT THAT IT MAY NOW OR HEREAFTER HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING, EXCEPT THAT EACH PARTY RETAINS WHATEVER RIGHT
IT MAY HAVE TO REMOVE SUCH SUIT, ACTION OR PROCEEDING TO THE FEDERAL COURT
SITTING IN CLARK COUNTY, NEVADA.
-24-
(f) Attorneys' Fees and Costs. If any litigation or other proceeding
between or among the parties is commenced in connection with or related to this
Agreement, the losing party or parties shall pay the reasonable attorneys' fees
and costs and expenses of the prevailing party or parties incurred in connection
therewith.
(g) Entire Agreement; Modification. This Agreement, together with
the Shareholders Agreement, the Management Agreement and the Trademark License
Agreement between CCI and the Venture entered into concurrently herewith,
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all prior negotiations and agreements with
respect to the subject matter hereof. This Agreement may be modified only by an
instrument in writing duly executed by the party sought to be bound by such
modification.
(h) Waivers. No breach of any covenant, condition, agreement,
warranty or representation made herein shall be deemed waived unless expressly
waived in writing by the party who might assert such breach. Any such waiver
may be made in advance or after the right waived has arisen or the breach or
default waived has occurred. Any such waiver may be conditional. No such
waiver shall be deemed to be a waiver of any other matter, whenever occurring
and whether identical, similar or dissimilar to the matter waived.
(i) Further Assurances. Each party agrees promptly to execute and
deliver such documents and to do such other acts as may be requested by any
other party and are in the reasonable judgment of the requesting party necessary
or appropriate to effectuate the purposes of this Agreement. Such matters may
include, but shall not be limited to, the registration of a party as the owner
or user of some or all of the Software or the Venture Technology, as the case
may be, under the laws of any United States or foreign jurisdiction. The
requesting party shall promptly reimburse the other party for its costs and
expenses incurred in connection with providing such further assurances and
cooperation.
(j) Relationship of Parties. Nothing set forth herein shall ever be
construed to create an association, trust or partnership or impose a trust or
partnership duty, obligation or liability on or with regard to either of the
parties hereto.
(k) Headings; Gender; Number. The headings of the sections and
subsections herein are inserted for convenience of reference only and are not
intended to be a part of, or to affect the meaning or interpretation of, this
Agreement. As used herein and as the context requires, a reference to the male,
female or neutral gender includes a reference to each other
-25-
gender, and a reference to the singular or plural number includes a reference to
the other number.
(l) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed to constitute an original.
(m) Computer Media. Each party shall be entitled to have a copy of
this Agreement, including all written schedules and exhibits, on diskette or
other commonly used
-26-
computer storage media in a format readable by one or more leading word
processing programs as of the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
- --------------------------------------------------------------------------------
CREATOR CAPITAL INC. INTERACTIVE ENTERTAINMENT
LIMITED
By:
---------------------------- By:
Malcolm P. Burke, Director ----------------------------
Daniel H. Greene,
Director and President
By:
----------------------------
James P. Grymyr, Director
- --------------------------------------------------------------------------------
HARRAH'S INTERACTIVE SKY GAMES INTERNATIONAL,
ENTERTAINMENT COMPANY CORP.
By: By:
---------------------------- ----------------------------
John W. McConomy, Designee James P. Grymyr, President
- -------------------------------------------------------------------------------
SGI HOLDING CORPORATION
LIMITED
By:
----------------------------
Malcolm P. Burke,
Director and President
-27-
LIST OF SCHEDULES AND EXHIBITS
------------------------------
Schedules
---------
A Description of Software
Exhibits
--------
1 Diskette(s) containing current version of Software
2 Assignment Agreement
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is made and entered
into as of the ___ day of December 1994, by and between Creator Capital Inc., a
Yukon Territory corporation ("CCI"), and Interactive Entertainment Limited, a
Bermuda exempted company ("the Venture"). Sky Games International, Corp.
("SGIC"), a Nevada corporation and an Affiliate (as defined below) of CCI, and
SGI Holding Corporation Limited ("SGI Holding"), a Bermuda exempted company and
an Affiliate of CCI, are also executing this Agreement solely for the purposes
of making the representations, warranties, covenants and agreements specifically
made by them in Sections 2 and 6 of this Agreement and to become bound by the
provisions of Sections 5 and 8 of this Agreement, and neither SGIC nor SGI
Holding shall have any other liability or obligation under this Agreement. As
used herein, the term "Affiliate" shall mean an entity, including without
limitation a general partnership or a business trust, controlling, controlled by
or under common control with another entity (except that the Venture shall not
be deemed to be an Affiliate of SGI Holding or any of its Affiliates).
W I T N E S S E T H:
WHEREAS, SGIC has purchased and/or developed software in connection with
the development of a computer-based interactive video system for the operation
of gaming and related entertainment activities on-board aircraft and other
venues or locations and certain additional inventions (whether or not
patentable), know-how, trade secrets and other proprietary information related
to or in connection with such software (collectively, the "Software");
WHEREAS, SGIC has purchased and/or created the trademarks, trade names,
service marks and service names listed on Schedule A attached hereto (the "Trade
Rights") which Trade Rights has been created for use in connection with the
Software and possibly other products or services;
WHEREAS, CCI has acquired from SGIC all right, title and interest in and to
the Trade Rights pursuant to an Assignment Agreement (the "SGIC Assignment")
entered into concurrently herewith;
WHEREAS, the Venture has been recently formed as a Bermuda exempted company
by SGI Holding, which owns 80% of the issued and outstanding stock of the
Venture, and Harrah's Interactive Investment Company ("HII"), which owns the
remaining 20% of the
issued and outstanding stock of the Venture, to develop, implement and operate
gaming and other operations in the pursuit of the "Company Business" (as defined
in that certain Shareholders Agreement, of even date herewith, among SGI
Holding, HII and the Venture, and as such Shareholders Agreement may be amended
from time to time (the "Shareholders Agreement"))
WHEREAS, concurrently with the execution of this Agreement, CCI, the
Venture and Harrah's Interactive Entertainment Company (the "Manager"), an
Affiliate of HII and the manager of the Venture's business, are entering into a
Cross-License Agreement (the "License Agreement"), pursuant to which the Venture
is obtaining from CCI a license to the Software; and
WHEREAS, as a condition to investing in the Venture and to assuming
responsibility for the management of the business of the Venture, HII and the
Manager, respectively, have required that CCI license the Trade Rights to the
Venture, and CCI is desirous and willing to grant such a license in
consideration of the benefits anticipated to be realized by CCI, directly or
indirectly, through its investment in the Venture and from the Manager's
management of the Venture's business.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agrees as follows:
1. License of Trade Rights.
(a) License of Trade Rights. CCI hereby grants to the Venture an
exclusive, worldwide, royalty-free license to the Trade Rights.
(b) Sublicenses. The Venture (through the Manager during the term of
the Management Agreement) shall have the right to grant sublicenses in
connection with the Company Business (as defined in the Shareholders Agreement)
to others (including to the Manager) to use the Trade Rights, provided that no
such sublicensee shall have the right to grant further sublicenses
(sub-sublicenses) without the prior written consent of CCI, which shall not be
unreasonably withheld, conditioned or delayed, and provided further that any
sublicense granted under this subsection shall be subject to this Agreement and
shall not include any terms or conditions inconsistent with this Agreement.
-2-
2. Representations and Warranties.
(a) Representations and Warranties of CCI, SGIC and SGI Holding. CCI,
SGIC and SGI Holding jointly and severally represent and warrant that:
(i) None of the Trade Rights infringes or violates any
third-party trademark, trade name, service mark, service name or other trade
rights in the United States of America; none of them has any notice of any
infringement or violation or claim of infringement or violation of the Trade
Rights (whether in the United States of America or otherwise); no other rights
or licenses concerning the Trade Rights have been granted by any of them to any
other party; CCI has good and marketable title in the United States of America
to the Trade Rights, free and clear of any liens or encumbrances; and, subject
to the recordation of assignments in the United States Patent and Trademark
Office (which have been executed and will be filed for recordation within
fifteen (15) days after the date of this Agreement), CCI has good and marketable
title to any and all registrations and applications for registration of the
Trade Rights in the United States of America, free and clear of any liens or
encumbrances.
(ii) Each of them is a corporation duly organized and validly
existing under the laws of the Yukon Territory of Canada, in the case of CCI,
the laws of the State of Nevada, in the case of SGIC, or the laws of Bermuda as
an exempted company, in the case of SGI Holding.
(iii) Each of them has full legal power and right to carry on its
business as such is now being conducted and as proposed to be conducted. Each of
them has the legal power and right under the laws of the Yukon Territory, Nevada
and Bermuda, in the case of CCI, SGIC and SGI Holding, respectively, to enter
into and perform this Agreement and the transactions contemplated hereby; and
that the consummation of the transactions contemplated by this Agreement will
neither violate nor be in conflict with: (A) any provision of the Articles of
Continuation or Bylaws of CCI, the Articles of Incorporation or Bylaws of SGIC,
or the Memorandum of Association or Bye-Laws of SGI Holding; (B) any agreement
or instrument to which any of them is a party or by which any of them or any of
their Affiliates or any of their respective assets are bound; (C) any judgment,
order, ruling or decrees applicable to any of them or any of their Affiliates as
a party in interest or any law, rule or regulation applicable to any of them or
any of their Affiliates; or (D) any document, agreement or other arrangement
creating or relating to the creation or existence of any of them or any of their
Affiliates.
-3-
(iv) The execution, delivery and performance of this Agreement
and the transactions contemplated hereby have been duly and validly authorized
by all requisite corporate action on the part of each of them.
(v) This Agreement is a valid and binding obligation of each of
them and is enforceable in accordance with its terms against each of them,
subject to and limited by the effect of applicable bankruptcy, insolvency,
fraudulent transfer or conveyance, reorganization, receivership, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
rights of creditors generally.
(vi) No consent of any person not a party to this Agreement and
no consent of any governmental authority is required to be obtained on the part
of any of them in connection with or resulting from the execution or performance
of this Agreement.
(vii) None of them nor any of their Affiliates has incurred any
obligation or liability, contingent or otherwise, for brokers' or finder's fees
in respect of the matters provided for in this Agreement, and if any such
obligation or liability exists, it shall be the sole obligation of such party or
its Affiliate.
(viii) None of the statements, representations or warranties made
by any of them in this Agreement or in any exhibit of certificate delivered
pursuant to this Agreement contains any untrue statement of any material fact or
omits to state any material fact necessary to be stated in order to make the
statements, representations or warranties contained herein or therein not
materially misleading.
(b) Representations and Warranties of the Venture. The Venture
represents and warrants that:
(i) It is a corporation duly organized and validly existing under
the laws of Bermuda as an exempted company.
(ii) It has full legal power and right to carry on its business
as such is now being conducted and as proposed to be conducted, subject to
compliance with any applicable laws and regulations prohibiting or regulating
gaming. It has the legal power and right under the laws of Bermuda to enter into
and perform this Agreement and the transactions contemplated hereby; and that
the consummation of the transactions contemplated by this Agreement will neither
violate nor be in conflict with: (A) any provision of its Memorandum of
Association or Bye-Laws; (B) any agreement or instrument to which it is a party
or by
-4-
which it or any of its assets are bound; (C) any judgment, order, ruling or
decrees applicable to it as a party in interest or any law, rule or regulation
applicable to it; or (D) any document, agreement or other arrangement creating
or relating to its creation or existence.
(iii) The execution, delivery and performance of this Agreement
and the transactions contemplated hereby have been duly and validly authorized
by all requisite corporate action on the part of the Venture.
(iv) This Agreement is a valid and binding obligation of the
Venture and is enforceable in accordance with its terms against it, subject to
and limited by the effect of applicable bankruptcy, insolvency, fraudulent
transfer or conveyance, reorganization, receivership, moratorium or other
similar laws now or hereafter in effect relating to or affecting the rights of
creditors generally.
(v) No consent of any person not a party to this Agreement and no
consent of any governmental authority is required to be obtained on its part in
connection with or resulting from the execution or performance of this
Agreement.
(vi) It has not incurred any obligation or liability, contingent
or otherwise, for brokers' or finder's fees in respect of the matters provided
for in this Agreement.
(vii) None of the statements, representations or warranties made
by any it in this Agreement or in any exhibit or certificate delivered pursuant
to this Agreement contains any untrue statement of any material fact or omits to
state any material fact necessary to be stated in order to make the statements,
representations or warranties contained herein or therein not materially
misleading.
3. Ownership of the Trade Rights; Use of Trade Rights. The Venture
acknowledges CCI's exclusive ownership of all right, title and interest in and
to the Trade Rights, and the Venture will at no time do, or cause or permit to
be done, any act impairing or tending to impair such right, title and interest.
When using the Trade Rights, the Venture shall comply, or cause the compliance,
with all applicable laws pertaining to trademarks and other trade rights in
force at the time of such use.
4. Registration of Trade Rights or Venture. At the Venture's expense, CCI
will use reasonable efforts to register and maintain the registration of the
Trade Rights in such jurisdictions as shall be requested from time to time by
the Venture. If applicable law permits
-5-
and upon the request of the Venture, CCI shall make application, at the expense
of the Venture, to register the Venture as a permitted user or registered user
of the Trade Rights.
5. Limitation of Liability. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT TO THE CONTRARY, NO PARTY SHALL IN ANY CASE BE LIABLE TO THE OTHER
PARTY FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR OTHER SIMILAR DAMAGES
RELATED TO THIS AGREEMENT OR ITS PERFORMANCE ARISING FROM BREACH OF WARRANTY,
BREACH OF CONTRACT, NEGLIGENCE OR ANY OTHER LEGAL OR EQUITABLE THEORY EVEN IF
SUCH PARTY OR ITS AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
6. Infringement.
(a) CCI, SGIC and SCI Holding Indemnification Obligation. CCI, SGIC
and SGI Holding jointly and severally shall indemnify, defend and hold the
Venture and the Manager and their respective officers, directors, employees,
agents and licensees harmless from and against any and all damages (subject to
Section 5 hereof), liabilities, costs and expenses (including reasonable
attorneys' fees) resulting from the breach or untruthfulness of the
representations and warranties set forth in Section 2(a)(i) hereof (and
including amounts incurred in the settlement or avoidance of any claims based
thereon), provided that CCI shall be given prompt notice of the claim and the
opportunity to control the defense and/or settlement thereof, provided that the
Venture shall have the right to approve any settlement involving other than a
monetary payment, which approval shall not be unreasonably withheld, conditioned
or delayed.
(b) Venture indemnification Obligation. Without limiting Sections
2(a)(i) and 6(a), the Venture shall indemnify, defend and hold CCI and its
officers, directors, employees, agents and licensees harmless from and against
any and all damages (subject to Section 5 hereof), liabilities, costs and
expenses (including reasonable attorneys' fees) resulting from the infringement
of any third party trademarks, trade names, service marks, service names or
other trade rights resulting from the use of the Trade Rights outside of the
United States of America, provided that the Venture shall be given prompt notice
of the claim and the opportunity to control the defense and/or settlement
thereof.
(c) Infringement of Trade Rights. In the event of any infringement
of the Trade Rights, the Venture will have the right at its sole cost and
expense and for its sole benefit to
-6-
take any action or to commence any proceeding it deems necessary against the
infringing party or parties. CCI shall provide such cooperation and assistance
in connection therewith as may be reasonably requested by the Venture, and the
Venture shall promptly reimburse CCI for its costs and expenses incurred in
connection with providing such cooperation and assistance.
7. Term; Survival of Provisions.
(a) Term. The term of the license granted under Section 1 hereof
shall be co-extensive with the term of the Venture's corporate existence, which
shall include any period of liquidation and winding up following the dissolution
or authorization of the dissolution of the Venture; provided, however, that if
the Venture is merged or amalgamated with or consolidated into another
corporation or entity or sells all or substantially all of its assets to another
corporation or entity or otherwise is combined with another corporation or
entity in a merger, amalgamation, consolidation, sale of assets or other
transaction approved in accordance with or permitted by Section 1.6 of the
Shareholders Agreement, such license will continue in effect and the successor
party to the Venture shall, if necessary, be deemed to be the assignee of the
Venture under this Agreement. Notwithstanding any breach of this Agreement by
the Venture, CCI shall not be entitled to terminate the license rights granted
under Section 1 hereof prior to the expiration of such license rights as
provided in this Section 7(a); provided, however, that this provision shall not
otherwise limit the liability of the Venture for any such breach.
(c) Survival. Notwithstanding any termination or expiration of the
license rights granted hereunder, the representations and warranties of clause
(a)(i) of Section 2, the indemnification provisions of Section 6, the provisions
of Section 8 and all other provisions of this Agreement not required to
terminate with such license rights shall survive any such termination or
expiration.
8. General Provisions.
(a) Notices; Payments. All notices and other communications required
or permitted to be given pursuant to this Agreement shall be in writing and
shall be personally delivered (by commercial courier or otherwise) or sent by
telecopy receipt of which is confirmed or sent first class mail, registered or
certified, return receipt requested, postage prepaid, addressed as follows:
-7-
If to CCI, SGIC or SGI Holding:
c/o Creator Capital Inc.
595 Howe Street, Suite 1115
Vancouver, British Columbia V6C 2T5
Canada
Attention: Mr. Malcolm P. Burke
Telecopier: (604) 687-8678
Telephone: (604) 689-1515
with a copy to:
Gordon R. Kanofsky, Esq.
Hughes Hubbard & Reed
350 South Grand Avenue
Los Angeles, California 90071-3442
United States of America
Telecopier: (213) 613-2950
Telephone: (213) 613-2876
If to the Venture:
Interactive Entertainment Limited
c/o Creator Capital Inc.
595 Howe Street, Suite 1115
Vancouver, British Columbia V6C 2T5
Canada
Attention: Mr. Malcolm P. Burke
Telecopier: (604) 687-8678
Telephone: (604) 689-1515
with copies to:
Gordon R. Kanofsky, Esq.
Hughes Hubbard & Reed
350 South Grand Avenue
Los Angeles, California 90071-3442
United States of America
Telecopier: (213) 613-2950
Telephone: (213) 613-2876
-8-
and
John W. McConomy, Esq.
Associate General Counsel
The Promus Companies Incorporated
1023 Cherry Road
Memphis, Tennessee 38117-5423
United States of America
Telecopier: (901) 762-8735
Telephone: (901) 762-8737
Notices and other communications shall be deemed delivered, (i) in the case of
personal delivery, on the date of their receipt at the address(es) specified
above for delivery, (ii) in the case of a telecopy, upon confirmation of its
receipt, and (iii) in the case of mail, at the earlier of the time of receipt or
five days after the mailing thereof. Any payments required to be made pursuant
to this Agreement shall be made and delivered in person or by mail in the same
manner as provided above for notices and other communications. Any party may
change its address for the giving of notices, other communications and payments
by notice given in accordance with this Section.
(b) Assignment. Except in connection with assignments or deemed
assignments permitted by Section 7(a) hereof or required or permitted by the
terms of the Shareholders Agreement, the Venture shall not have the right to
assign its interests under this Agreement without the prior written consent of
the CCI, which may be given or denied in CCI's sole discretion. This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective permitted successors, legal representatives and assigns.
(c) Severability. The provisions of this Agreement shall be deemed
severable. If any provision hereof shall be found invalid, illegal, void or
unenforceable, in whole or in part, the remaining provisions or portions thereof
shall remain in full force and effect to the maximum extent permissible. To the
maximum extent permitted by applicable law, each party hereby waives any
provision of law which renders any provision of this Agreement invalid, illegal,
void or unenforceable.
(d) Governing Law. THIS AGREEMENT AND ALL RELATIONS OF THE PARTIES
IN CONNECTION HEREWITH SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEVADA, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS OR
CHOICE OF LAW RULES OR LAWS OF SUCH JURISDICTION.
-9-
(e) Forum Selection. THE PARTIES AGREE THAT ANY LEGAL SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE COMMENCED IN A
STATE OR FEDERAL COURT OF OR IN CLARK COUNTY, NEVADA, WHICH THE PARTIES AGREE IS
THE SOLE AND EXCLUSIVE VENUE FOR THE CONVENIENCE OF THE PARTIES FOR PURPOSES OF
THIS AGREEMENT, AND EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
AND VENUE OF SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING AND WAIVES ANY
RIGHT THAT IT MAY NOW OR HEREAFTER HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING, EXCEPT THAT EACH PARTY RETAINS WHATEVER RIGHT
IT MAY HAVE TO REMOVE SUCH SUIT, ACTION OR PROCEEDING TO THE FEDERAL COURT
SITTING IN CLARK COUNTY, NEVADA.
(f) Attorneys' Fees and Costs. If any litigation or other proceeding
between or among the parties is commenced in connection with or related to this
Agreement, the losing party or parties shall pay the reasonable attorneys' fees
and costs and expenses of the prevailing party or parties incurred in connection
therewith.
(g) Entire Agreement; Modification. This Agreement, together with the
Shareholders Agreement, the License Agreement and the Management Agreement
between the Venture and the Manager entered into concurrently herewith,
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all prior negotiations and agreements with
respect to the subject matter hereof. This Agreement may be modified only by an
instrument in writing duly executed by the party sought to be bound by such
modification.
(h) Waivers. No breach of any covenant, condition, agreement, warranty
or representation made herein shall be deemed waived unless expressly waived in
writing by the party who might assert such breach. Any such waiver may be made
in advance or after the right waived has arisen or the breach or default waived
has occurred. Any such waiver may be conditional. No such waiver shall be deemed
to be a waiver of any other matter, whenever occurring and whether identical,
similar or dissimilar to the matter waived.
(i) Further Assurances. Each party agrees promptly to execute and
deliver such documents and to do such other acts as may be requested by any
other party and are in the reasonable judgment of the requesting party necessary
or appropriate to effectuate the purposes
-10-
of this Agreement. Such matters may include, but shall not be limited to, the
registration of a party as the owner or user of some or all of the Software or
the Venture Technology, as the case may be, under the laws of any United States
or foreign jurisdiction. The requesting party shall promptly reimburse the other
party for its costs and expenses incurred in connection with providing such
further assurances and cooperation.
(j) Relationship of Parties. Nothing set forth herein shall ever be
construed to create an association, trust or partnership or impose a trust or
partnership duty, obligation or liability on or with regard to either of the
parties hereto.
(k) Headings: Gender; Number. The headings of the sections and
subsections herein are inserted for convenience of reference only and are not
intended to be a part of, or to affect the meaning or interpretation of, this
Agreement. As used herein and as the context requires, a reference to the male,
female or neutral gender includes a reference to each other gender, and a
reference to the singular or plural number includes a reference to the other
number.
(l) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed to constitute an original.
(m) Computer Media. Each party shall be entitled to have a copy of
this Agreement, including all written schedules and exhibits, on diskette or
other commonly used
-11-
computer storage media in a format readable by one or more leading word
processing programs as of the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CREATOR CAPITAL INC. INTERACTIVE ENTERTAINMENT
LIMITED
By: By:
--------------------------- --------------------------
Malcolm P. Burke, Director Daniel H. Greene,
Director and President
By:
---------------------------
James P. Grymyr, Director
SGI HOLDING CORPORATION SKY GAMES INTERNATIONAL,
LIMITED CORP.
By: By:
--------------------------- ---------------------------
Malcolm P. Burke, James P. Grymyr, President
Director and President
-12-
SCHEDULE A TO TRADEMARK LICENSE AGREEMENT
-----------------------------------------
EXISTING REGISTRATIONS
Mark Reg. No. Class Date Reg.
- ---- -------- ----- ---------
Sky Games 1,718,373 Int. Class 28 September 22, 1992
International - "We (Prior U.S. Classes
Make Time Fly" 22 & 38)
PENDING INTENT TO USE APPLICATIONS
Mark Serial No. Filing Date Type Class
- ---- ---------- ----------- ---- -----
Sky Games 74/349915 December 10, 1(b) 42
International - 1991
"We Make Time Fly"
ABANDONED INTENT TO USE APPLICATIONS
Mark Serial No. Filing Date/ Type Class
- ---- ---------- ------------ ---- -----
Abandonment
-----------
Date
----
Casino Class 74/338046 December 8, 1(b) 42
1992 / May 17,
1994
EXHIBIT 8
[EXECUTION COPY]
----------------
GUARANTY
--------
THIS GUARANTY is made and entered into as of this 13th day of May, 1997, by
SGI Holding Corporation Limited, a Bermuda exempted company ("SGIH")
("Guarantor"), in favor of Harrah's Interactive Investment Company, a Nevada
corporation ("Lender").
THIS GUARANTY IS ENTERED INTO WITH RESPECT TO THE FOLLOWING FACTS AND
CIRCUMSTANCES:
A. Pursuant to the Financing Agreements, as defined in that certain
Funding Agreement dated as of the date hereof among Interactive Entertainment
Limited, a Bermuda exempted company ("IEL" or "Borrower") and Sky Games
International Ltd., a Bermuda exempted company ("SGI"), and Lender, as lender
(the "Funding Agreement"), Lender has agreed to loan to IEL funds required by
IEL to fund its day-to-day business activities up to the amounts set forth in
the Funding Agreement. The loan is evidenced by a Convertible Promissory Note
dated the date hereof (the "Note").
B. Lender has required, as a condition to its entering into the Financing
Agreements with IEL, that Guarantor guarantee, in accordance with the terms and
conditions hereinafter set forth, the obligations of IEL under the Financing
Agreements, including without limitation the repayment of all amounts due to
Lender.
C. The Funding Agreement is dated as of the date hereof and is being
executed simultaneously with this Guaranty.
IN CONSIDERATION OF SUCH FACTS AND CIRCUMSTANCES; TO INDUCE LENDER TO ENTER
INTO THE FINANCING AGREEMENTS; AND FOR OTHER GOOD AND VALUABLE CONSIDERATION,
GUARANTOR HEREBY AGREES FOR THE BENEFIT OF LENDER AS FOLLOWS:
1. Guaranty. Guarantor hereby unconditionally guarantees to Lender, and
Lender's successors and assigns, the payment of all amounts that may become
payable by Borrower pursuant to the Funding Agreement and the Note and the full
and punctual performance and observance of all the terms, covenants, obligations
and conditions contained in the Financing Agreements to be kept, performed or
observed by Borrower, for which Guarantor shall be jointly and severally liable
with Borrower.
2. Actions of Lender. Any act of Lender, or Lender's successors and
assigns, consisting of a waiver of any of the terms and conditions of the
Financing Agreements or the giving of any consent to any matter or thing
relating to the Financing Agreements or the granting of any indulgence or
extensions of time to Borrower under the Financing Agreements may be done
without notice to Guarantor and without releasing the obligations of Guarantor.
3. Modifications of Borrower's Obligations. The obligations of Guarantor
shall not be released by the receipt, application or release by Lender of any
security given for the performance and observance of the terms, covenants and
conditions of the Funding Agreement or the Note, nor by any amendment or
modification of the Funding Agreement. If the Funding Agreement or the Note is
amended or modified, by Borrower and Lender, the liability of Guarantor shall be
deemed to be modified in accordance with the terms of any such amendment or
modification of the Funding Agreement or the Note and this Guaranty, as so
modified, shall remain in full force and effect.
4. Defenses Waived. The liability of Guarantor shall not be affected,
reduced or set-off in any manner by the following events or circumstances: (a)
the release, discharge or the impairment, limitation or modification of the
liability of Borrower in any creditors' receivership, bankruptcy or other
proceedings; (b) the rejection or disaffirmance of the Funding Agreement or the
Note in any proceeding; (c) any disability or other defense or counter-claim or
right of set-off, which might be available at law or equity to Borrower or
Guarantor; (d) the cessation from any cause whatsoever of the duties,
obligations and liabilities of Borrower; (e) any statute of limitations
affecting Guarantor's liability or the enforcement thereof; (f) any invalidity,
irregularity or enforceability of or defect in the Funding Agreement or the
Note; or (g) the winding up, dissolution or reorganization of Borrower; or (h)
any other circumstance permitting a defense.
5. Waiver of Subrogation. Until all the covenants and conditions in the
Funding Agreement to be performed and observed by Borrower are fully kept,
performed and observed, the Guarantor: (a) shall have no right of subrogation
against Borrower by reason of any payments or acts of performance by the
Guarantor, in compliance with the obligations of the Guarantor hereunder; (b)
shall waive any right to enforce any remedy which the Guarantor now or hereafter
shall have against Borrower by reason of any one or more payments or acts of
performance in compliance with the obligation of the Guarantor.
6. Term of Guaranty. This Guaranty is absolute and unconditional, shall
continue in force for the entire period that Borrower and SGI may incur any
liability pursuant to the Financing Agreements and shall not be impaired by any
change in the Guarantor's relationship, or the complete termination of the
Guarantor's relationship, with Borrower or by any other occurrence except a
release in writing from the Lender; provided, however, that, any implication
contained herein to the contrary notwithstanding, this Guaranty shall terminate
upon the amalgamation of IEL with and into SGIH and the conversion of the
obligations under the Note into the common stock, Cdn. $.01 par value, of SGI.
7. Modification. This instrument may not be changed, modified, discharged
or terminated orally or in any manner other than by an agreement in writing
executed by Lender and Guarantor.
8. Release. Lender may, without releasing, reducing, extinguishing or
otherwise affecting Guarantor's liability for the full performance of all
obligations under this Guaranty and full payment of all sums under this Guaranty
at any time, without notice to or consent by Guarantor, release any other
guarantor or party liable therefor from its obligations under the Funding
Agreement or the Note.
9. Actions Against Guarantor. The agreements, obligations, warranties and
representations of the Guarantor are independent of the obligations of Borrower
and, in the event of any default, a separate action or actions may be brought
and prosecuted against Guarantor regardless of whether Borrower is joined
therein or a separate action or actions is brought before, after or
simultaneously against Borrower. Lender may maintain successive actions for
defaults. Lender's rights shall not be exhausted by the exercise of any of its
rights or remedies or by any such action or by any number of successive actions
until and unless all obligations hereby guaranteed have been fully paid and
performed. If Lender is compelled at any time to take any action or proceeding
in court or otherwise to enforce or compel compliance with the terms of this
Guaranty, Guarantor shall, in addition to any other rights and remedies to which
Lender may be entitled hereunder or as a matter of law or in equity, be
obligated to pay all costs, including without limitation reasonable attorneys'
fees, incurred or expended by Lender in connection with such enforcement
proceedings. Lender may resort to Guarantor for payment of any of the
obligations under the Financing Agreements, whether or not Lender (i) shall have
resorted to any property securing any of the obligations under the Financing
Agreements or (ii) shall have proceeded against any other obligor primarily or
secondarily obligated with respect to any of the
2
obligations under the Financing Agreements (all of the actions referred to in
preceding clauses (i) and (ii) being hereby expressly waived by the Guarantor).
10. Applicable Law and Forum. This Guaranty shall be governed by and
construed in accordance with the laws of the State of Tennessee. Guarantor
further agrees that the determination of any action relating to the Guaranty
pursuant to the terms thereof shall be either in an appropriate court of the
state of Tennessee or the Unites States District Court for the Western District
of Tennessee.
11. Unenforceable Provision. Should any one or more provisions of this
Guaranty be determined to be illegal or unenforceable, all other provisions
shall to the maximum extent possible remain effective.
12. Entire Agreement. This Guaranty shall constitute the entire agreement
of Guarantor with Lender with respect to the subject matter hereof.
13. Successors and Assigns. This Guaranty shall inure to the benefit of
Lender, Lender's successors and assigns. This Guaranty may not be assigned by
Guarantor without the consent of Lender.
14. Notices. All notices and other communications to be delivered or made
hereunder shall be in writing and shall be (i) delivered personally, (ii) sent
by postage prepaid certified mail, return receipt requested, (iii) sent by
express courier service or (iv) sent by facsimile at the following addresses or
at such other addresses as shall be described in written notice as provided
herein:
Guarantor: SGI Holding Corporation Limited
595 Howe Street, Suite 1115
Vancouver, British Columbia V6C 2T5
Attn: Malcolm P. Burke
Facsimile No.: 604-687-8678
With a copy to: Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attn: Andrew W. McCune, Esq.
Facsimile No.: 312-715-4800
Lender: Harrah's Interactive Investment Corporation
1023 Cherry Road
Memphis, Tennessee 38117
Attn: John M. Boushy
Facsimile No.: 901-762-8914
With a copy to: Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Attn: John W. McConomy, Esq.
Facsimile No.: 901-762-8735
All such notices and communications shall be effective, if mailed, upon
expiration of the fifth (5th) day following the date of mailing (except that any
notice of change of address shall be effective only upon receipt
3
by the party to whom such notice is addressed), and if delivered personally or
delivered by courier, upon receipt or refusal of delivery, and if by facsimile,
upon the first business day following confirmed transmission; provided such
notice or communication is also mailed in accordance with the foregoing
requirements within two (2) days of delivery by facsimile.
IN WITNESS WHEREOF, Guarantor, intending to be legally bound, has caused
this Guaranty to be executed as of the date first above written.
Guarantor:
SGI HOLDING CORPORATION LIMITED
By:/s/ Malcolm P. Burke
--------------------
Its:President
---------
4
EXHIBIT 9
[EXECUTION COPY]
----------------
PLEDGE AND SECURITY AGREEMENT
-----------------------------
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is made and entered
into as of the 13th day of May, 1997 by SGI Holding Corporation Limited, a
Bermuda exempted company ("Pledgor"), for the benefit of Harrah's Interactive
Investment Company, a Nevada corporation ("Pledgee").
RECITALS
--------
A. Pursuant to the terms of that certain Funding Agreement of even date
herewith among Interactive Entertainment Limited, a Bermuda exempted company, as
borrower ("IEL" or Borrower"), and Sky Games International Ltd., a Bermuda
exempted company, ("SGI"), and Pledgee, as lender (the "Funding Agreement"),
Pledgee has agreed to loan to IEL funds required by IEL to fund its day-to-day
business activities up to the amounts set forth in the Funding Agreement. Such
loans shall be evidenced by a Convertible Promissory Note in the form attached
to the Funding Agreement (the "Note").
B. As a condition precedent to making the loans under the Funding
Agreement, Pledgee has required that Pledgor pledge to Pledgee, as security for
the performance of the obligations of Pledgor under a Guaranty dated as of the
date hereof in favor of Pledgee (the "Guaranty"), all of the shares of capital
stock of IEL (the "IEL Shares") received by Pledgor in respect to its capital
contributions to IEL after the date of this Agreement and during the term of the
Note. All capitalized terms contained herein and not otherwise defined shall
have the meanings ascribed to them in the Funding Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the foregoing recitals, and the
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Pledge of Collateral. Pledgor does hereby convey, transfer, assign, set
over and grant unto Pledgee, as security for the payment and performance of all
of Pledgor's obligations under the Guaranty a continuing general lien upon and
security interest in the Collateral (as hereinafter defined) and in Pledgor's
right to receive all distributions attributable to the Collateral, including,
without limitation, all of Pledgor's right, title and interest in and to all
goods, instruments, money and other property, of whatever kind or character,
whether cash or noncash, real or personal, now or hereafter due to Pledgor in
respect of the Collateral Shares (as hereinafter defined), together with all of
the interest of Pledgor, whether now owned or hereafter acquired, as a member in
any successor entity or as an owner in any other entity, whether said successor
is a continuation of IEL or a reformation thereof, or otherwise, together with
all other property which, absent this assignment would, now or hereafter, be
distributable or distributed, transferable or transferred, payable or paid, or
deliverable or delivered to Pledgor by IEL or by such successor, whether at any
time prior to, or in connection with, or after the liquidation of IEL,
including, without limitation, distributions of cash and distributions of
property in kind, by IEL (collectively, the "Distributions"). Pledgor hereby
irrevocably authorizes and directs IEL, upon receipt of written notice from
Pledgee that an uncured Event of Default has occurred to distribute, transfer,
pay and deliver any and all of said Distributions to Pledgee, at such address as
it may direct, at such time and in such manner as such distributions would
otherwise be distributed, transferred, paid or delivered to Pledgor with respect
to the period following the date of such notice.
2. Collateral. For the purpose of this Agreement, "Collateral" shall mean
all of Pledgor's right, title and interest in and to any and all IEL Shares
issued as of the date hereof or issuable to Pledgor on and after the date of
this Agreement and so long as any amounts or obligations are outstanding under
the
Financing Agreements ("Collateral Shares"), whether now owned or hereafter
acquired, together with all other rights, interests, claims and other property
of Pledgor in any manner arising out of or relating to Collateral Shares,
whether such rights, interests, claims or other property are now owned or
hereafter acquired by Pledgor, whatever their respective kind or character,
whether they are tangible or intangible property, and wheresoever they may exist
or be located, including, without limitation, all of the rights of Pledgor
(whether now owned or hereafter acquired) to Distributions of or from IEL in
respect to the Collateral Shares, whether cash or noncash, and whether prior to
or in connection with the liquidation of IEL and all proceeds, whether cash
proceeds or noncash proceeds (as such terms are defined in the Uniform
Commercial Code), and products of any and all of the foregoing.
3. Delivery of Share Certificates; Stock Powers. Pledgor shall promptly
deliver to Pledgee share certificates, if any, or other documents representing
Collateral acquired or received after the date of this Agreement with stock
powers duly executed by Pledgor. If at any time Pledgee notifies Pledgor that
additional stock powers endorsed in blank held by Pledgee with respect to the
Collateral or other documents with respect to the Collateral are required,
Pledgor shall promptly execute in blank and deliver such stock powers or other
documents as Pledgee may request.
4. Stock Dividends and Distributions. If the Collateral Shares or any
additional shares of capital stock, instruments, or other property distributable
on or by reason of the Collateral, shall come into the possession or control of
Pledgor, and such property is such that a security interest therein can be
perfected only by possession by Pledgee, Pledgor shall hold the same in trust
and forthwith transfer and deliver the same to Pledgee subject to the provisions
hereof. Notwithstanding the above, absent the occurrence of an uncured Event of
Default, Pledgor shall retain the right to vote, receive and retain all
dividends or other Distributions declared on all interests included in the
Collateral Shares. Upon or at any time after the occurrence an uncured Event of
Default, Pledgee, at its option to be exercised in its sole discretion, may
foreclose under the terms of this Agreement and/or deliver written notice to IEL
to pay all Distributions to Pledgee. IEL shall be entitled to rely conclusively
on such notice and is hereby authorized and directed by Pledgor to pay all
Distributions to Pledgee upon receipt of such notice auld shall have no
liability to Pledgor for any loss or damage Pledgor may incur by reason of said
reliance.
5. Power of Attorney. Pledgor hereby constitutes and irrevocably appoints
Pledgee, with full power of substitution and revocation by Pledgee, as Pledgor's
true and lawful attorney-in-fact, to the full extent permitted by law, at any
time or times when an Event of Default has occurred and is continuing, to: affix
to certificates and documents representing the Collateral the stock powers or
other documents delivered with respect thereto; transfer or cause the transfer
of the Collateral or any part thereof on the books of IEL to the name of Pledgee
or Pledgee's nominee and thereafter exercise as to such Collateral all the
rights, powers and remedies of an owner; and execute and file on its behalf any
financing statements, continuation statements or other documentation required to
perfect or continue the security interest created hereby or otherwise protect
Pledgee's interest in the Collateral. The power of attorney granted pursuant to
this Agreement and all authority hereby conferred are granted and conferred
solely to protect Pledgee's interest in the Collateral and shall not impose any
duty upon Pledgee to exercise any power. This power of attorney shall be
irrevocable as one coupled with an interest.
6. No Assumption. Notwithstanding any of the foregoing and except as
otherwise provided herein, whether or not a default by Pledgor shall have
occurred under the terms of the Financing Agreements and whether or not Pledgee
elects to foreclose on its security interest in the Collateral and Distributions
as set forth herein, neither receipt by Pledgee of any of Pledgor's right, title
and interest in and to the Distributions, now or hereafter due to Pledgor from
IEL nor Pledgee's foreclosure of its security interest
-2-
in the Collateral, shall in any way be deemed to obligate Pledgee to assume any
of Pledgor's obligations, duties, expenses or liabilities under, or under any
and all agreements now existing or hereafter drafted or executed (collectively,
the "Obligations"). In the event of foreclosure by Pledgee, Pledgor shall remain
bound and obligated to perform the Obligations and Pledgee shall not be deemed
to have assumed any of such Obligations.
7. Representations, Warranties and Covenants. Pledgor represents,
warrants, covenants and agrees that it has the full right and title to its
interest in the Collateral and the Distributions free and clear of any liens,
encumbrances or security interests other than in favor of Pledgee and the full
power and authority to pledge, convey, transfer and assign its interest therein.
Pledgor shall not convey, transfer, assign, set over or pledge to any other
party any of its interest in the Collateral or the Distributions.
8. Defaults, Remedies.
(a) An "Event of Default" under the Financing Agreements shall be an Event
of Default hereunder (an "Event of Default").
(b) Upon the occurrence of an uncured Event of Default hereunder, Pledgee
may, at its option, do any one or more of the following:
(i) declare all indebtedness secured hereby to be immediately due and
payable, whereupon all unpaid principal of and accrued and unpaid interest
on said indebtedness and other amounts declared due and payable shall be
and become immediately due and payable without presentment, demand, protest
or notice of any kind;
(ii) either personally, or by means of a court appointed receiver, take
possession of all or any of the Collateral and exclude therefrom Pledgor
and all others claiming under Pledgor, and thereafter exercise all rights
and powers of Pledgor with respect to the Collateral or any part thereof.
Upon application to a court of competent jurisdiction, Pledgee shall be
entitled to a receiver as a matter of strict right without notice and
without regard to the adequacy or value of any security for the
indebtedness secured hereby or the solvency of any party bound for its
payment. The receiver shall have all the rights and powers permitted under
the laws of the State of Tennessee. In the event Pledgee demands, or
attempts to take possession of the Collateral in the exercise of any rights
under this Agreement, Pledgor promises and agrees to promptly turn over and
deliver complete possession thereof to Pledgee;
(iii) without notice to or demand upon Pledgor, make such payments and
do such acts as Pledgee may deem necessary to protect its security interest
in the Collateral, including, without limitation, paying, purchasing,
contesting or compromising any encumbrance, charge or lien which is prior
to or superior to the security interest granted hereunder, and in
exercising any such powers or authority to pay all expenses incurred in
connection therewith;
(iv) require Pledgor to take all actions necessary to deliver such
Collateral to Pledgee, or an agent or representative designed by it.
Pledgee, and its agents and representatives, shall have the right to enter
upon any or all of Pledgor's premises and property to exercise Pledgee's
rights hereunder;
-3-
(v) foreclose this Agreement as herein provided or in any manner
permitted by law, and sell or cause to be sold in such order as Pledgee may
determine, the property described in this Agreement;
(vi) sell or otherwise dispose of the Collateral at public or private
sale, without having the Collateral at the place of sale, and upon terms
and in such manner as Pledgee may determine; provided, Pledgee or IEL may
be a purchaser at any sale and may apply any unpaid portion of indebtedness
on account of or in full satisfaction of the purchase price; and
(vii) exercise any remedies of a secured party under the Uniform
Commercial Code of Tennessee or any other applicable law.
(c) Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Pledgee shall
give Pledgor at least ten (10) days' prior written notice of the time and
place of any public sale of the Collateral or other intended disposition
thereof to be made which notice the parties hereto agree to be reasonable.
Such notice may be mailed to Pledgor at the address set forth in the
Shareholders Agreement.
(d) The proceeds of any sale under subparagraph 7(b)(vi) shall be applied
as follows:
(i) to the repayment of the reasonable costs and expenses of retaking,
holding and preparing for the sale and the selling of the Collateral
(including legal expenses and attorneys' fees) and the discharge of all
assessments, encumbrances, charges or liens, if any, on the Collateral
prior to the lien hereof (except any taxes, assessments, encumbrances,
charges or liens subject to which such sale shall have been made);
(ii) to the payment of all outstanding amounts then due to Pledgee
(including principal and interest) under the Financing Agreements and
(iii) the surplus, if any, shall be paid to the Pledgor or to
whomsoever may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct.
(e) Pledgor recognizes that, by reason of certain prohibitions contained in
the Securities Act of 1933, as amended (the "Securities Act"), and applicable
state securities laws, Pledgee may be compelled, with respect to any sale of
all or any part of the Collateral, to limit purchasers to those who will
agree, among other things, to acquire the Collateral for their own account,
for investment and not with a view to the distribution or resale thereof.
Pledgor acknowledges that any such private sales may be at prices and on terms
less favorable to Pledgor than those obtainable through a public sale without
such restrictions (including, without limitation, a public offering made
pursuant to a registration statement under the Securities Act), and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that Pledgee
shall have no obligation to engage in public sale and no obligation to delay
the sale of any Collateral for the period of time necessary to permit the
issuer thereof to register it for a form of public sale requiring registration
under the Securities Act or under applicable state securities laws, even if
Pledgor would agree to do so.
(f) If Pledgee exercises its right to sell any or all of the Collateral,
upon written request from Pledgee, Pledgor shall and shall cause IEL from time
to time to furnish to Pledgee all such
-4-
information as Pledgee may request in order to determine the IEL Shares and
other instruments included in the Collateral which may be sold by Pledgee as
exempt transactions under the Securities Act and the rules of the Securities
and Exchange Commission thereunder, as the same are from time to time in
effect.
(g) Pledgee shall have the right to enforce one or more remedies hereunder,
successively or concurrently, and such action shall not operate to estop or
prevent Pledgee from pursuing any further remedy which it may have, and any
repossession or retaking or sale of the Collateral pursuant to the terms
hereof shall not operate to release Pledgor until full satisfaction of all of
its obligations under the Funding Agreement.
(h) Pledgor agrees that any legal action or proceeding with respect to this
Agreement may be brought in the courts of the State of Tennessee, all as
Pledgee may elect. By execution of this Agreement, Pledgor hereby submits to
such jurisdiction, hereby expressly waiving whatever rights may correspond to
it by reason of its present or future domicile.
9. Further Documentation. Pledgor shall duly execute and/or deliver (or
cause to be duly executed and/or delivered) to Pledgee any instrument, document,
order, financing statement, assignment, waiver, consent, or other writing which
may be reasonably necessary to Pledgee to carry out the terms of this Agreement,
the Funding Agreement and the Note and to perfect its security interest in and
facilitate the collection of the Collateral, the proceeds thereof, and any other
property at any time constituting security to Pledgee. Pledgor shall perform or
cause to be performed such acts as Pledgee may reasonably request to establish
and maintain for Pledgee a valid and perfected security interest in and security
title to the Collateral, free and clear of any liens, encumbrances or security
interest other than in favor of Pledgee.
10. Termination of Agreement and Assignment. This Agreement shall
automatically terminate and shall be surrendered upon satisfaction in full of
all obligations of IEL under the Note, including by way of conversion of amounts
outstanding under the Note into shares of common stock, Cdn. $.01 par value, of
SGI in connection with the amalgamation of IEL with and into SGIH. Upon the
termination of this Agreement, Pledgee shall deliver to Pledgor such instruments
as Pledgor may reasonably request to discharge the lien created by this
Agreement.
11. Governing Law. This Pledge and Security Agreement shall be governed by
and construed in accordance with the laws of the State of Tennessee. SGIH
further agrees that the determination of any action relating to this Agreement
or any of the Financing Agreements delivered in favor of Pledgee pursuant to the
terms thereof shall be either an appropriate court of the State of Tennessee or
the United States District Court for the Western District of Tennessee.
12. Successors and Assigns. All agreements, covenants, conditions and
provisions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto.
13. Notices. All notices and other communications to be delivered or made
hereunder shall be in writing and shall be (i) delivered personally, (ii) sent
by postage prepaid certified mail, return receipt requested, (iii) sent by
express courier service, or (iv) sent by facsimile at the following addresses or
at such other addresses as shall be described in a written notice as provided
herein:
-5-
Pledgor: SGI Holding Corporation Limited
595 Howe Street, Suite 1115
Vancouver, British Columbia V6C 2T5
Attn: Malcolm P. Burke
Facsimile No.: 604-687-8678
With a copy to: Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attn: Andrew W. McCune, Esq.
Facsimile No.: 312-715-4800
Pledgee: Harrah's Interactive Investment Corporation
1023 Cherry Road
Memphis, Tennessee 38117
Attn: John M. Boushy
Facsimile No.: 901-762-8914
With a copy to: Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Attn: John W. McConomy, Esq.
Facsimile No.: 901-762-8735
All such notices and communications shall be deemed effective, if mailed, upon
expiration of the fifth (5th) day following the date of mailing (except that any
notice of change of address shall be effective only upon receipt by the party to
whom such notice is addressed), if delivered personally or delivered by courier,
upon receipt or refusal of delivery, and if by facsimile, upon the first
business day following confirmed transmission; provided such notice or
communication is also mailed in accordance with the foregoing requirements
within two (2) days of delivery by facsimile.
14. Attorney's Fees. In the event of any dispute or litigation concerning
the enforcement or validity of this Agreement, the losing party shall pay all
reasonable charges, costs, and expenses (including reasonable attorneys' fees
and costs) incurred by the prevailing party whether or not any action or
proceeding is brought relative to such dispute and whether or not such
litigation is prosecuted to judgment.
15. Severability. Every provision of this Agreement is intended to be
severable. In the event any term or provision hereof is declared by a court of
competent jurisdiction to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
16. Amendment. This Agreement may be modified or rescinded only by a
writing expressly relating to this Agreement and signed by both Pledgor and
Pledgee.
IN WITNESS WHEREOF, Pledgor has executed this Agreement as of the date
first above written.
PLEDGOR
-6-
SGI HOLDING CORPORATION LIMITED
By: /s/ Malcolm P. Burke
---------------------------
Title: President
------------------------
-7-
