Proposed Sale of Business

Empire Online Limited
29 December 2006


29 December 2006


Empire Online Limited ('Empire Online' or 'the Company')


Proposed sale of business and approval of investing strategy


Highlights


   •Sale of all of Empire Online's trade and gaming-related assets to
    PartyGaming for a net consideration receivable by the Company of
    approximately US$37.96 million

   •Consideration in the form of PartyGaming shares

   •Proceeds of the disposal to be used together with Company's existing cash
    of approximately US$250 million to invest opportunistically in both private
    and public businesses and across the small, mid and large-cap range of
    companies

   •Shareholder approval to be sought at EGM to approve

       •the Disposal
       •the proposed investing strategy following Completion


Enquiries:

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

Hudson Sandler                                              [phone]
Michael Sandler / Jessica Rouleau








Introduction


The Company announces that it has entered into arrangements, subject to the
approval of Shareholders, to sell Empire Online's trade and gaming-related
assets to PartyGaming for a net consideration receivable by Empire Online of
approximately $37.96 million. The consideration is to be satisfied wholly by the
issue of new PartyGaming Shares to Empire Online.


The Proposals are, inter alia, conditional upon the approval of Shareholders by
way of an ordinary resolution at the EGM.


On Completion, Empire Online would be treated as an investing company under the
AIM Rules. Accordingly, as part of the Proposals, the Company will also seek the
approval by Shareholders at the EGM of the Proposed Investing Strategy, as set
out below.


Background to the Proposals


At an extraordinary general meeting of the Company, held on 14 February 2006,
Shareholders approved the settlement of litigation with PartyGaming and the
assignment of related 'skin' activities to PartyGaming in return for a cash
payment of US$250 million to the Company.


Following this settlement, the Company continued to progress its business
through its principal brands and domain names, including Noble Poker, Club Dice
Casino, Monaco Gold Casino, Carnival Casino, YouBingo, 888casino.com and 65.com.


On 29 September 2006, the US Congress passed the Unlawful Internet Gambling
Enforcement Act of 2006 (the 'Act'). Immediately following enactment of the Act
on 13 October 2006, and having taken extensive advice on the matter, the Company
announced the termination of its US business with immediate affect. At that
time, approximately 65 per cent. of Empire Online's revenues were being
generated from customers based in the US.


Since terminating its US business, the Company has focused on growing the
remainder of its business in other territories. However, as a result of the
Act's effect on the gaming industry as a whole, the Directors have continued to
review Empire Online's strategic options, including the potential sale of the
Company's remaining operating business.


Rationale for the Disposal


The Directors believe that the Company's remaining operating business is
sub-critical in terms of size to thrive as a stand-alone business and would be
able to grow better as part of a larger group. In particular, the business faces
strong competition from much larger players in its markets. The Directors
believe that the Disposal crystallises the value of the Business and will allow
the Company to focus on the investment of its remaining cash assets in order to
maximise shareholder value.


Principal terms of the Disposal


Under the Sale Agreement, the Company has agreed to sell to PartyGaming the
entire issued share capital of a newly incorporated wholly-owned subsidiary of
the Company to which the Business will be transferred immediately prior to
Completion. The Company will remain responsible for settling all liabilities of
the Business and will be entitled to all income receivable in respect of the
period up to Completion.


As part of the structuring of the transaction, the Company has agreed to
terminate its relationship with Uniplay in respect of the operation of certain
of the Company's websites, including monacogoldcasino.com, clubdicecasion.com
and youbingo.com. As consideration for this termination, the Company will pay to
Uniplay up to approximately US$11 million and the revenue sharing arrangements
with Uniplay will terminate. The agreement with Uniplay allows the Company to
continue its existing relationship with Uniplay (and not to terminate the
existing arrangements) if the Sale Agreement is not completed by 31 January
2007.


The total consideration for the Disposal will be satisfied by the issue to the
Company of 83,325,934 new PartyGaming Shares, valued at approximately US$47.96
million, based on the average middle market closing price of PartyGaming Shares
for the 15 dealing days prior to the date of the Sale Agreement, of which
65,951,297 new PartyGaming Shares (valued at approximately US$37.96 million on
the basis outlined above) will be retained by and/or disposed of in an orderly
manner by the Company in due course.


Under the Sale Agreement, the Company will, on Completion, transfer the
remaining 17,374,637 new PartyGaming Shares (valued at approximately US$10
million on the basis outlined above) to Udi Knaani, Adv. to be held by Udi
Knaani, Adv. as a trustee on behalf of certain of the employees of the Company,
including Avner Yassur, whose employment is transferring to PartyGaming
following Completion and otherwise as directed by PartyGaming. Such new
PartyGaming Shares will be released to the relevant employees subject to
satisfaction of certain conditions as between them and PartyGaming, including
their continued engagement with PartyGaming. The Company will have no rights in
respect of such Shares in any circumstances following their transfer to Udi
Knaani, Adv..


At the same time as completing the Disposal, PartyGaming intends to complete the
purchase of certain online gaming business and assets from IOG. Although there
is no relationship between the Company and its directors and IOG and its
directors, PartyGaming requires that the two transactions occur at the same
time. The IOG Agreement is conditional on completion of the Sale Agreement.
Accordingly, the Sale Agreement is conditional on, amongst other things, (a)
approval of the Proposals by Shareholders at the EGM; (b) the transfer of the
Business and assignment of certain contracts to Newco; and (c) completion of the
IOG Agreement. Each of the Company and PartyGaming are entitled to terminate the
Sale Agreement prior to Completion in certain circumstances, including a change
or development in government regulation or legislation which has or might
reasonably be expected to have a material adverse effect on the condition or
results of PartyGaming or the Business respectively.


As part of the Disposal, the Company has given customary warranties to
PartyGaming and has undertaken to PartyGaming not to compete with the Business
for a period of 30 months after Completion, provided that this restriction will
not apply in respect of passive investments where the Company is not involved in
the management of the investee of up to 25 per cent equity interests in private
companies and up to 10 per cent. equity interests in listed companies.


In the year ended 31 December 2005, the gross profit before administrative
expenses attributable to the Business was approximately US$16.1 million. The net
book value of the Business as at 30 June 2006 was approximately US$221.9
million.


Proposed Investing Strategy


Subject to approval of the Proposals by Shareholders at the EGM, the Company
intends to invest opportunistically in both private and public businesses and
across the small, mid and large-cap range of companies. The Company's strategy
will not be focused on any particular industry sector but the Company will be
careful in managing its exposure to any one sector. Investments will be
principally funded out of the Company's cash resources, but the Company may also
elect to issue Shares as consideration for any acquisitions. The Company
anticipates investing on an international basis with no territories or
jurisdictions specifically excluded. The Directors intend to formally review the
investment strategy at least once a year. An investment committee will be
established to review on a quarterly basis the overall asset allocation in light
of the economic environment and approve specific investments.


The initial investment strategy will be broad and it is intended that it will be
undertaken within the following parameters;


   • Cash deposits - no less than 20% of total invested capital;

   • Fixed Income securities (i.e. bonds) - up to 50% of total invested
     capital including floating rate bonds;

   • Absolute return funds - up to 20% of total invested capital;

   • Derivatives - up to 10% of total invested capital;

   • Equities - up to 30% of total invested capital (this will include both
     minority passive positions and majority active positions); and

   • Real Estate - up to 30% of total invested capital (this will include
     direct investment and indirect via mutual of collective funds managed
     through third parties).


The Directors reserve the right to vary these ratios where they consider it in
the best interests of the Company.


The Directors intend to adopt diversification rules in line with what they
believe to be industry best practice. The investments are expected to include
public and private equities and shall not be restricted in terms of
jurisdiction. The Company's focus will be on seeking what the Directors believe
to be value added opportunities, in particular in emerging markets' economies,
with a view to delivering superior financial returns.


The Directors intend that no single investment will represent more than 20 per
cent. of the Company's net assets at the time such investment is made.


The Company intends to invest only in opportunities where there is a high
quality, well proven management team in place or where a management team has
been identified that will drive the investee company going forward and deliver
the levels of performance required.


In line with this new strategy for the Company, the Directors expect to recruit
new employees with experience in similar businesses to that proposed for the
Company.


The Directors intend to ensure that due diligence of potential investments is
carried out to ascertain that target businesses and assets are acceptable to the
Company. It is the Directors' intention that such due diligence will be carried
out by the Company's professional advisers as well as by the Directors and the
Company's employees.


The Directors anticipate that the Company will have made substantial investments
by 31 December 2007. If the Company has been unable to make substantial
investments by this date, the Directors intend to seek Shareholder approval for
the Company to continue as an investing company.


Use of Proceeds


The proceeds from the Disposal would be used, together with the Company's
existing cash of approximately US$250 million, to implement the Proposed
Investing Strategy outlined above.


Dividend Policy


The Directors will consider returning cash to Shareholders on an ongoing basis,
taking into account the Company's financial position and the investment
opportunities available to it.


Extraordinary General Meeting


A circular convening an EGM to approve the Proposals will be issued shortly.


The Resolution to approve the Proposals will be an ordinary resolution, which
means that it will require approval by a simple majority of those Shareholders
who are present and vote (in person or by proxy) at the EGM.


Irrevocable undertakings


Shareholders (including the Directors who hold Ordinary Shares) have undertaken
to the Company to vote in favour of the Resolution in respect of, in aggregate,
169,720,837 Ordinary Shares representing in aggregate approximately 57.97 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 London Stock Exchange plc

'AIM Rules'                the 'AIM Rules' published by London Stock Exchange plc

'Business'                 the remote gaming business and remote gaming assets 
                           of the Company and Poltroon which are to be 
                           transferred to Newco immediately prior to Completion

'BVI'                      the British Virgin Islands

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

'Completion'               completion of the Disposal

'Depository Interests'     the depository interests issued by Capita IRG Trustees
                           Limited representing Ordinary Shares which may be 
                           held in and transferred through the CREST system

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

'Disposal'                 the sale by the Company of the entire issued share 
                           capital of Newco pursuant to the Sale Agreement

'EGM' or 'Extraordinary    the Extraordinary General Meeting of the Company
General Meeting'           expected to be convened on 17 January 2007 to approve 
                           the Proposals

'Group'                    Empire Online and its subsidiaries and subsidiary 
                           undertakings

'IOG'                      Intercontinental Online Gaming Ltd., a company 
                           incorporated in the State of Antigua and Barbuda with 
                           company number 13553

'IOG Agreement'            the agreement dated 29 December 2006 between inter 
                           alia IOG and PartyGaming under which IOG has agreed 
                           to sell to PartyGaming certain of online gaming 
                           business and assets

'Newco'                    Winner Summit Limited, a company incorporated in the 
                           BVI

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

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

'PartyGaming Shares'       ordinary shares of US$0.0001 each in the capital of
                           PartyGaming

'Poltroon'                 Poltroon Limited, a wholly owned subsidiary of the 
                           company incorporated in Cyprus with registered number 
                           HE154577

'Proposals'                together the Disposal and the adoption of the 
                           Proposed Investing Strategy

'Proposed Investing        the proposed investing strategy of the Company as
 Strategy'                 summarised in this announcement

'Resolution'               the resolution to be set out in the notice of EGM 
                           approving the Proposals

'Sale Agreement'           the sale agreement dated 29 December 2006 between the 
                           Company and PartyGaming in connection with the 
                           Disposal

'Shareholders'             holders of Ordinary Shares or (where the context 
                           permits) Depository Interests

'Uniplay'                  Uniplay International Limited, a company incorporated 
                           in the BVI

'United States' or 'US'    the United States of America, its territories and
                           possessions, any state of the United States and the 
                           District of Columbia




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