Settlement of Litigation

Empire Online Limited
14 February 2006

Proposed settlement of litigation with PartyGaming Plc ('PartyGaming') and
assignment of related 'skin' activities subject to Shareholder approval

Highlights

  • Settlement of litigation with PartyGaming

  • Assignment of Empire Online's PartyGaming related 'skin' operations to
    PartyGaming

  • $250 million cash payment

  • Company reaffirms expectation that its continuing businesses will
    contribute $37 million of net profit in the year ended 31 December 2006.

  • Proposals conditional upon shareholder approval - voting authorities in
    favour of the proposals have been obtained from shareholders holding in
    aggregate 56.0% of the ordinary shares in the Company

Noam Lanir, Chief Executive of Empire Online, said today:

'This transaction removes the uncertainty of litigation between Empire Online
and PartyGaming. It puts the Company on a stronger footing and will enable
management to focus on growing its continuing businesses. We will consider
carefully how to use the net proceeds from this sale to the maximum benefit of
shareholders.'

Enquiries:

Empire Online Limited                                         [phone]
Noam Lanir, Chief Executive Officer
Andrew Burnett

Numis Securities Limited                                    [phone]
Jag Mundi, Head of Corporate Finance
Lee Aston, Director, Corporate Finance

Citigate Dewe Rogerson                                      [phone]
Simon Rigby
Sarah Gestetner


Proposed settlement of litigation with PartyGaming and assignment of related '
skin' activities subject to Shareholder approval

Introduction

The Company announces that it has today entered into an agreement with
PartyGaming to settle all outstanding litigation between them and effectively to
sell the business and assets of its PartyGaming 'skin' activities (i.e.
operations designed to direct players to one of PartyGaming's gaming platforms)
to PartyGaming in return for a cash payment of US$250 million, payable on
completion.

Under the terms of this agreement the existing contractual arrangements with
PartyGaming will be terminated and Empire Online will assign to PartyGaming its
interests in certain domain names related to the PartyGaming 'skin' activities
including 'empirepoker.com' and 'aceclub.com'.

The agreement is conditional upon the approval of Empire Online shareholders by
way of an ordinary resolution.

There is no requirement either under BVI law or under the AIM Rules to obtain
shareholder approval for a disposal of this size, but the Directors consider
that, given the significance of the transaction and settlement and for the sake
of good governance and practice, shareholders should be appraised of the
Proposals and be given the opportunity to vote on the Proposals.


Background to the Proposals

Empire Online had a close working relationship with PartyGaming from 2002, when
it commenced marketing PartyGaming's online casino brands.  In 2003, Empire
Poker was launched under a white label or 'skin' agreement with PartyGaming and
over time became PartyGaming's most important poker skin, providing
approximately 70 per cent. of all players provided under its skin agreements.

Following the acquisition of ClubDice and Noble Poker in August 2005, an
increasing proportion of new player sign ups and revenue has been derived from
activities not related to PartyGaming and the Directors confirm that in the year
ended 31 December 2006 such activities should contribute approximately $37m of
net profit.

Activities related to PartyGaming have remained a source of revenue for Empire
Online although revenues have declined materially following the launch by
PartyGaming of a new operating platform on 8 October 2005 which moved
PartyGaming poker players to a different platform from that of PartyGaming's
skins.

Following the launch of this new platform, Empire Online was approached by
PartyGaming in relation to an offer by PartyGaming for the entire issued and to
be issued share capital of Empire Online. Following a breakdown of these talks,
Empire Online announced that the Directors intended to institute and vigorously
pursue legal proceedings against PartyGaming in relation to the launch of
PartyGaming's new platform.

During this process, the directors of PartyGaming and the Directors entered into
mediation, from which the Proposals described below have resulted.


The Proposals

The principal terms of the Proposals are as follows:

  • Both sides to terminate the various 'skin' agreements between them.
  • Empire Online to assign to PartyGaming all rights, title and interest in
    certain domain names and trade marks associated with those 'skin' agreements
    (e.g. empirepoker.com and aceclub.com).
  • All litigation and other related proceedings brought by the Company
    against PartyGaming are to be stayed and all claims waived.
  • PartyGaming to pay to Empire Online $250 million in cash on completion in
    consideration for the settlement of the litigation and the assignment of
    these assets.
  • PartyGaming also to pay outstanding commissions owing to the Group under
    the relevant 'skin' agreements.

This agreement is subject to approval of Empire Online Shareholders at a
Shareholders' meeting.  It is not subject to any other conditions. From
execution of the Sale Agreement, it has been agreed that PartyGaming shall
effectively operate these skin agreements on behalf of the Group pending
completion of the transaction.  Any commissions earned during the period shall
be for PartyGaming's account when completion occurs.

Assets included in the Disposal are the domain names empirepoker.com and
aceclub.com, and the brand names 'Empire Poker' and 'Ace Club'. These brand
names and domain names are used by Empire Online to direct online poker and
casino players to PartyGaming's websites, creating net gaming revenue for the
Company.

In the year ended 31 December 2005, the gross profit before administrative
expenses attributable to the assets being sold was approximately $38.7 million.
In the quarter ended 31 December 2005 the assets contributed gross profit before
administrative expenses of $5.0 million. The balance sheet value of the net
assets pursuant to the Proposals was less than $0.1 million as at 31 December
2005.


Rationale for the Proposals

The Directors believe that approval of the Proposals will crystallise the value
of the assets being assigned for Shareholders whilst also removing the
uncertainty of litigation between Empire Online and PartyGaming. The Empire
Online Board considers that, whilst it has always been confident of a successful
outcome, the litigation process was likely to have been protracted. The
Proposals will, in the view of the Directors, put the Company on a stronger
footing and also enable management to focus on growing the continuing business,
and to make suitable acquisitions should such opportunities occur.

Principal brand/domain names continuing with the Group include Noble Poker, Club
Dice Casino, Monaco Gold Casino, Carnival Casino, YouBingo, 888casino.com and
65.com.


Use of Proceeds

The Directors will consider the most appropriate ways in which to use the net
proceeds of the US$250 million generated through the Proposals to maximise value
for Shareholders. Options available to the Directors include distributions to
Shareholders as well as potential complementary acquisitions. Assuming
completion of the Disposal, the Directors will inform Shareholders of any
decision or proposal in relation to use of these proceeds as and when
appropriate.


Extraordinary General Meeting

An EGM to approve the Proposals will be convened, and notice of this meeting
will be set out in a circular expected to be posted to shareholders, later
today.

The resolution to approve the Proposals will be an ordinary resolution, which
means that it will require a simple majority of those persons who, being
eligible to do so, vote (in person or by proxy) at the EGM in favour of the
resolution.


Authorities to vote in favour of the Proposals

Shareholders (including Directors) have given authorities to PartyGaming to vote
in favour of the Proposals in respect of, in aggregate, 163,999,358 Ordinary
Shares, representing approximately 56.0 per cent. of the issued share capital of
the Company.


Recommendation

The Directors believe that the Proposals are in the best interests of
Shareholders as a whole and unanimously recommend that Shareholders vote in
favour of the Proposals at the EGM, as those Directors who hold Ordinary Shares
(either directly or through depositary interests) intend to do in respect of
their own beneficial holdings which amount, in aggregate, to 62,971,837 Ordinary
Shares, representing approximately 21.5 per cent. of the issued share capital of
the Company.


                                  DEFINITIONS


In this announcement expressions have the following meanings unless the context
requires otherwise:


'AIM'                                  the AIM market operated by the London 
                                       Stock Exchange plc

'AIM Rules'                            the rules of AIM companies and their 
                                       directors, nominated advisers and brokers
                                       contained in the document entitled the 
                                       'AIM Rules' published by the London Stock 
                                       Exchange plc

'BVI'                                  the British Virgin Islands

'Company' or 'Empire Online'           Empire Online Limited, a company 
                                       incorporated in the BVI with registered 
                                       number 475668

'Directors' or the 'Board'             the directors of Empire Online

'Disposal'                             the proposed assignment of certain assets
                                       currently owned by the Group pursuant to 
                                       the Sale Agreement

'EGM' or 'Extraordinary General        the Extraordinary General Meeting of the
Meeting'                               Company to be held on 6 March 2006,
                                       convened to approve the Proposals

'Group'                                Empire Online and its subsidiaries and 
                                       subsidiary undertakings

'Ordinary Shares' or 'Shares'          ordinary shares in the share capital
                                       of the Company, each having no par value

'PartyGaming'                          PartyGaming Plc, a company incorporated 
                                       in Gibraltar with registered number 91225
                                       including, where appropriate, its 
                                       subsidiaries

'Proposals'                            together the proposed assignment of 
                                       certain of the Group's assets to, and the
                                       termination of the skin agreements with, 
                                       PartyGaming pursuant to the Sale 
                                       Agreement and the settlement of the 
                                       litigation with PartyGaming

'Sale Agreement'                       the conditional agreement dated 14 
                                       February 2006 between (1) WPC Productions
                                       Limited (2) PartyGaming (3) Electraworks 
                                       Limited and (4) the Company

'Shareholders'                         holders of Ordinary Shares or (where the 
                                       context permits) depositary interests 
                                       representing Ordinary Shares


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