<PAGE>
 
                                                                    Exhibit 3.22
                                                                    ------------

                       INTERACTIVE ENTERTAINMENT LIMITED
                                        

                            SUBSCRIPTION AGREEMENT

     THIS SUBSCRIPTION AGREEMENT ("Subscription Agreement") is made as of
October 22, 1997, between Henderson International Investments Limited, (the
"Subscriber") and Interactive Entertainment Limited, a Bermuda exempted company
(the "Company").

                               R E C I T A L S:
                               --------------- 

     A.   The Subscriber desires to subscribe for and purchase shares of common
stock, par value $.01 per share ("Common Stock"), of the Company, and a warrant
to purchase shares of Common Stock, and the Company desires to issue and sell
such Common Stock and warrant to the Subscriber, on the terms and subject to the
conditions herein contained.

     B.   In connection with the issuance of such shares of Common Stock and
warrant to the Subscriber, the parties have agreed that Subscriber's shares of
Common Stock shall be subject to the restrictions provided herein.


                             A G R E E M E N T S:
                             ------------------- 

     NOW, THEREFORE, the parties agree as follows:

     1.   Subscription for Shares.  The Subscriber hereby subscribes for and
agrees to purchase from the Company and the Company hereby agrees to sell to the
Subscriber 925,747 shares of Common Stock and, subject to the provisions of this
paragraph, a warrant to purchase 185,150 shares of Common Stock (the "Warrant"),
which Warrant will be in the form attached hereto as Exhibit A, for an aggregate
purchase price of US$3,000,000 (which it is agreed represents the product of (x)
the number of shares of Common Stock subscribed for hereunder and (y) 85% of the
average of the closing prices for shares of Common Stock on the Nasdaq SmallCap
Market during the five trading days immediately preceding the date hereof) (the
"Subscription Price"). The Subscription Price shall be payable by the Subscriber
by wire transfer to the Company's account identified on Exhibit B attached
hereto in accordance with the following: (i) a tranche of one million five
hundred thousand dollars ($1,500,000) ("Tranche A") shall be sold by the Company
and purchased by the Subscriber immediately upon the execution of this
Agreement; and (ii) a second tranche ("Tranche B") may be sold by the Company
and purchased by the Subscriber upon written notice from the Company electing
that Tranche B be closed within forty-eight (48) hours of receipt of such notice
by the Subscriber. In the event that the Subscriber receives such written notice
electing that the Tranche B transaction be consummated, the Subscriber shall be
obligated to purchase such securities within the forty-eight (48) hour period
designated in the written notice. The Company's option with respect to Tranche B
shall not be exercisable until the Company's gaming software has been installed
and is available to paying passengers in the entire cabin of one Singapore
Airlines B747, B777, or A340 aircraft and shall expire if not exercised within
six (6) months of the date hereof. The Company is obligated to exercise its
option with respect to Tranche B within 30 days of completion of the
aforementioned flight. Upon delivery to the Company of the Subscription Price,
the proper officers of the Company shall execute and deliver to the Subscriber
certificates representing said shares of Common Stock. If (and only if) , the
Subscriber still holds all of the Shares of Common Stock purchased hereunder six
months from the respective dates of consummation of Tranche A and Tranche B, the
proper officers of the Company on that date shall execute and deliver to the
Subscriber the Warrant. The subscriber acknowledges that, by signing this
Agreement, he is making

                                    Page 22
<PAGE>
 
an irrevocable offer to purchase shares of Common Stock and the Warrant. The
Subscriber understands and agrees that this subscription is subject to
acceptance by the Company, and that the Company reserves the right to accept or
reject this subscription. If this subscription is rejected, the Company will
return the Subscriber's payment for the Subscription Price.

     2.   Subscriber's Representations and Warranties. In connection with the
subscription for and purchase of shares of Common Stock and the Warrant pursuant
to this Subscription Agreement, the Subscriber represents and warrants to the
Company and agrees and acknowledges, that:

          (a)  all shares of Common Stock and the Warrant acquired by or for the
     Subscriber pursuant to this Subscription 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 Common
     Stock or the Warrant, and that, irrespective of any other provisions of
     this Subscription Agreement, any Transfer (as herein defined) of such
     Common Stock or the Warrant by the Subscriber will be made only in
     compliance with all applicable federal, state and foreign securities laws,
     including, without limitation, the Securities Act of 1933, as amended (the
     "Act");

          (b)  neither the shares of Common Stock nor the Warrant acquired by or
     for the Subscriber will be registered under the Act or under any other
     applicable securities laws and must be held by the Subscriber until such
     shares of Common Stock are registered under the Act and under applicable
     securities laws or an exemption from such registration is available; the
     Company will have no obligation to take any actions that may be necessary
     to make available any exemption from registration under the Act or under
     applicable state securities laws; and the Company shall place "stop
     transfer" restrictions on the party responsible for recording Transfers of
     shares of Common Stock in violation of the foregoing provisions of this
     clause (b);

          (c)  the Subscriber 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 Common Stock, which are acquired from
     the issuer of such securities in a transaction not involving any public
     offering); the Subscriber is aware that reliance on Rule 144 to Transfer
     securities is subject to other restrictions and limitations, as set forth
     in such Rule;

          (d)  in connection with a Transfer of the Common Stock pursuant to an
     exemption from registration under the Act, or if available, under Rule 144
     or pursuant to some other exemption, such Subscriber may be required by the
     Company to deliver to the Company an opinion from counsel for such
     Subscriber, and/or receive an opinion from counsel for the Company, to the
     effect that all applicable federal and state securities law requirements
     have been met;

          (e)  The Subscriber is an "accredited investor" as that term is
     defined in Rule 501(a) of Regulation D under the Securities Act because:

               (i)  the Subscriber is a natural person whose individual net
               worth or joint net worth with the Subscriber's spouse, as of the
               date hereof, exceeds $1,000,000;

               (ii) the Subscriber is a natural person who had individual income
               in excess of $200,000 (or joint income with the Subscriber's
               spouse in excess of $300,000) in each of the past two calendar
               years and reasonably expects to reach the same income level in
               the current calendar year;

                                    Page 23
<PAGE>
 
               (iii)  the Subscriber is (1) a bank as defined in Section 3(a)(2)
               of the Securities Act, or a savings and loan association or other
               institution as defined in Section 3(a)(5)(A) of the Securities
               Act, whether acting in its individual or fiduciary capacity; (2)
               a broker dealer registered pursuant to Section 15 of the Exchange
               Act; (3) an insurance company as defined in Section 2(13) of the
               Securities Act; (4) an investment company registered under the
               Investment Company Act or a business development company defined
               in Section 2(a)(48) of the Investment Company Act; (5) a Small
               Business Investment Company licensed by the U.S. Small Business
               Administration under Section 301(c) or 301(d) of the Small
               Business Investment Act of 1958 ("SBIA"); (6) a plan established
               and maintained by a state, its political subdivisions, or any
               agency or instrumentality of a state or its political
               subdivisions, for the benefit of its employees, which has total
               assets in excess of $5 million; or (7) an employee benefit plan
               within the meaning of Title I of ERISA, if the investment
               decision is made by a plan fiduciary, as defined in Section 3(21)
               of ERISA, which is either a bank, savings and loan association,
               insurance company, or registered investment advisor, or if the
               employee benefit plan has total assets in excess of $5 million
               or, if a self-directed plan, with investment decisions made
               solely by persons that are accredited investors;

               (iv)   the Subscriber is a private business development company
               as defined in Section 202(a)(22) of the Investment Advisers Act
               of 1940, as amended;

               (v)    the Subscriber is an organization described in Section
               501(c)(3) of the Code, a corporation, a business trust, or a
               partnership, in each case not formed for the specific purpose of
               acquiring Common Stock, with total assets in excess of $5
               million;

               (vi)   the Subscriber is a trust, with total assets in excess of
               $5 million, not formed for the specific purpose of acquiring
               shares of Common Stock, whose purchase is directed by a
               sophisticated person with such knowledge and experience in
               financial and business matters that such person is capable of
               evaluating the merits and risks of the prospective investment; or

               (vii)  the Subscriber is an entity in which all of the equity
               owners are "accredited investors" of the types described in one
               or more of the foregoing clauses (i) through (vi).

          (f)  the execution, delivery and performance of this Agreement by the
     Subscriber have been duly authorized and this Agreement constitutes the
     valid, legal and binding obligation of the Subscriber enforceable against
     the Subscriber in accordance with its terms.  If the Subscriber is an
     entity, the Subscriber's governing instruments permit it to purchase, and
     it is duly qualified to purchase, the shares of Common Stock and the
     Warrant subscribed for hereunder;

          (g)  if the Subscriber is an individual, the Subscriber is at least 21
     years of age, a citizen or permanent resident of the United States and the
     state set forth under Subscriber's signature on the signature page hereto;
     is of sufficient legal capacity to execute this Subscription Agreement, to
     the extent applicable;

          (h)  the Subscriber has the power and authority to execute and perform
     the terms of this Subscription Agreement and this Subscription Agreement
     constitutes a valid and 

                                    Page 24
<PAGE>
 
     binding obligation of the Subscriber, enforceable against the Subscriber in
     accordance with its terms, except that (i) such enforcement may be limited
     by or subject to any bankruptcy, insolvency, fraudulent transfer or other
     laws, now or hereafter in effect relating to or limiting creditors' rights
     generally, and (ii) the remedy of specific performance and other forms of
     equitable relief may be subject to equitable defenses and to the discretion
     of the court before which any proceeding therefor may be brought;

          (i)  neither the execution and delivery of this Subscription Agreement
     or the other agreements, documents and instruments contemplated hereby, nor
     the consummation by the Subscriber of the transactions contemplated hereby,
     (i) will or do violate or conflict with any statute, ordinance, rule,
     regulation, order or decree of any court or of any public governmental or
     regulatory body, agency or authority applicable to the Subscriber, (ii)
     will require any filing with, or permit, consent or approval of, or the
     giving of any notice to any public, governmental or regulatory body, agency
     or authority by the Subscriber (except for permits, consents or approvals
     which have been obtained or filings or notices which have been timely
     given), or (iii) will result in a violation or breach of or constitute
     (with or without notice or lapse of time or both) a default (or give rise
     to any right of termination, cancellation or acceleration) under any of the
     terms, conditions or provisions of any contract, note, bond, mortgage,
     license, franchise, permit, lease or other agreement to which the
     Subscriber is a party or by which the Subscriber may be bound;

          (j)  in order to adequately evaluate the merits and risks of an
     investment in the Company, the Subscriber has had an opportunity to (i) ask
     questions and receive answers from the Company and its representatives
     concerning the Company and the Subscriber's investment therein, and (ii)
     obtain any additional information which the Subscriber has requested with
     respect to the Company and the Subscriber's investment therein;

          (k)  the Subscriber understands that no federal, state or foreign
     governmental agency has recommended or endorsed the purchase of shares of
     Common Stock or the Warrant or made any determination or finding as to the
     fairness of the provisions of this Subscription Agreement;

          (l)  all information which the Subscriber has heretofore furnished, or
     in connection herewith is furnishing, to the Company is correct and
     complete as of the date hereof, and, if there should be any material change
     in such information prior to the Subscriber's acquisition of the shares of
     Common Stock and the Warrant, the Subscriber will promptly furnish such
     revised or corrected information to the Company; and

          (m)  (i) the Subscriber's financial situation is such that the
     Subscriber can afford to bear the economic risk of holding the shares of
     Common Stock for an indefinite period; (ii) the Subscriber can afford to
     suffer the complete loss of the investment in the shares of Common Stock
     and the Warrant; (iii) the Subscriber understands and is cognizant of all
     the risk factors related to the purchase of the shares of Common Stock and
     the Warrant; and (iv) the Subscriber's knowledge and experience in
     financial and business matters is such that the Subscriber is capable of
     evaluating the risks of an investment in the shares of Common Stock and the
     Warrant.

As used herein, "Transfer" means any transfer, sale, assignment, pledge,
encumbrance or other disposition of shares or the Warrant, irrespective of
whether any of the foregoing are effected voluntarily or involuntarily, by
operation of law or otherwise, or whether inter vivos or upon death.

     3.   Company Representations and Warranties.  In connection with the
subscription for and purchase of Shares pursuant to this Subscription Agreement,
the Company represents and warrants to Subscriber that:

                                    Page 25
<PAGE>
 
          (a)  the Company is duly organized, validly existing and in good
     standing under the laws of Bermuda; the Company has full power and
     authority to enter into and perform its obligations under this Subscription
     Agreement; the execution and delivery by the Company of this Subscription
     Agreement and the performance by the Company of its obligations hereunder
     have been duly authorized and approved by all requisite action; and this
     Subscription Agreement has been duly executed and delivered by a duly
     authorized officer of the Company;

          (b)  the execution, delivery and performance of this Subscription
     Agreement by the Company do not and shall not conflict with, violate or
     cause a breach of any of the terms or provisions of the Memorandum of
     Continuance of the Company or the Bye-Laws of the Company, or any
     agreement, contract or instrument to which the Company is a party, or any
     judgment, order or decree to which the Company is subject;

          (c)  the Subscription Agreement constitutes a valid and binding
     obligation of the Company, enforceable against the Company in accordance
     with its terms, except that (i) such enforcement may be limited by or
     subject to any bankruptcy, insolvency, fraudulent transfer or other laws,
     now or hereafter in effect relating to or limiting creditors' rights
     generally, and (ii) the remedy of specific performance and other forms of
     equitable relief may be subject to equitable defenses and to the discretion
     of the court before which any proceeding therefor may be brought;

          (d)  neither the execution and delivery of the Subscription Agreement
     or the other agreements, documents and instruments contemplated hereby, nor
     the consummation by the Company of the transactions contemplated hereby (i)
     will or do violate or conflict with any statute, ordinance, rule,
     regulation, order or decree of any court or of any public governmental or
     regulatory body, agency or authority applicable to the Company, (ii) will
     require any filing with, or permit, consent or approval of, or the giving
     of any notice to any public, governmental or regulatory body, agency or
     authority by the Company (except for permits, consents or approvals which
     have been obtained or filings or notices which have been timely given), or
     (iii) will result in a violation or breach of or constitute (with or
     without notice or lapse of time or both) a default (or give rise to any
     right of termination, cancellation or acceleration) under any of the terms,
     conditions or provisions of any contract, note, bond, mortgage, license,
     franchise, permit, lease or other agreement to which the Company is a party
     or by which the Company may be bound;

          (e)  upon full payment by the Subscriber to the Company for the shares
     of Common Stock and the Warrant subscribed by the Subscriber pursuant to
     this Subscription Agreement and receipt of payment in full by the Company
     for such shares of Common Stock and the Warrant, such shares shall be duly
     authorized, validly issued, fully paid and non-assessable, and upon full
     payment by the holder of the Warrant of the exercise price stated therein
     and receipt in full by the Company of such exercise price, the shares of
     Common Stock issuable upon exercise of the Warrant shall be duly
     authorized, validly issued, fully paid and non-assessable.

     4.   The Company will not, during the eighteen (18) month period following
     the effective date hereof (the "Limitation Period") offer for sale or sell
     any Common Stock (or security convertible into, exercisable or exchangeable
     for Common Stock) (the "Future Offering") unless the Company shall have
     first delivered to the Subscriber at least ten (10) business days prior to
     the closing of such Future Offering, written notice describing the proposed
     Future Offering, including the terms and conditions thereof, and providing
     the Subscriber with an option during the ten (10) business day period
     following delivery of such notice to purchase such amount of the securities
     being offered in the Future Offering on the same terms as 

                                    Page 26
<PAGE>
 
     contemplated by such Future Offering as equals the product of (i) the
     quotient (A) of the number of shares of Common Stock held by Subscriber and
     acquired pursuant to this Agreement over (B) the total number of shares of
     Common Stock outstanding and (ii) the total amount of securities being
     offered in the Future Offering (the limitations referred to in this
     sentence are collectively referred to as the "Capital Raising
     Limitations"). The Capital Raising Limitations shall not apply to any
     transaction involving the issuances of securities as consideration in a
     merger, consolidation, acquisition or sale of assets (in each case, the
     primary purpose of which is not to raise equity capital) or pursuant to a
     strategic partnership or joint venture which is formed for a bona fide
     commercial purpose, or as consideration for the acquisition of a business,
     product or license by the Company or in connection with the exercise of
     options by employees, directors or consultants. The Capital Raising
     Limitations also shall not apply to (i) the issuance of Common Stock in a
     transaction pursuant to a public offering (other than an offering conducted
     pursuant to Rule 415 under the Securities Act), (ii) the issuance of
     securities upon the exercise or conversion of the Company's options,
     warrants or other convertible securities outstanding as of the date hereof,
     or (iii) the grant of additional options or warrants, or the issuance of
     additional securities, under any Company stock option or restricted stock
     plan for the benefit of the Company's employees, directors, or consultants.

     5.   Registration.

          (a)  Legend.  All certificates representing shares of Common Stock
     sold hereunder shall bear the following legend:

          "The securities represented hereby have not been registered under the
          Securities Act of 1933, as amended, or the securities laws of any
          jurisdiction and may not be sold or otherwise disposed of except
          pursuant to an effective registration statement under such Act and
          applicable securities laws or there is presented to the Company an
          opinion of counsel satisfactory to the Company to the effect that such
          registration is not necessary."

          (b)  If at any time the Company proposes to register under the
     Securities Act shares of Common Stock held by Credit Suisse First Boston
     ("CSFB") pursuant to that certain Securities Purchase Agreement between the
     Company and CSFB (the "CSFB Shares"), in connection with the public
     offering of such CSFB Shares for cash (a "Proposed Registration"), the
     Company shall, at such time, promptly give Subscriber written notice of
     such Proposed Registration. Subscriber shall have ten (10) days from its
     receipt of such notice to deliver to the Company a written request
     specifying the amount of Registrable Securities that Subscriber intends to
     sell and such Subscriber's intended method of distribution. Upon receipt of
     such request, the Company shall use its best efforts to cause all
     Registrable Securities which the company has been requested to register
     under the Securities Act to the extent necessary to permit their sale or
     other disposition in accordance with the intended methods of distribution
     specified in the request of Subscriber; provided, however, that the Company
     shall have the right to postpone or withdraw any registration effected
     pursuant to this Section 5 without obligation to Subscriber. If, in
     connection with any underwritten public offering for the account of the
     Company, the managing underwriter(s) thereof shall impose a limitation on
     the number of shares of Common Stock which may be included in the
     registration statement ("Registration Statement") because, in such
     underwriter(s)' judgment, marketing or other factors dictate such
     limitation is necessary to facilitate public distributions, then the
     Company shall be obligated to include in such Registration Statement only
     such limited portion of the Registrable Securities with respect to which
     Subscriber has requested inclusion hereunder as such underwriter(s) shall
     permit. If an offering in connection with Subscriber is entitled to
     registration under this Section 5 is an underwritten offering, then as a
     condition of

                                    Page 27
<PAGE>
 
     participating in the registration Subscriber shall, unless otherwise agreed
     by the Company, offer and sell such Registrable Securities in an
     underwritten offering using the same underwriter or underwriters, subject
     to the provisions of this Agreement, on the same terms and conditions as
     other shares of Common Stock included in the same underwritten offering and
     shall join in the same underwriting agreement as the other participants in
     the offering. "Registrable Securities" shall mean Common Stock acquired by
     Subscriber pursuant to this Agreement.

     6.   Notice.  All notices and other communications which are required or
permitted to be given under this Subscription Agreement shall be in writing and
shall be delivered personally or by certified mail (return receipt requested),
or telecopied and addressed: (a) if to the Company, to:

          Interactive Entertainment Limited
          845 Crossover Lane
          Suite D-215
          Memphis, TN  38117
          Attn:  David B. Lamm
          Fax:  (901) 537-3801

          with a copy to:

          Altheimer & Gray
          10 South Wacker Drive
          Chicago, IL 60606
          Attn:  Andrew W. McCune, Esq.
          Fax:  (312) 715-4800

and (b) if to Subscriber to the address set forth below the signature of the
Subscriber on this Subscription Agreement. Each notice or other communication
which shall be delivered, personally mailed or telecopied in the manner
described above shall be deemed sufficiently given, sent, received or delivered
for all purposes as of such time as it is delivered to the addressee (with
return receipt, delivery receipt, the affidavit of messenger or (with return
receipt to a telecopy) the confirmation report being deemed conclusive, but not
exclusive evidence of such delivery) or at such time as delivery is refused by
the addressee upon presentation.

     7.   Confidentiality.  Subscriber agrees and acknowledges that the Company
has provided to Subscriber certain information regarding the Company, and that
such information may be deemed to constitute material non-public information
under the Act. Subscriber agrees that for the longest period permitted by law,
Subscriber shall hold in strictest confidence, and not, without the prior
written approval of the Company, use for its own benefit or for the benefit of
any party other than the Company or disclose to any person, firm or corporation
other than the Company, any of such information (other than as required by law
and other than information which has been publicly disseminated by the Company).

     8.   Severability.  The invalidity of any provision of this Subscription
Agreement or portion of a provision shall not affect the validity of any other
provision of this Subscription Agreement or the remaining portion of the
applicable provision.

     9.   Counterparts.  This Subscription Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all of such
counterparts shall constitute but one instrument.

     10.  Amendment and Waiver.  Neither this Subscription Agreement nor any
provisions hereof shall be modified, discharged or terminated except in writing
signed by the party against whom

                                    Page 28
<PAGE>
 
any waiver, change, discharge or termination is sought. All representations and
warranties contained in this Subscription Agreement or made in writing by any
party in connection herewith shall survive the execution and delivery of this
Agreement for a period of one year from the date of the closing of the purchase
made pursuant to this Agreement.

     11.  Successors and Assigns.  This Subscription Agreement shall be binding
on the parties hereto and their respective heirs, representatives, successors
and assigns, including, without limitation. The rights and obligations of the
Subscriber hereunder may not be assigned or transferred by the Subscriber and
any attempted assignment of transfer shall be void. If the Subscriber is more
than one person, the obligations of the Subscriber shall be joint and several,
and the agreements, representations, warranties and acknowledgments herein
contained shall be deemed to be made by and be binding upon each such person and
their respective heirs, executors, administrators, and successors.

     12.  Governing Law.  This Subscription Agreement and the risks of the
parties hereunder shall be construed and interpreted in accordance with the laws
of Bermuda, without application of the rules regarding conflicts of laws.

                                    Page 29
<PAGE>
 
     IN WITNESS WHEREOF, the parties have executed this Subscription Agreement
as of the date first above written.

                    SUBSCRIBER:

 
                    HENDERSON INTERNATIONAL INVESTMENTS LTD
                    ---------------------------------------

                    By:  /s/ AR Corporate Services Limited by Michael Galiver
                         ----------------------------------------------------

                    Address:    c/o Duncan Lawrie IOM
                             
                                14-15 Mount Havelock
                             
                                Douglas
                             
                                Isle of Man IM1 2QG
                             
                                United Kingdom

                    Telephone:
                                ---------------------------------------------
                    Telecopy:
                                ---------------------------------------------

Accepted:

INTERACTIVE ENTERTAINMENT LIMITED


By:  /s/ Gordon Stevenson
    ---------------------

Its:  President and CEO
     ------------------

                                    Page 30
<PAGE>
 
                                   EXHIBIT A

                                FORM OF WARRANT

              WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK

No. __________                                              Shares ___________


THIS WARRANT AND THE SHARES OF COMMON STOCK UNDERLYING THIS WARRANT
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR FOREIGN SECURITIES
LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE
LAWS, OR IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.


     FOR VALUE RECEIVED, Interactive Entertainment Limited (the "Company"), a
Bermuda exempted company, hereby certifies that ___________, or its permitted
assigns, are entitled to purchase from the Company, at any time or from time to
time commencing immediately, and prior to 5:00 p.m., New York City time then
current, on {date 18 months from issue date}, __________ fully paid and non-
assessable shares of the common stock, $.01 par value, of the Company at the
purchase price of $________ per share (which it is agreed represents the average
of the closing prices for shares of Common Stock on the Nasdaq SmallCap Market
during the five trading days immediately preceding {effective date of the
Subscription Agreement}). Hereinafter, (i) said common stock, together with any
other equity securities which may be issued by the Company with respect thereto
or in substitution therefor, is referred to as the "Common Stock", (ii) the
shares of the Common Stock purchasable hereunder are referred to as the "Warrant
Shares", (iii) the aggregate purchase price payable hereunder for the Warrant
Shares is referred to as the "Aggregate Warrant Price", (iv) the price payable
hereunder for each of the shares of the Warrant Shares is referred to as the
"Per Share Warrant Price", and (v) this warrant and all warrants hereafter
issued in exchange or substitution for this warrant are referred to as the
"Warrants".

1.   Exercise of Warrant.
     ------------------- 

     (a)  This Warrant may be exercised, in whole at any time or in part from
     time to time, commencing {issue date of warrant} (the "Commencement Date"),
     and prior to 5:00 p.m., New York City time then current, on {date 18 months
     from Commencement Date} (the "Expiration Date"), by the holder of this
     Warrant (the "Holder") by the surrender of this Warrant (with the
     subscription form at the end hereof duly executed) at the address set forth
     in Subsection 8(a) hereof, together with proper payment of the Aggregate
     Warrant Price, or the proportionate part thereof if this Warrant is
     exercised in part. Payment for the Warrant Shares shall be made by
     certified or official bank check, payable to the order of the Company or by
     wire transfer to a bank account designated by an officer of the Company. If
     this Warrant is exercised in part, this Warrant must be exercised for a
     number of whole shares of Common Stock, and the Holder is entitled to
     receive a new Warrant covering the number of Warrant Shares in respect of
     which this Warrant has not been exercised. Upon such exercise and surrender
     of this Warrant, the Company will (i) issue a certificate or certificates
     in the name of the Holder for the number of whole shares of the Common
     Stock to which the Holder shall be entitled, and (ii) deliver the other
     securities and properties receivable upon the exercise of this Warrant, or
     the proportionate part thereof if this Warrant is exercised in part
     pursuant to the provisions of this Warrant.

                                    Page 31
<PAGE>
 
     (b)  Notwithstanding anything to the contrary contained in this Warrant,
     this Warrant may be exercised by presentation and surrender of this Warrant
     to the Company at its principal executive offices with a written notice of
     the Holder's intention to effect a cashless exercise, including a
     calculation of the number of shares of Common Stock to be issued upon such
     exercise in accordance with the terms hereof (a "Cashless Exercise").  In
     the event of a Cashless Exercise, in lieu of paying the exercise price in
     cash, the Holder shall surrender this Warrant for the number of shares of
     Common Stock determined by multiplying the number of Warrant Shares to
     which it would otherwise be entitled by a fraction, the numerator of which
     shall be the difference between the then current market price per share of
     the Common Stock (as determined by the closing price of Common Stock on the
     Nasdaq SmallCap Market on the trading day immediately preceding the date of
     the Cashless Exercise) and the exercise price, and the denominator of which
     shall be such then current market price per share of Common Stock.

2.   Reservation of Warrant Shares.  The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, such number of shares of Common Stock and such amount
of other securities and properties as from time to time shall be deliverable to
the Holder upon the exercise of this Warrant, free and clear of all restrictions
on sale or transfer (except such as may be imposed under applicable federal and
state securities laws) and free and clear of all preemptive rights and all other
rights to purchase securities of the Company.

3.   Protection Against Dilution.

     (a)  If, at any time or from time to time after the date of this Warrant,
     the Company shall distribute with respect to the Common Stock to the
     holders of its outstanding Common Stock (i) securities, other than shares
     of Common Stock or (ii) property, other than cash dividends, without
     payment therefor, then, and in each such case, the Holder, upon the
     exercise of this  Warrant, shall be entitled to receive the securities and
     property which the Holder would have held on the date of such exercise if,
     on the date of this Warrant, the Holder had been the holder of record of
     the number of shares of Common Stock subscribed for upon such exercise and,
     during the period from the date of this Warrant to and including the date
     of such exercise, had retained such shares and the securities and
     properties receivable by the Holder during such period.  Notice of each
     such distribution shall be forthwith mailed to the Holder.

     (b)  If, at any time or from time to time after the date of this Warrant,
     the Company shall (i) pay a dividend or make a distribution on its capital
     stock in shares of Common Stock, (ii) subdivide its outstanding shares of
     Common Stock into a greater number of shares, (iii) combine its outstanding
     shares of Common Stock into a smaller number of shares or (iv) issue by
     reclassification of its Common Stock any shares of capital stock of the
     Company, the Per Share Warrant Price in effect immediately prior to such
     action shall be adjusted so that the Holder of any Warrant thereafter
     exercised shall be entitled to receive the number of shares of Common Stock
     or other capital stock of the Company which he would have owned or been
     entitled to receive immediately following the happening of any of the
     events described above had such Warrant been exercised immediately prior
     thereto.  An adjustment made pursuant to this paragraph (b) shall become
     effective immediately after the record date in the case of a dividend or
     distribution and shall become effective immediately after the effective
     date in the case of a subdivision, combination or reclassification.  If, as
     a result of an adjustment made pursuant to this paragraph (b), the holder
     of any Warrant thereafter surrendered for exercise shall become entitled to
     receive shares of two or more classes of capital stock or shares of Common
     Stock and of other capital stock of the Company, the Board of Directors
     (whose determination shall be conclusive and shall be described in a
     written notice to the Holder of any Warrant promptly after such adjustment)
     shall determine 

                                    Page 32
<PAGE>
 
     the allocation of the adjusted Per Share Warrant Price between or among
     shares of such classes or capital stock or shares of Common Stock and other
     capital stock.

     (c)  In case of any consolidation or merger to which the Company is a party
     other than a merger or consolidation in which the Company is the continuing
     corporation, or in case of any sale or conveyance to another entity of all
     or substantially all of the property of the Company, or in the case of any
     statutory exchange of securities with another entity (including any
     exchange effectuated in connection with a merger of any other corporation
     with the Company), the Holder of this Warrant shall have the right
     thereafter to convert this Warrant into the kind and amount of securities,
     cash or other property which he would have owned or have been entitled to
     receive immediately after such consolidation, merger, statutory exchange,
     sale or conveyance had this Warrant been exercised immediately prior to the
     effective date of such consolidation, merger, statutory exchange, sale or
     conveyance and in any such case, if necessary, appropriate adjustment shall
     be made in the application of the provisions set forth in this Section 3
     with respect to the rights and interests thereafter of the Holder of this
     Warrant such that the provisions set forth in this Section 3 shall
     thereafter correspondingly be made applicable, as nearly as reasonable, in
     relation to any shares of stock or other securities or property thereafter
     deliverable on the exercise of this Warrant.  In the event of a triangular
     merger in which the Company is the surviving corporation, the right to
     purchase Warrant Shares hereunder shall terminate on the date of such
     merger and thereupon this Warrant shall become null and void, but only if
     the controlling corporation shall agree to substitute for this Warrant a
     warrant which entitles the holder thereof to purchase upon its exercise the
     kind and amount of shares and other securities and property which the
     holder would have owned or been entitled to receive had this Warrant been
     exercised immediately prior to such merger.  The above provisions of this
     paragraph 3(c) shall similarly apply to successive consolidations, mergers,
     statutory exchanges, sales or  conveyances.  Notice of any such
     consolidation, merger, statutory exchange, sale or conveyance, and of said
     provisions so proposed to be made, shall be mailed to the Holder at the
     same time as notice is given to the holders of Common Stock.  A sale of all
     or substantially all of the assets of the Company for a consideration
     consisting primarily of securities shall be deemed a consolidation  or
     merger for the foregoing purposes.

     (d)  Anything in this Section 3 to the contrary notwithstanding, the
     Company shall be entitled to make such reduction in the Per Share Warrant
     Price as it in its discretion shall deem to be advisable in order that any
     stock dividend, subdivision of shares or distribution of rights to purchase
     stock or securities convertible or exchangeable for stock hereafter made by
     the Company to its shareholders shall not be taxable.

4.   Fully Paid Stock; Taxes.  The Company agrees that the shares of Common
Stock represented by each and every certificate for Warrant Shares delivered on
the exercise of this Warrant in accordance with the terms hereof shall, at the
time of such delivery, be validly issued and outstanding, fully paid and non-
assessable and not subject to preemptive rights or other contractual rights to
purchase securities of the Company, and the Company will take all such actions
as may be necessary to assure that the par value or stated value, if any, per
share of Common Stock is at all times equal to or less than the then Per Share
Warrant Price.

5.   Limited Transferability.

     (a)  This Warrant is not transferable or assignable by the Holder except
     pursuant to the laws of descent and distribution and is so transferable
     only upon the books of the Company which it shall cause to be maintained
     for the purpose.  The Company may treat the registered holder of this
     Warrant as he or it appears on the Company's books at any time as the
     Holder for all purposes.  The Company shall permit any holder of a Warrant
     or his duly authorized attorney, upon written request during ordinary
     business hours, to inspect and copy or make 

                                    Page 33
<PAGE>
 
     extracts from its books showing the registered holders of Warrants. All
     Warrants will be dated the same date as this Warrant.

     (b)  By acceptance hereof, the Holder represents and warrants that this
     Warrant is being acquired, and all Warrant Shares to be purchased upon the
     exercise of this Warrant will be acquired, by the Holder solely for the
     account of such Holder and not with a view to the fractionalization and
     distribution thereof and will not be sold or transferred except in
     accordance with the applicable provisions of the Act and the rules and
     regulations of the Securities and Exchange Commission promulgated
     thereunder, and the Holder agrees that neither this Warrant nor any of the
     Warrant Shares may be sold or transferred except under cover of a
     Registration Statement under the Act which is effective and current with
     respect to such Warrant Shares or pursuant to an opinion, in form and
     substance reasonably acceptable to the Company's counsel, that registration
     under the Act is not required in connection with such sale or transfer.
     Any Warrant Shares issued upon exercise of this Warrant shall bear the
     following legend:

          "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
          UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY
          STATE OR FOREIGN SECURITIES LAWS AND MANY NOT BE OFFERED, SOLD OR
          OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
          REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS OR, IN THE
          OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
          THE SHARES REPRESENTED BY THIS CERTIFICATE, SUCH OFFER, SALE OR
          TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH."

6.   Loss, etc., of Warrant.  Upon receipt of evidence satisfactory to the
     Company of the loss, theft, destruction or mutilation of this Warrant, and
     of indemnify reasonably satisfactory to the Company, if lost, stolen or
     destroyed, and upon surrender and cancellation of this Warrant, if
     mutilated, and upon reimbursement of the Company's reasonably incidental
     expenses, the Company shall execute and deliver to the Holder a new Warrant
     of like date, tenor and denomination.

7.   Warrant Holder Not Shareholders.  Except as otherwise provided herein, this
     Warrant does not confer upon the Holder any right to vote or to consent to
     or receive notice as a shareholder of the Company, as such, in respect of
     any matters whatsoever, or any other rights or liabilities as a
     shareholder, prior to the exercise hereof.

8.   Communication.  No notice or other communication under this warrant shall
     be effective unless, but any notice or other communication shall be
     effective and shall be deemed to have been given if, the same is in writing
     and is personally delivered, mailed by first-class mail, postage prepaid,
     or sent by confirmed telecopy, addressed to:

     (a)  the Company at:  Interactive Entertainment Limited
                           845 Crossover Lane
                           Suite D-215
                           Memphis, TN 38117
                           Attn: David B. Lamm
                           Fax: (901) 537-3801

          with a copy to:  Altheimer & Gray
                           10 South Wacker Drive
                           Suite 4000

                                    Page 34
<PAGE>
 
                         Chicago, IL 60606
                         Attn: Andrew W. McCune, Esq.
                         Fax: (312) 715-4800

     or such other address as the Company may designate in writing to the
     Holder; or

     (b)  the Holder at:
                          --------------------------------------------------

                              ----------------------------------------------

                              ----------------------------------------------

                              ----------------------------------------------

     or such other address as the Holder may designate in writing to the
     Company.

9.   Headings.  The headings of this Warrant have been inserted as a mater of
     convenience and shall not affect the construction hereof.

10.  Applicable Law.  This Warrant shall be governed by and construed in
     accordance with the laws of Bermuda without giving effect to the principles
     of conflicts of law thereof.

                                    Page 35
<PAGE>
 
IN WITNESS WHEREOF, Interactive Entertainment Limited has caused this Warrant to
be signed by its Chief Financial Officer and its corporate seal to be hereunto
affixed and attested by its Assistant Secretary this ____th day of __________,
1998.


                                       INTERACTIVE ENTERTAINMENT LIMITED


                                       By:
                                          -------------------------------

                                       Its:  Chief Financial Officer



ATTEST:

By:
   -------------------------------

Its: Assistant Secretary

                                    Page 36
<PAGE>
 
EXERCISE
--------


     The undersigned,_________________, pursuant to the provisions of the
foregoing Warrant, hereby agrees to subscribe for and purchase ________ shares
of Common Stock of Interactive Entertainment Limited covered by said Warrant,
and makes payment therefor in full at the price per share provided by said
Warrant.


Dated:__________________          _____________________________________

                                       Signature:_______________________________

                                       Address:_________________________________

                                       _________________________________________

                                       _________________________________________

                                       _________________________________________

                                    Page 37
<PAGE>
 
                                   EXHIBIT B
                                        
                           WIRE TRANSFER INSTRUCTIONS



          Beneficiary Bank:         First Tennessee Bank
                                    165 Madison Avenue
                                    Memphis, TN  38103

          ABA Number:         084000026

          Account Name:       Interactive Entertainment Limited

          Account Number:           100121556

          Reference:                (Sender's Name)

                                    Page 38