U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
STARNET COMMUNICATIONS INTERNATIONAL INC.
(Name of Small Business Issuer in its Charter)
Delaware E.I.N. 52-2027313
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
425 Carrall Street, Mezzanine Level
Vancouver, B.C., V6B 6E3
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604) 685-7619
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which
to be so registered each class to be registered
Class A Voting Common Stock OTC Bulletin Board Service
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Page No.: 1
Total No. of Pages: 113
Exhibit Index Appears on Page: 23
Fee Calculations Under Rule 12b-7:$250.00
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
I. BUSINESS DEVELOPMENT.
--------------------
A. STARNET COMMUNICATIONS INTERNATIONAL INC.:
-----------------------------------------
Starnet Communications International Inc. (the "Company") was incorporated
in June 1996 in the state of Nevada. In March 1997, the Company merged
with a Delaware corporation for the purpose of re-domiciling to the state
of Delaware. The Company is a high technology investment and finance
company with several wholly owned technology subsidiaries under its
control, or to be formed. As a result, the Company may be characterized as
a holding Company. The intent of the Company is to identify and
commercialize leading edge technologies for established markets. The
Company, including its subsidiaries, employs 50 persons full time. The
majority of these individuals develop and produce adult websites for
display on the computer accessible medium known commonly as the "Internet."
B. STARNET COMMUNICATIONS CANADA INC.:
----------------------------------
Starnet Communications Canada Inc. ("Starnet Canada"), a wholly-owned
subsidiary of Starnet Communications International Inc., was incorporated
in May 1995 and is based in Vancouver, Canada. Starnet Canada manages
advanced on-line interactive media and information systems for the
Internet. Starnet Canada is an Internet publisher utilizing video, audio,
film, animation, graphics, multimedia, hyper-text markup language (HTML),
site management, transaction processing, client support systems, and post
production facilities. Starnet Canada was established for the purpose of
providing adult web sites on the Internet. In June of 1996, Starnet Canada
was certified by the Bank of Montreal, and now conducts secure Visa,
Mastercard and American Express credit card transactions via the Internet.
C. STARNET COMMUNICATIONS INTERNATIONAL INC. CORPORATE HISTORY:
-----------------------------------------------------------
On June 28, 1996, Creative Sports Marketing Inc. ("Creative") filed its
Articles of Incorporation with the Secretary of State of the State of
Nevada. Thereafter, a meeting of the Shareholders of Creative Sports
Marketing Inc. was held and authorized the Board to change the name of
Creative at a future date if in its discretion it deemed such a change
advantageous. The first intended business plan contemplated celebrity golf
promotions. A tournament was scheduled for Phoenix, Arizona, but shortly
after its organization, it and the business plan were dropped.
On July 15, 1996, Creative accepted subscription agreements from twelve
entities to acquire securities of Creative pursuant to a Rule 504 offering
under Regulation D. The Board authorized Creative to proceed with the sale
of its shares pursuant to the subscriptions received for the sale of
10,000,000 common shares at a price of $0.001 per common share. Pacific
Stock Transfer Company was appointed as the transfer agent of the common
shares of Creative.
-2-
<PAGE>
This offering was sold through a Vanuata corporation, Pacific Rim
Investment Inc., as a transaction sales agent. (SEE Exhibit "4.b").
Thereafter, Pacific Rim Investment Inc. established a market clearing house
as a non-quotation bargain market. The Company is aware of approximately
forty-nine transactions that have occurred. These transactions are
summarized in Item 4 -- Transfers Involving Pacific Rim Investment Inc.
Thereafter, Creative's Board of Directors voted to change the name from
Creative Sports Marketing Inc. to Gelato Brats Inc. A Certificate of
Amendment to the Articles of Incorporation of Creative Sports Marketing
Inc. changing the name of the corporation to Gelato Brats Inc. was
submitted to the Nevada Secretary of State's Office. A new business plan
was adopted focusing upon non-fat dairy ice cream and dessert
manufacturing.
On November 1, 1996, a Board of Directors' meeting of Gelato Brats Inc. was
held appointing Donald Byers as a director and authorizing a further name
change as deemed advisable in the discretion of the Board of Directors.
Also at this meeting the resignation as directors and officers of Ziad
Batal and Richard Kipping were accepted. Donald Byers was appointed
President, Secretary and Treasurer of Gelato Brats Inc.
On January 27, 1997, a Board of Directors' meeting of Gelato Brats Inc. was
held. The resignation of Donald Byers as a director and officer of the
Company was accepted. The Shareholders elected to the Board of Directors
the following: Mitchell White; Mark Dohlen; Jason Bolduc; Christopher
Zacharias; and Jack Carley. Mr. Bolduc was appointed President and Mr.
Zacharias was appointed Secretary and Treasurer.
On January 29, 1997, a Board of Directors' meeting of Gelato Brats Inc. was
held. The Board voted to authorize a change of the name to Starnet
Communications International Inc. (the "Company").
On February 24, 1997, a Certificate of Amendment of the Articles of
Incorporation of Gelato Brats Inc. changing the name of the Company to
Starnet Communications International Inc. was submitted to the Nevada
Secretary of State.
On March 10, 1997, the Board of Directors of Starnet Communications
International Inc. voted to merge Starnet Communications International Inc.
into a wholly owned subsidiary -- Starnet Communications International (DE)
Inc. ("Starnet Delaware"). The Company was authorized to redomesticate
into Delaware with Starnet Delaware as the surviving corporation.
-3-
<PAGE>
On March 10, 1997, Starnet Communications International Inc., the sole
stockholder of Starnet Delaware acted by vote to consummate the merger
among the Company and Starnet Delaware and to change the name of Starnet
Delaware to Starnet Communications International Inc. All of the
stockholders of Starnet Communications International Inc. voted to
acknowledge and adopt the Plan and Agreement of Merger of Starnet
Communications International Inc. into Starnet Delaware. Thus on March 10,
1997, a Certificate of Merger among Starnet Communications International
Inc. and Starnet Delaware was executed and the Articles of Merger were
submitted to the Delaware Secretary of State.
On March 25, 1997, Starnet Communications International Inc. entered into
a Share Purchase Agreement with Murray Partners (BVI) Inc. pursuant to
which Starnet Communications International Inc. acquired all 10,101
outstanding shares in Starnet Communications Canada Inc. In exchange Murray
Partners (BVI) Inc. received 10,000,000 Class A Common Voting Shares of
Starnet Communications International Inc.
II. BUSINESS OF ISSUER:
------------------
Starnet Communications Canada Inc. ("Starnet Canada"), a wholly-owned
subsidiary of Starnet Communications International Inc., was incorporated
in May 1995 and is based in Vancouver, British Columbia, Canada. Starnet
Canada develops, markets and manages advanced on-line interactive media and
information systems for the Internet. Starnet Canada is an Internet
developer and content provider utilizing proprietary software, video,
audio, film, animation, graphics, multimedia, hyper-text markup language
(HTML), site and network management, transaction processing and database
management systems, client support systems, and post production facilities.
In June of 1996, Starnet Canada was certified by the Bank of Montreal, and
now conducts secure, real time Visa, Mastercard and American Express credit
card transactions via the Internet.
Starnet Canada has emerged as a world leader in providing adult
entertainment services on the Internet. Since the launch in September
1995, membership in Starnet Canada's Club Sizzle at http://www.sizzle.com
("Sizzle") has grown to exceed 10,000 members by January 1997. Revenue
streams are generated by monthly subscription fees from clients who reside
in over 60 different countries. Sizzle is promoted on the Internet via
advertising, search engine registration and news group promotion. Several
hundred competitors compete in finely defined segments similar to Sizzle's
market, none of whom offer the entire range of services which Sizzle
provides.
Starnet Canada's AdultLinks Internet search engine site at
http://www.adultlinks.com ("AdultLinks") was launched in July 1996 and is
becoming one of the top Internet adult search engine sites in the world.
Revenues are generated by monthly advertising fees from commercial clients
who market to the on-line adult community. There are approximately 25
competitors in this market.
-4-
<PAGE>
Chisel Media Internet site at http://www.chisel.com ("Chisel") was launched
in August 1996 and is one of the top Internet gay sites in the world.
Revenue streams are generated by monthly subscription fees from over 2,000
clients residing around the world. Chisel is promoted on the Internet via
advertising, search engine registration and news group promotion. Less
than 100 competitors compete in segments similar to Chisel's market, none
of whom offer the entire range of services which Chisel provides.
Starnet Canada's Live Women Internet site at http://www.livewomen.com
("Live Women") was launched in February 1997. Live Women allows clients to
interact with a woman on a one to one basis via the Internet. Live Women
was the first to provide these services entirely over the Internet. Live
Women is promoted on the Internet via advertising, search engine
registration and news group promotion. Approximately 10 competitors
compete directly with Live Women, none of whom offer the entire range of
services which Live Women provides.
Starnet Canada has received a retractable letter of intent from CompuServe
Corporation, to supply adult casino style games for use by CompuServe's
clients. CompuServe is an on-line content and Internet service provider
with approximately 4 million subscribers. Starnet Canada is presently
Beta-testing several of these games and they are expected to be on-line in
mid 1997. Starnet Canada anticipates entering into a revenue sharing
agreement with CompuServe for all usage of these games. Revenue will be
generated by charging a fee for each minute a client is logged onto
CompuServe and is using the games.
III. INDUSTRY OVERVIEW AND COMPETITION.
---------------------------------
The Internet is the largest and most widely used computer network in the
world and provides access to an incredible volume of information and data.
Management believes that hundreds of billions of private and public dollars
will be invested over the next decade to weave together the global
information systems, including the hardware and software tools necessary to
navigate the Internet.
There are many other providers of adult entertainment currently accessible
through computer networks all competing for the public's entertainment
dollar. Starnet Canada also competes for the public's monthly expenditures
on such entertainment opportunities as cable television, movie theaters,
sporting events and other recreational time endeavors. Starnet Canada
cannot estimate how these competing industries may grow and to what extent
such growth would decrease Starnet Canada's revenue.
-5-
<PAGE>
IV. RESEARCH AND DEVELOPMENT:
------------------------
A. Electronic Financial Services Canada Inc.:
-----------------------------------------
Electronic Financial Services Canada Inc. ("EFS Canada"), a to be formed
wholly-owned subsidiary of Starnet Communications International Inc., will
be based in Canada and will operate as a major participant in the growing
Internet world of commerce with the primary focus of acting as an
international currency converter and a secure merchant to financial
institution Internet transaction gateway.
B. Starnet USA Inc.:
----------------
Starnet USA Inc., a wholly owned subsidiary of Starnet Communications
International Inc., is based in Seattle, Washington and was formed in
November 1995. It will operate as an Internet access provider and network
center for corporate clients. The network will use a sophisticated LAN of
computers, routers, servers and modems to provide service to its client
base.
C. World Gaming Inc.:
-----------------
World Gaming Inc. ("World Gaming"), a to be formed wholly owned subsidiary
of Starnet Communications International Inc. will launch an Internet on-line
electronic casino which will be engaged in the business of accepting,
processing, and managing wagers through the Internet on the outcome of
domestic and international sporting events and a variety of casino style
games of chance. World Gaming's focus will be to capitalize on the demand
for gaming. One significant obstacle to the World Gaming business plan is
to obtain financing to commence operations. Management estimates that
$5,000,000 (U.S.) will be needed. One possible source for this financing
is to tap the capital markets through a registered or exempt securities
offering. The Company has not pursued an initial public offering to date.
World Gaming will be based in Antigua and will operate as a full service
gaming corporation on the Internet. World Gaming will operate under strict
guidelines and laws to assure fair opportunities for its Internet clients.
World Gaming will be promoted on the Internet via paid advertising, search
engine registration and news group promotion. There is one direct
competitor which began operations in February 1997. Between five and ten
competitors are expected by the time World Gaming is fully operational.
D. Hastings Park:
-------------
The Company has entered into a Simulcast Agreement with the Pacific Racing
Association, which operates Hastings Park Racecourse in Vancouver and has
obtained a legal opinion on behalf of Pacific Racing Association for the
netcasting and wagering of these horse races on the Internet. The Pacific
Racing Association Simulcast Agreement allows pari-mutuel wagers on
Hastings Park races to be accepted by World Gaming and transmit via data
line from their
-6-
<PAGE>
licensed gaming site in Antigua to the Hastings Park tote system and
co-mingled into the pools at Hastings Park utilizing Net Pool Pricing and
foreign currency conversion. The Company is presently negotiating with
several other prominent race tracks with the intention of having horse
races available on the Internet on a 24 hour, 7 days a week basis.
V. REGULATORY BACKGROUND:
---------------------
In order to ensure that Starnet Canada's Sizzle site was operating within
the law, a legal opinion was obtained pertaining to the sexual content
initially displayed on the Sizzle site. Management intends to continue its
policy of requesting and obtaining legal opinions to assist and guide it
through the applicable and developing regulatory framework.
Due to the uncertain regulatory environment as it relates to Internet
gaming in the U.S. and Canada, management intends to focus on the market
outside of North America until such time as U.S. and Canadian laws,
specifically in regard to Internet gaming, are clarified. The Company will
ensure that no gaming laws both inside and outside the U.S. and Canada are
violated through the use of several checks. Through major credit cards and
Internet service providers, World Gaming will confirm that an applicant is
of legal age, and resides in a jurisdiction in which Internet wagering is
legal.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
I. RESULTS OF OPERATIONS
---------------------
The Company currently derives its revenues principally from subscription
sales of its Internet web sites namely Sizzle and Chisel. As the Internet
continues to become more accessible, the market opportunities for the
Company will continue to expand. This tremendous growth will also attract
many potential new competitors. In order to maintain sales growth, the
Company has been expanding the content and improving the services on its
Internet web sites, as well as researching and developing other projects
that will utilize its existing facilities and expertise.
(The remainder of this page is left blank intentionally.)
-7-
<PAGE>
The following tables set forth pro forma statements of operations data for
the Company for the nine months ended January 31, 1997 and 1996 and pro
forma balance sheet data at January 31, 1997. Balance sheet data at April
30, 1996 is for Starnet Canada only. The pro forma data has been compiled
as if the Company had existed and owned Starnet Canada since the May 19,
1995 incorporation of Starnet Canada.
A. Statement of Operations Data
----------------------------
For nine months ended
January 31, 1997 January 31, 1996
---------------- ----------------
Net Sales 1,331,644 154,144
Gross Margin 767,638 104,513
Net Income (Loss) from operations 46,819 (36,403)
Net Income (Loss) (8,407) (36,403)
B. Balance Sheet Data
------------------
At January 31, 1997 At April 30, 1996
------------------- -----------------
Working Capital (Deficiency) (548,891) (343,672)
Total Assets 995,927 457,513
Long Term Debt 113,405 62,786
Stockholders' Equity (Deficit) (13,431) (18,795)
Nine Months ended January 31, 1997 Compared to Nine Months ended
- ----------------------------------------------------------------
January 31, 1996
- ----------------
The Company's pro forma revenues increased 760% to $1,331,644 for the nine
months ended January 31, 1997 compared to $154,144 for the nine months
ended January 31, 1996. The growth is primarily due to increased
subscription revenue from the Company's Internet web sites. Along with the
growth in pro forma sales, pro forma gross margin increased to $767,638 for
the nine months ended January 31, 1997 from $104,513 for the nine months
ended January 31, 1996. More features and content were added to the
Internet web sites in order to attract new subscribers, resulting in a drop
in pro forma gross margin to 57.6% for the nine months ended January 31,
1997 from 67.8% for the nine months ended January 31, 1996.
Pro forma selling, general and administrative expenses increased by 412% to
$720,819 (54.1% of sales) for the nine months ended January 31, 1997 from
$140,916 (91.4% of sales) for the nine months ended January 31, 1996. The
decrease in these expenses from 91.4% to 54.1% of sales was the result of
efficiencies gained as the Company handled a greater level of activity.
-8-
<PAGE>
Pro forma net income from operations for the nine months ended January 31,
1997 was $46,819 compared to the pro forma loss of $36,403 for the nine
months ended January 31, 1996. Pro forma income tax expense for the nine
months ended January 31, 1997 was $55,226 ($16,648 -current and $38,578 -
deferred) and no income tax expense or recovery for the nine months ended
January 31, 1996.
Inception (May 19, 1995) through April 30, 1996
- -----------------------------------------------
The Company's pro forma revenue and pro forma gross profit for the period
from May 19, 1995 to April 30, 1996 was $378,544 and $205,789 respectively
(54.4% of sales). The primary source of revenue for the period was
subscription sales for Starnet Canada's Sizzle Internet web site. Selling,
general and administrative expenses amounted to 61.3% of sales ($231,986),
resulting in a net loss of $26,197 for the period from May 19, 1995 to
April 30, 1996.
C. Liquidity and Capital Resources
-------------------------------
Nine Months ended January 31, 1997
- ----------------------------------
Starnet Canada has leased 13,100 square feet of office and production space
at 425 Carrall Street, Vancouver, British Columbia, Canada. The first lease
for 6,100 square feet was for 5 years starting May 1, 1995 with the option
to renew for an additional 5 years. The second lease for 7,000 square feet
was for 3 years starting January 1, 1997 with the option to renew for an
additional three year term. Total monthly rent is currently averaging
$9,500 over the terms of the leases.
Starnet Canada initially relied on advances from shareholders and cash
generated from operations to meet its working capital requirements and to
provide funds for investments in property and equipment. As Starnet Canada
established its creditworthiness, it was able to acquire equipment on
capital leases. Outstanding capital lease obligations at April 30, 1996 and
January 31, 1997 were $81,193 and $145,781 respectively.
In January 1997, Starnet Canada obtained loans for $207,869, from Celestine
Fund Management Inc. which are secured by all assets of Starnet Canada and
guaranteed by key directors and employees. Celestine Fund Management Inc.
is a privately held investment fund with its principal offices at P.O. Box
3140, Road Town, Tortola, Britain Virgin Islands. Celestine Fund
Management, Inc. provides short term financing for small and medium sized
businesses. The principal and interest under the notes were payable on
April 6, 1997 and the lender subsequently agreed to extend the due date to
May 31, 1997. The Company expects to repay the loans by cashflow generated
from operations on its due date.
The Company expects to meet its short-term cash requirements through cash
generated from operations and its long-term cash requirements through
equity financing.
-9-
<PAGE>
The pro forma cashflow from operations for the nine months ended January
31, 1997 totaled $407,061 including pro forma net loss of $8,407 and
depreciation and amortization of $230,598. The pro forma net cash generated
by changes in working capital (excluding cash) was $360,665.
For the nine months ended January 31, 1997, pro forma net cash used for
investing activities was $445,653. The additions to property and equipment
were $229,124 and mainly consisted of new computer equipment, automobiles
and leasehold improvements. The Company also invested $216,529 in Internet
web site development.
Pro forma net cash provided by financing activities was $192,877 for the
nine months ended January 31, 1997. The major source of financing was loans
from a private lender. Payments of $58,032 were made to pay down the
advances from former shareholders of Starnet Canada.
Inception (May 19, 1995) through April 30, 1996
- -----------------------------------------------
The pro forma cashflow from operations for the period from May 19, 1995 to
April 30, 1996 totaled $214,001 including pro forma net loss of $26,197 and
pro forma depreciation and amortization of $104,352. The pro forma net
cash generated by changes in working capital (excluding bank indebtedness)
was $342,511.
For the period from May 19, 1995 to April 30, 1996, pro forma net cash used
for investing activities was $408,540. The additions to property and
equipment were $336,962 and mainly consisted of new computer equipment and
leasehold improvements. The Company also invested $70,676 in Internet web
site development.
Pro forma net cash provided by financing activities was $194,529 for the
period from May 19, 1995 to April 30, 1996. The major source of financing
was advances from former shareholders.
D. Impact of Inflation
-------------------
The Company believes that inflation has not had a material effect on its
past business.
ITEM 3. DESCRIPTION OF PROPERTY.
Starnet Canada occupies 13,100 square feet of commercial space at 425
Carrall Street, Vancouver, British Columbia. This facility houses all of
Starnet Canada's operations including production, technical, marketing, and
administration. Because of the size of Starnet Canada's presence on the
Internet many smaller Internet based companies have started operations
within the same building utilizing Starnet Canada's Internet connections.
The result has been the creation of a centralized location for a
significant percentage of Vancouver's Internet industry. Starnet Canada
has been able to act as a reseller of Internet services to many of these
businesses. This has resulted in a monthly net cash flow for the benefit
of Starnet Canada.
-10-
<PAGE>
The terms of the Carrall Street commercial lease are as follows. Starnet
Canada leases 7,000 square feet through December 31, 1999 (three years)
with an annual rent of U.S. $61,000.00. Starnet Canada has an option to
renew this lease for one additional three year term. Starnet Canada leases
6,100 square feet through April 30, 2000 (five years) with an annual rent
of U.S. $53,000.00. Starnet Canada possesses an option to renew this lease
for an additional five years.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 30, 1997 by (i) each
person who is known to the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's directors
and executive officers, (iii) the Named Executive, and (iv) all current
directors and executive officers as a group.
I. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
-----------------------------------------------
The date of the information presented on this table is April 30, 1997.
<TABLE>
<CAPTION>
Title Of Name And Address of Amount And Percent of
Class Beneficial Owner Nature of Class
Beneficial
Owner
<S> <C> <C> <C>
Class A Voting Common Murray Partners (BVI) Inc.(1) 10,000,000 50.0
Todman Building
Main Street, P.O. Box 3140
Road Town, Tortola
British Virgin Islands
</TABLE>
___________________
(1) On March 25, 1997 ownership of Starnet Canada was transferred from
Murray Partners (BVI) Inc., a British Virgin Islands company, to Starnet
Communications International Inc., a U.S. company incorporated in the state
of Delaware. This ownership transfer was effected through the issuance of
10,000,000 common shares of Starnet Communications International Inc. to
Murray Partners (BVI) Inc. in exchange for all of the issued common shares
of Starnet Communications Canada Inc. Murray Partners (BVI) Inc. is owned
indirectly by some of the Company's officers and directors and their
families. SEE: Certain Transactions.
-11-
<PAGE>
II. SECURITY OWNERSHIP OF MANAGEMENT.
--------------------------------
The date of the information presented on this table is April 30, 1997.
========================================================================
Title of Name and Address of Amount And Percent of
Class Beneficial Owner (2) Nature of Class
Beneficial
Owner (3)
- ------------------------------------------------------------------------
Class A Voting Mitchell White 300,000 1.5
Common Director/Chairman
" " Richard Thiessen 300,000 1.5
Vice President-Production
" " Jason Bolduc 300,000 1.5
Director/President
" " Paul Giles 300,000 1.5
Vice President
" " Mark Dohlen 100,000 0.5
Director/CEO
" " Jack Carley 25,000 0.125
Director/CFO
" " Christopher Zacharias 10,000 0.05
Director, Secretary,
Treasurer
All Directors & Executive
Officers as a Group 1,335,000 6.675
____________________
(2) This table does not reflect the shares owned indirectly by Management
through Murray Partners (BVI) Inc. (SEE: Certain Transactions).
(3) No member of Management has the right to acquire within sixty days
through options, warrants, rights, conversion, privilege or similar
obligations any securities of the Company.
-12-
<PAGE>
III. TRANSFERS INVOLVING PACIFIC RIM INVESTMENT INC.
-----------------------------------------------
<TABLE>
<CAPTION>
VENDOR PURCHASER DATE VOLUME
<S> <C> <C> <C>
Pacific Rim Investment Inc.
Certificate #2004 Gise Capital March 26, 1997 200,000
Sharp, Flint & Blunt March 26, 1997 200,000
Eastern Pacific March 26, 1997 200,000
Richland Acceptance March 26, 1997 100,000
Allfund Capital Corp. March 26, 1997 100,000
David Parfitt March 26, 1997 50,000
Randal Pow March 26, 1997 50,000
Pacific Rim Investment Inc.
Certificate #2006 Mitchell White April 15, 1997 300,000
Richard Thiessen April 15, 1997 300,000
Jason Bolduc April 15, 1997 300,000
Pacific Rim Investment Inc.
Certificate #2002 Peter McCurdy April 29, 1997 5,000
Hugh Mosaheb April 29, 1997 4,000
Dorothy Mosaheb April 29, 1997 8,000
Talon Ent. Corp. April 29, 1997 20,000
Tony Ricci April 29, 1997 25,000
Chuck Choo April 29, 1997 25,000
Steve Ng April 29, 1997 25,000
Frank DiSalvo April 29, 1997 10,000
Rush & Company April 29, 1997 50,000
Paul Giles April 29, 1997 300,000
Mark Dohlen April 29, 1997 100,000
Jack Carley April 29, 1997 25,000
Edward Garner April 29, 1997 25,000
-13-
<PAGE>
Pacific Rim Investment Inc.
Certificate #2002 Rush & Company April 29, 1997 50,000
First Marathon Sec. April 29, 1997 60,000
Christopher Zacharias April 29, 1997 10,000
David Parfitt April 29, 1997 50,000
Randall Pow April 29, 1997 50,000
Frank Reichardt April 29, 1997 8,000
Bob Hoegler April 29, 1997 20,000
Rush & Company April 29, 1997 30,000
Pacific Rim Investment Inc.
Certificate #2003 Richard Stewart May 2, 1997 10,000
Rush & Company May 2, 1997 10,000
Steve Cook May 2, 1997 10,000
Peter McCurdy May 2, 1997 5,000
Nancy Smith May 2, 1997 10,000
Pembroke Consultants May 2, 1997 20,000
Whytecliff Properties May 2, 1997 30,000
Ltd.
George Roumanis May 2, 1997 30,000
George Tsagarii May 2, 1997 15,000
Elissavet Doxa May 2, 1997 100,000
Rush & Company May 2, 1997 10,000
Vince Sanseverino May 2, 1997 10,000
Eric Polson May 2, 1997 10,000
Rush & Company May 2, 1997 50,000
First Marathon May 2, 1997 25,000
Securities
John Tsagarii May 2, 1997 55,000
First Marathon May 2, 1997 500,000
Securities
</TABLE>
-14-
<PAGE>
IV. CHANGES IN CONTROL.
------------------
There are no arrangements which may result in a change in control of the
issuer.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
I. DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
MITCH WHITE - (Age 36). Chairman of the Board of Directors. Mr. White's
term of office as a director is one year. He has served as a director
since January 27, 1997.
1987 - April 1995 - Self employed computer consultant.
April 1995 - Present - Starnet Communications Canada Inc.
Mr. White possesses more than fifteen years of experience in sales,
marketing and management in the high technology and entertainment
industries, most recently as Vice President of a Vancouver, Canada based
entertainment firm. Previously, Mr. White operated a high technology
consulting firm.
MARK DOHLEN - (Age 36). Chief Executive Officer and Director. Mr.
Dohlen's term of office as a director is one year. He has served as a
director since January 27, 1997.
April 1993 - May 1996 - ISG Consulting Inc. (Consultant)
May 1996 - Present - Starnet Communications Canada Inc.
Mr. Dohlen possesses more than ten years of experience in senior management
positions. Mr. Dohlen holds a Bachelor of Administration in Finance from
the University of Regina in Saskatchewan, and an MBA in Management
Information Systems from Simon Fraser University in British Columbia, and
is currently completing the Bachelor of Law program at the University of
British Columbia. Mr. Dohlen is currently completing the Certified
Management Consultant and Chartered Secretaries and Administrators
professional designations.
JACK CARLEY - (Age 50). Chief Financial Officer and Director. Mr.
Carley's term of office as a director is one year. He has served as a
director since January 27, 1997.
March 1990 - August 1994 - Royal Trust, Western Canada Region
(Regional Managing Partner, Finance and Administration)
August 1994 - Present - Hong Kong Bank of Canada/Hong Kong Bank & Trust Co.
(Vice President, Trust Operations)
Mr. Carley is presently Vice President, Trust Operations for the Hong Kong
Bank Trust Company. Previously, Mr. Carley has worked as Executive
Director of Examinations and Investigations for the Financial Institution
Commission of the Ministry of Finance and Corporate Affairs, Province of
British Columbia. Mr. Carley holds a Diploma in Business Administration,
a FICB designation, a Canadian Securities designation, and is a Certified
General Accountant.
JASON BOLDUC - (Age 22). April 1995 - Present - President and Director.
Mr. Bolduc's term of office as a director is one year. He has served as a
director since January 27, 1997.
1990 - April 1995 - Wiz Zone Computers Inc. (Managing Partner)
Dec. 1994 - April 1995 - Cyberstore Systems Inc. (Network Administrator)
-15-
<PAGE>
Mr. Bolduc was most recently Director of Network Operations for a
Vancouver, Canada based Internet access provider. Previously, Mr. Bolduc
operated a high technology consulting firm.
CHRIS ZACHARIAS - (Age 30). Secretary, Treasurer, Director and Corporate
Counsel. Mr. Zacharias' term of office as a director is one year. He has
served as a director since January 27, 1997.
September 1993 - May 1995 - Simon Fraser University (Computer Lab
Assistant)
May 1995 - May 1996 - Baker Newby (Lawyer)
May 1996 - February 1997 - Brawn Karras & Sanderson (Lawyer)
February 1997 - Present - Starnet Communications Canada Inc.
Mr. Zacharias possesses experience in financial, contractual, intellectual
property, and legal affairs. Mr. Zacharias holds a Bachelor of Law from
the University of Manitoba and an MBA from Simon Fraser University in
British Columbia. Previously, Mr. Zacharias was practicing as a corporate
solicitor with the law firm Brawn Karras & Sanderson. Mr. Zacharias is
currently completing the Chartered Secretaries and Administrators
professional designation.
II. FAMILY RELATIONSHIPS.
--------------------
There are no family relationships among directors, executive officers or
persons nominated or chosen by the Company to become officers or executive
officers other than among Jack Carley and Mitchell White. Mr. White is Mr.
Carley's son-in-law.
III. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
----------------------------------------
The Company is not aware of any material legal proceedings involving any
director, director nominee, promoter or control person including criminal
convictions, pending criminal matters, pending or concluded administrative
or civil proceedings limiting one's participation in the securities or
banking industries, or findings of securities or commodities law
violations. However, a personal bankruptcy proceeding under Canadian law
involving Mark Dohlen concluded in September 1994, with Mr. Dohlen
receiving a judicial discharge.
-16-
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following information is dated as of April 30, 1996, the end of Starnet
Canada's last fiscal year.
I. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
---------------------------- --------------------- ------------
- ----------------------------------------------------------------------------------------------------
Securities
Other Underlying
Annual Restric- Opposi- All Other
Compen- ted Stock tions/ LTIP Compen-
Name and Year Salary Bonus sation Award(s) SARs Payouts sation
Principal(4) (US$)(5) ($) ($) ($) (#) ($) ($)
Position
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark Dohlen (CEO) '96 22,826 725 -0- -0- -0- -0- -0-
Paul Giles '96 30,587 1,812 -0- -0- -0- -0- -0-
(V.P. Offshore
Operations)
Jason Bolduc '96 30,817 1,812 -0- -0- -0- -0- -0-
(President)
Richard Thiessen '96 25,643 2,536 -0- -0- -0- -0- -0-
(V.P. Production)
David Greenseed '96 18,036 580 -0- -0- -0- -0- -0-
(Chief Programmer)
</TABLE>
____________________
(4) The positions described were of Starnet Canada. None of the
individual's depicted were under any employment agreement with Starnet
Canada.
(5) The compensation depicted is in the U.S. dollars. The compensation
was paid in Canadian dollars.
-17-
<PAGE>
II. OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
The Company has no grants to report in the past fiscal year pursuant to its
Employee Stock Plan. The Employee Stock Plan authorizes the distribution
of up to 1,000,000 shares to be acquired at $.50 per share, but no options
have been granted. The criteria for distributing options is within
management's discretion.
III. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
The Company has no Options, Exercises or Values to report for last fiscal
year pursuant to its Employee Stock Plan. The Employee Stock Plan
authorizes the distribution of up to 1,000,000 shares to be acquired at
$.50 per share, but no options have been granted. The criteria for
distributing options is within management's discretion.
IV. LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The Company has no plans or awards to report for last fiscal year pursuant
to its Employee Stock Plan. The Employee Stock Plan authorizes the
distribution of up to 1,000,000 shares to be acquired at $.50 per share,
but no options have been granted. The criteria for distributing options is
within management's discretion..
V. COMPENSATION OF DIRECTORS
A. Standard Arrangements.
---------------------
The members of the Company's Board of Directors are reimbursed for actual
expenses incurred in attending Board meetings.
B. Other Arrangements.
------------------
There are no other arrangements for compensation to the Board of Directors'
members.
VI. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT,
AND CHANGE-IN-CONTROL ARRANGEMENTS
There are no written contracts or agreements. Employee salaries are set by
the members of the Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 25, 1997, Starnet Communications International Inc. entered into
a Share Purchase Agreement with Murray Partners (BVI) Inc. pursuant to
which Starnet Communications International Inc. acquired all 10,101
outstanding shares in Starnet Communications Canada Inc.
-18-
<PAGE>
In exchange, Murray Partners (BVI) Inc. received 10,000,000 Class A Common
Voting Shares of Starnet Communications International Inc. This
transaction occurred on March 25, 1997. Murray Partners (BVI) Inc. is
owned by certain trusts established pursuant to the laws of Barbados. The
trusts' beneficial owners include some of the members of management and
certain of their family members.
The Company completed a reorganization in January 1997, pursuant to which
500,000 shares were transferred from Cleveland Corporation to Nesbitt Burns
Inc. as record owner for former management. Pursuant to this transaction
the Company adopted a new business plan and changed its name from Gelato
Brats Inc. to Starnet Communications International Inc.
The Company completed a reorganization on July 20, 1996, pursuant to which
the Company adopted a new business plan and changed its name from Creative
Sports Marketing Inc. to Gelato Brats Inc.
For the nine months ended January 31, 1997, Starnet Canada was involved in
the following transactions with the officers, directors and key employees
of the Company:
(a) In November 1996, an advance for $3,269 was received from Richard
Thiessen.
(b) In January 1997, a loan for $37,210 was received from Jack Carley.
This advance is to be repayable in monthly installments of $3,712
through November 1997.
(c) Monthly repayment of $3,582 was made to Jack Carley from May 1996 to
January 1997, totalling $25,074.
(d) Repayments totalling $52,303 were made to Paul Giles from June 1996 to
December 1996.
(e) Repayment of $4,298 was made to Ken Lelek in July 1996.
(f) Repayments totalling $11,463 were made to Richard Thiessen during the
period from June 1996 to January 1997.
(g) Repayments totalling $5,373 were made to Mitch White during the period
between July 1996 and October 1996.
The amounts due to related parties are due to officers and directors of the
Company who have an indirect ownership interest in the Company. These
amounts are non-interest bearing and are unsecured. The amount due to Jack
Carley of $37,210 is repayable in monthly installments of $3,712 through
November 1997. All other amounts are without specified terms of repayment.
-19-
<PAGE>
During the year ended April 30, 1996, Starnet Canada was involved in the
following transactions with the shareholders of the Company:
(a) In July 1995, the Company purchased from Jason Bolduc a computer for
$2,938 and programming service for $2,203.
(b) The Company purchased from Paul Giles computers and office equipment
for $11,296 in July 1995, $42,234 in September 1995 and $12,486 in
February 1996.
(c) The Company purchased from Ken Lelek computers and office equipment
for $5,508 in July 1995.
(d) The Company purchased from Richard Thiessen computers, office
equipment and furniture for $28,108 in July 1995 and audio equipment
for $38,083 in September 1995.
(e) The Company purchased from Mitch White computers, office equipment and
furniture for $13,367 in June 1995.
(f) In January 1996, a cash loan for $36,724 was received from Jack
Carley. The loan is repayable in monthly installments of $3,671
starting in February 1996. At April 30, 1996, repayments totalling
$11,027 were made and the outstanding balance was $25,697.
(g) During the year, the Company received cash advances totalling $20,529
from Paul Giles; $21,667 from Ken Lelek; $1,837 from Richard Thiessen
and $17,172 from Mitch White.
(h) During the year, the Company repaid $1,748 to Jason Bolduc; $36,468 to
Paul Giles; $9,093 to Ken Lelek; $4,770 to Richard Thiessen and $2,192
to Mitch White.
The amounts due to shareholders at April 30, 1996 arose during the initial
year of Starnet Canada's operations when six former individual shareholders
(i.e. Jason Bolduc, Paul Giles, Ken Lelek, Richard Thiessen, Jack Carley
and Mitch White) advanced funds and sold equipment and furniture to Starnet
Canada on credit terms to finance the development of Starnet Canada's
products and operations.
The amounts due to shareholders are non-interest bearing and are unsecured.
The amount due to Jack Carley of $25,697 is repayable in monthly
installments of $3,671 through November 1996. All other amounts are
without specified terms of repayment.
ITEM 8. LEGAL PROCEEDINGS
The issuer is not a party to any pending legal proceeding nor is its
property the subject of any pending legal proceeding.
-20-
<PAGE>
ITEM 9. MARKET FOR REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER
MATTERS
There is no public trading market for the common equity shares of the
registrant. If the registrant successfully obtains a listing, as is
presently intended by management, the common equity shares will be listed
upon the OTC Bulletin Board Service. There are approximately 48 equity
holders of record of the Company's Class A Common Voting stock. The number
of shares eligible for trading will be all of the Class A Voting Common
stock except that which is owned by Murray Partners (BVI) Inc. and the
shares which are owned by management. There have been no cash dividends
declared since inception of any of the companies in the group. There are
no restrictions that would limit the ability to pay dividends on common
equity or that are likely to do so in the future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
On March 25, 1997, Starnet Communications International Inc. entered into
a Share Purchase Agreement with Murray Partners (BVI) Inc. pursuant to
which Starnet Communications International Inc. acquired all 10,101
outstanding shares in Starnet Communications Canada Inc. In exchange,
Murray Partners (BVI) Inc. received 10,000,000 Class A Common Voting Shares
of Starnet Communications International Inc. This transaction occurred on
March 25, 1997. This transaction involved a single purchaser. The
purchase price did not exceed $5,000,000. This was an entirely private
transaction pursuant to which all material information as specified in Rule
502(b)(2) was made available to the purchaser. Thus the exemption from
registration afforded by Rule 4(2) was available to the issuer.
On June 26, 1996, the Company's predecessor, Creative Sports Marketing Inc.
executed a Form D disclosing that it relied upon Rule 504 in selling
10,000,000 Class A Common Voting Shares in exchange for $10,000 to twelve
individuals and businesses. This offering was sold through Pacific Rim
Investment Inc. as a transaction sales agent which established a market
clearing house as a non-quotation bargain market.
On August 1, 1996, the Company filed a Form 701 under its predecessor's
name Gelato Brats Inc. Pursuant to Rule 701, the Company established the
Gelato Stock Plan for distributing Class A Voting Common Stock. One
million authorized shares were reserved for distribution pursuant to the
Plan. No shares were distributed to any eligible persons pursuant to the
Plan.
On July 15, 1996, one share of stock was distributed in reliance upon
section 4(2) to Kendall White for $0.001 per share.
ITEM 11. DESCRIPTION OF SECURITIES
The securities to be registered pursuant to this Form 10-SB are all of the
authorized Class A Voting Common stock of Starnet Communications
International Inc. There are no preemptive rights associated with the
securities and no cumulative voting is authorized by the By-laws. The
amount of shares authorized is 200,000,000. Of these, 100,000,000 are
Class A Voting
-21-
<PAGE>
Common, 50,000,000 are Class B Common (non-voting) and 50,000,000 are Class
C Preferred. There are no Class B or Class C shares issued. Preferences
for Class B and Class C, if any, will be established by the Board of
Directors upon issuance.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 11 of the Company's By-Laws contains an indemnification provision
indemnifying a controlling person, officer or director for conduct on
behalf of the Company which results in an action suit or proceeding to the
fullest extent permitted under the General Corporation Law of the State of
Delaware. The Company does not believe that Article 11 affects the
liability of any person for actually engaging in wrongful conduct.
However, if a person is acting on the Company's behalf, the Company may be
responsible to indemnify the accused wrongdoer for all associated costs,
fees or damages.
ITEM. 13. FINANCIAL STATEMENTS.
The Financial Statements are contained at Exhibit 1 hereto. they are:
i. Starnet Communications Canada Inc. Consolidated Financial
Statements, April 30, 1996.
ii. Starnet Communications Canada Inc. Consolidated Financial
Statements, January 31, 1997, Unaudited.
iii. Starnet Communications International Inc. Financial Statements,
January 31, 1997.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements on accounting and financial disclosures
from the inception of the Company through the date of this Registration
Statement.
-22-
<PAGE>
ITEM 15. INDEX TO EXHIBITS
PAGE NO.
--------
Financial Statements
(i) Consolidated Financial Statements of Starnet
Communications Canada Inc. (formerly 496926 B.C. Ltd.)
dated April 30, 1996. . . . . . . . . . . . . . . . . . . . 25
(ii) Financial Statements for Starnet Communications
International, Inc. (formerly Gelato Brats Inc.
and Creative Sports Marketing Inc.) dated
January 31, 1997. . . . . . . . . . . . . . . . . . . . . . 38
(iii) Consolidated Financial Statements of Starnet Communications
Canada Inc. (formerly 496926 B.C. Ltd.) -- Unaudited
dated January 31, 1997. . . . . . . . . . . . . . . . . . . 45
(iv) Pro Forma Consolidated Financial Statements of Starnet
Communications International Inc. -- Unaudited
dated January 31, 1997. . . . . . . . . . . . . . . . . . . 58
2. (i) Action of Sole Stockholder of Starnet Communications
International (DE) Inc. by Written Consent. . . . . . . . . 63
(ii) Action of Directors of Starnet Communications
International Inc. by Written Consent . . . . . . . . . . . 65
(iii) Action of Directors of Starnet Communications
International (DE) Inc. by Written Consent. . . . . . . . . 67
(iv) Organization Acts of Directors of Starnet
Communications International (DE) by Written Consent. . . . 69
(v) Articles of Merger of Starnet Communications
International Inc. with and into Starnet
Communications International (DE) Inc.. . . . . . . . . . . 72
(vi) Action of Stockholders of Starnet Communications
International Inc. by Written Consent . . . . . . . . . . . 74
(vii) Plan and Agreement of Merger of Starnet
Communications International Inc. into Starnet
Communications International (DE) Inc.. . . . . . . . . . . 77
(viii) Certificate of Merger Merging Starnet Communications
International Inc. into Starnet Communications
International (DE) Inc. . . . . . . . . . . . . . . . . . . 82
3. (i) Articles of Incorporation . . . . . . . . . . . . . . . . . 84
(ii) Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . 87
10. Material Contracts
(i) Bank of Montreal. . . . . . . . . . . . . . . . . . . . . . 96
(ii) Pacific Rim Investment Inc. . . . . . . . . . . . . . . . . 97
(iii) Simulcast Agreement . . . . . . . . . . . . . . . . . . . .101
(iv) CompuServe Agreement. . . . . . . . . . . . . . . . . . . .109
21. (i) Subsidiaries of the Registrant. . . . . . . . . . . . . . .111
23. (i) Consent of Experts. . . . . . . . . . . . . . . . . . . . .112
27. (i) Financial Data Schedule . . . . . . . . . . . . . . . . . .113
-23-
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Starnet Communications International Inc.
(Registrant)
Date May 8, 1997
____________________________________________________________________
By Jason Bolduc
_______________________________________________________________________
Jason Bolduc, President
Date May 8, 1997
____________________________________________________________________
By Mitch White
________________________________________________________________________
Mitch White, Chairman of the Board of Directors
Date May 8, 1997
____________________________________________________________________
By Mark Dohlen
________________________________________________________________________
Mark Dohlen, Chief Executive Officer and Director
Date May 8, 1997
____________________________________________________________________
By Jack Carley
________________________________________________________________________
Jack Carley, Chief Financial Officer and Director
Date May 8, 1997
____________________________________________________________________
By Chris Zacharias
________________________________________________________________________
Chris Zacharias, Secretary, Treasurer, Director and Corporate Counsel
-24-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
STARNET COMMUNICATIONS
CANADA INC.
(FORMERLY 496926 B.C. LTD.)
APRIL 30, 1996
ERNST & YOUNG
25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
We have audited the accompanying consolidated balance sheet of STARNET
COMMUNICATIONS CANADA INC. as of April 30, 1996 and the related
consolidated statements of loss and deficit and cash flows for the period
then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Starnet Communications Canada Inc. at April 30, 1996, and the
consolidated results of their operations and their cash flows for the
period then ended in conformity with accounting principles generally
accepted in the United States.
Vancouver, Canada, /s/ ERNST & YOUNG
September 3, 1996. Chartered Accountants
26
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
CONSOLIDATED BALANCE SHEET
(IN UNITED STATES DOLLARS)
As at April 30
1996
$
- -------------------------------------------------------------------------
ASSETS
CURRENT
Accounts receivable 64,706
Prepaid expenses 5,144
- -------------------------------------------------------------------------
TOTAL CURRENT ASSETS 69,850
- -------------------------------------------------------------------------
Capital assets (net) [NOTE 3] 351,423
Deferred website costs [note 4] 35,338
Due from related company 902
- -------------------------------------------------------------------------
457,513
- -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT
Bank indebtedness 1,161
Accounts payable and accrued liabilities 115,949
Deferred revenue 89,211
Current portion of capital lease obligations [NOTE 7] 18,407
Due to shareholders [NOTE 6] 188,794
- -------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 413,522
- -------------------------------------------------------------------------
Non-current portion of capital lease obligations [NOTE 7] 62,786
- -------------------------------------------------------------------------
TOTAL LIABILITIES 476,308
- -------------------------------------------------------------------------
SHAREHOLDERS' DEFICIT
Capital stock [NOTE 8] 7,416
Deficit (26,197)
Cumulative translation adjustment (14)
- -------------------------------------------------------------------------
TOTAL SHAREHOLDERS' DEFICIT (18,795)
- -------------------------------------------------------------------------
457,513
- -------------------------------------------------------------------------
Commitments [note 9]
SEE ACCOMPANYING NOTES
On behalf of the Board:
Director Director
27
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
(IN UNITED STATES DOLLARS)
PERIOD FROM
MAY 19, 1995
TO APRIL 30,
1996
$
- -------------------------------------------------------------------------
REVENUE
Sales 378,544
Cost of sales [SCHEDULE 1] 172,755
- -------------------------------------------------------------------------
GROSS MARGIN 205,789
- -------------------------------------------------------------------------
EXPENSES
Wages and benefits 36,795
Depreciation 69,014
Bank charges and interest 9,217
Advertising and promotion 8,390
Legal and accounting 30,215
Premises costs 28,594
Office and miscellaneous 8,397
Telephone 14,975
Automotive 3,892
Other 22,497
- -------------------------------------------------------------------------
231,986
- -------------------------------------------------------------------------
NET LOSS AND DEFICIT, END OF PERIOD 26,197
- -------------------------------------------------------------------------
PER COMMON SHARE
Net loss (3.40)
Dividends -
Weighted average number of common shares outstanding 7,698
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
28
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN UNITED STATES DOLLARS)
PERIOD FROM
MAY 19, 1995
TO APRIL 30,
1996
$
- -------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (26,197)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 69,014
Amortization of deferred website costs 35,338
Foreign exchange 546
Changes in current assets and liabilities:
Increase in accounts receivable (64,706)
Increase in prepaid expenses (5,144)
Increase in accounts payable and accrued liabilities 115,949
Increase in deferred revenue 89,211
- -------------------------------------------------------------------------
Total adjustment 240,208
- -------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 214,011
- -------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (336,962)
Deferred website costs (70,676)
Advance to related company (902)
- -------------------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (408,540)
- -------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in bank indebtedness 1,161
Proceeds from issuance of common shares 7,416
Advance from shareholders 188,794
Principal repayments under capital lease obligations (2,842)
- -------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 194,529
- -------------------------------------------------------------------------
NET CHANGE IN CASH DURING THE PERIOD AND CASH, END OF PERIOD -
- -------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 4,432
Income tax paid -
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
29
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
April 30, 1996
1. NATURE OF BUSINESS
Starnet Communications Canada Inc. (the "Company") was incorporated on May
19, 1995 under the laws of the Province of British Columbia, Canada. The
Company was established for the purpose of providing video magazines on the
Internet.
2. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Starnet USA Inc.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated or amortized using the straight-line
method over the estimated useful life of the assets at the following rates:
Furniture and fixtures 3 years
Computer hardware and equipment 3 years
Computer software 3 years
Automobile 4 years
Leasehold improvements are amortized over the term of the related lease
using the straight-line method.
One-half of the normal depreciation rate is applied in the year of
acquisition or capitalization of the capital assets.
REVENUE RECOGNITION
Revenue from dial-up access is recognized at the time services are
rendered. Billings in advance of services are included in deferred revenue
and recognized at the time services are rendered.
On-line service revenues are recognized over the period services are
provided.
1
30
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
April 30, 1996
2. ACCOUNTING POLICIES (cont'd.)
REPORTING CURRENCY
The Company's functional currency is the Canadian dollar as substantially
all of the Company's operations are in Canada. The Company uses the United
States dollar as its reporting currency for consistency with other United
States Securities and Exchange Commission domestic registrants.
WEBSITE COSTS
Costs which relate to the development of the Company's Internet sites are
capitalized when these costs are expected to be recovered through future
revenues. Deferred website costs are amortized one half in the year
incurred, one third in the following year, and one sixth in the second
following year. The website costs balance shown in the balance sheet is
presented net of accumulated amortization.
The recoverability of the website costs is dependent upon the realization
of sufficient future revenues from these products.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities which are to be settled in a foreign
currency are translated at the prevailing year-end rates of exchange.
Transactions in foreign currencies are translated at the approximate rate
of exchange in effect when the transactions occur. Translation adjustments
are reflected as a separate component of shareholders' equity.
LEASES
Leases which transfer substantially all of the benefits and risks of
ownership are recorded as the acquisition of assets and incurrence of
obligations. Under this method of accounting, both assets and obligations,
including interest thereon, are amortized over the life of the lease.
ADVERTISING
The Company expenses the costs of advertising as incurred.
NET EARNINGS AND DIVIDENDS PER COMMON SHARE
The calculations of net loss and dividends per common share are based upon
the weighted average number of common shares of the Company outstanding
during the year.
2
31
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
April 30, 1996
2. ACCOUNTING POLICIES (cont'd.)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and related notes to the financial
statements. Actual results may differ from those estimates.
3. CAPITAL ASSETS
Property and equipment are recorded at cost and comprise:
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- --------------------------------------------------------------------------
1996
Furniture and fixtures 14,124 2,355 11,769
Computer hardware and equipment 304,220 50,722 253,498
Computer hardware under capital leases 84,035 14,011 70,024
Computer software 1,802 300 1,502
Leasehold improvements 16,256 1,626 14,630
- --------------------------------------------------------------------------
420,437 69,014 351,423
- --------------------------------------------------------------------------
Depreciation of assets under capital leases is included in depreciation
expense in the consolidated statement of loss and deficit.
3
32
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
April 30, 1996
4. WEBSITE COSTS
Website costs are recorded at cost less accumulated amortization and
comprise:
MAY 19, 1995
TO APRIL 30,
1996
$
- -------------------------------------------------------------------------
Net balance, beginning of period -
Costs capitalized during the period 70,676
Current period amortization (35,338)
- -------------------------------------------------------------------------
Net balance, end of period 35,338
- -------------------------------------------------------------------------
5. INCOME TAXES
Deferred income taxes arise from timing differences in the recognition of
income and expenses for financial reporting and tax purposes. The sources
of timing differences in operations and the related deferred income tax
amounts are as follows:
APRIL 30,
1996
$
- -------------------------------------------------------------------------
Depreciation of capital assets (13,490)
Deferred website costs 7,993
Other (522)
- -------------------------------------------------------------------------
Deferred tax (asset) liability (6,019)
Valuation allowance 6,019
- -------------------------------------------------------------------------
Net deferred tax (asset) liability -
- -------------------------------------------------------------------------
The deferred tax asset at April 30, 1996 was not recorded due to the
uncertainty of its realization.
4
33
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
April 30, 1996
6. DUE TO SHAREHOLDERS
The amounts due to shareholders are non-interest bearing and are unsecured.
The amount due to one shareholder of $25,697 is repayable in monthly
installments of $3,671 through November 1996. All other amounts are
without specified terms of repayment.
These amounts arose during the initial year of the Company's operations
when the six individual shareholders advanced funds and sold capital assets
to the Company on credit terms to finance the development of the Company's
products and operations.
During the year, the Company was involved in the following transactions
with its shareholders:
[a] Purchases of fixed assets and other goods and services of $156,223
were made from shareholders.
[b] Advances and loans of $97,929 were received from shareholders.
[c] Repayments of $65,288 were made to shareholders.
7. CAPITAL LEASE OBLIGATIONS
At April 30, 1996, the Company has entered into capital leases for
equipment. The future payments for the 12 months ended April 30 are:
$
- -------------------------------------------------------------------------
1997 30,742
1998 30,742
1999 30,742
2000 16,308
- -------------------------------------------------------------------------
Total minimum lease payments 108,534
Less amounts representing interest at rates varying from
16.7% to 17.5% 27,341
- -------------------------------------------------------------------------
Present value of minimum lease payment 81,193
Current portion of capital lease obligations 18,407
- -------------------------------------------------------------------------
62,786
- -------------------------------------------------------------------------
5
34
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
April 30, 1996
8. SHARE CAPITAL
Share capital comprises:
1996
$
- -------------------------------------------------------------------------
AUTHORIZED
200,000 Class A voting common shares, without par value
200,000 Class B non-voting common shares, without par value
200,000 Class C redeemable, retractable, non-voting preferred
shares with a par value of Cdn. $100 each
400,000 Class D redeemable, retractable, non-voting preferred
shares with a par value of Cdn. $.01 each
ISSUED AND OUTSTANDING
10,101 Class A common shares 7,416
- -------------------------------------------------------------------------
7,416
- -------------------------------------------------------------------------
During the period ended April 30, 1996 the Company issued 13,976 common
shares for cash and repurchased 3,875 common shares for cash.
6
35
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
April 30, 1996
9. COMMITMENTS
The Company is committed to future payments under a lease for premises and
an agreement for data line service as follows:
$
- -------------------------------------------------------------------------
1997 97,797
1998 97,797
1999 72,100
2000 53,744
- -------------------------------------------------------------------------
321,438
- -------------------------------------------------------------------------
During the year the Company entered into an agreement to purchase live
video content for a period of three years. Some of the terms of the
agreement have yet to be formalized. Payments made under the agreement for
the eight months ended April 30, 1996 total $22,758. The payments are
based on the profit derived from the service and therefore cannot be
determined in advance. Accordingly, these payments are not included in the
commitments reported above.
10. SUBSEQUENT EVENT
On August 8, 1996 the Company changed its name to Starnet Communications
Canada Inc.
7
36
<PAGE>
STARNET COMMUNICATIONS CANADA INC. SCHEDULE 1
(FORMERLY 496926 B.C. LTD.)
SCHEDULE OF COST OF SALES
(IN UNITED STATES DOLLARS)
PERIOD FROM
MAY 19, 1995
TO APRIL 30,
1996
$
- -------------------------------------------------------------------------
Line charges 50,585
Wages and benefits 45,118
Amortization of deferred website costs 35,338
Video content 10,848
Other 10,176
Live performers 7,088
Audio content 7,033
Photo Content 6,569
- -------------------------------------------------------------------------
172,755
- -------------------------------------------------------------------------
37
<PAGE>
FINANCIAL STATEMENTS
STARNET COMMUNICATIONS
INTERNATIONAL INC.
(FORMERLY GELATO BRATS INC. AND
CREATIVE SPORTS MARKETING INC.)
JANUARY 31, 1997
ERNST & YOUNG
38
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
STARNET COMMUNICATIONS INTERNATIONAL INC.
We have audited the accompanying balance sheet of STARNET COMMUNICATIONS
INTERNATIONAL INC. as of January 31, 1997 and the related statements of
loss and deficit and cash flows for the period from incorporation on June
28, 1996 to January 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Starnet Communications
International Inc. at January 31, 1997, and the results of their operations
and their cash flows for the period from incorporation on June 28, 1996 to
January 31, 1997 in conformity with accounting principles generally
accepted in the United States.
Vancouver, Canada, /s/ ERNST & YOUNG
March 31, 1997. Chartered Accountants
39
<PAGE>
STARNET COMMUNICATIONS INTERNATIONAL INC.
(FORMERLY GELATO BRATS INC. AND CREATIVE SPORTS MARKETING INC.)
BALANCE SHEET
(IN UNITED STATES DOLLARS)
As at January 31
1997
$
- -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Note Payable [NOTE 2] 50,000
- -------------------------------------------------------------------------
SHAREHOLDERS' DEFICIT
Share capital [NOTE 3] 10,000
Deficit (60,000)
- -------------------------------------------------------------------------
(50,000)
- -------------------------------------------------------------------------
-
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
40
<PAGE>
STARNET COMMUNICATIONS INTERNATIONAL INC.
(FORMERLY GELATO BRATS INC. AND CREATIVE SPORTS MARKETING INC.)
STATEMENT OF LOSS AND DEFICIT
(IN UNITED STATES DOLLARS)
Period ended January 31
1997
$
- -------------------------------------------------------------------------
EXPENSES
Consulting 52,940
Professional fees 7,060
- -------------------------------------------------------------------------
LOSS FOR THE PERIOD AND DEFICIT, END OF PERIOD 60,000
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
41
<PAGE>
STARNET COMMUNICATIONS INTERNATIONAL INC.
(FORMERLY GELATO BRATS INC. AND CREATIVE SPORTS MARKETING INC.)
STATEMENT OF CASH FLOWS
(IN UNITED STATES DOLLARS)
Period ended January 31
1997
$
- -------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period (60,000)
- -------------------------------------------------------------------------
CASH (USED IN) OPERATING ACTIVITIES (60,000)
- -------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable 50,000
Issuance of share capital 10,000
- -------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 60,000
- -------------------------------------------------------------------------
INCREASE IN CASH DURING THE PERIOD AND CASH, END OF PERIOD -
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
42
<PAGE>
STARNET COMMUNICATIONS INTERNATIONAL INC.
(FORMERLY GELATO BRATS INC. AND CREATIVE SPORTS MARKETING INC.)
NOTES TO FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997
1. NATURE OF BUSINESS
The company was incorporated on June 28, 1996 in the State of Nevada as
Creative Sports Marketing Inc. On July 20, 1996 the Company changed its
name from Creative Sports Marketing Inc. to Gelato Brats Inc. On February
24, 1997 the Company changed its name from Gelato Brats Inc. to Starnet
Communications International Inc. At January 31, 1997 the Company proposes
to acquire a Canadian company involved in the development and management of
advanced on-line interactive media and information systems for the
Internet.
2. NOTE PAYABLE
The note payable bears interest at the rate of 6% per annum, is payable on
demand, and is convertible into common shares at a price of $0.05 per share
after January 1, 1998.
3. SHARE CAPITAL
1997
$
- -------------------------------------------------------------------------
AUTHORIZED
200,000,000 common shares, par value $0.001
ISSUED
10,000,000 common shares 10,000
- -------------------------------------------------------------------------
1
43
<PAGE>
STARNET COMMUNICATIONS INTERNATIONAL INC.
(FORMERLY GELATO BRATS INC. AND CREATIVE SPORTS MARKETING INC.)
NOTES TO FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997
4. SUBSEQUENT EVENTS
On February 24, 1997 the Company changed its name from Gelato Brats Inc. to
Starnet Communications International Inc.
On March 10, 1997 the Company was merged into Starnet Communications
International (DE) Inc., a recently constituted 100% owned subsidiary
company incorporated in the State of Delaware. Pursuant to the Plan and
Agreement of Merger between the two companies, Starnet Communications
International (DE) Inc. is the surviving company and it has assumed the
name Starnet Communications International Inc.
Pursuant to a Share Purchase Agreement dated March 25, 1997 the Company
acquired 100% of the issued and outstanding capital stock of Starnet
Communications Canada Inc. from Murray Partners (BVI) Inc. by issuing
10,000,000 common shares of the Company to Murray Partners (BVI) Inc.
Starnet Communications Canada Inc. is a Canadian company incorporated in
the Province of British Columbia and involved in the development and
management of advanced on-line interactive media and information systems
for the Internet. Murray Partners (BVI) Inc. is a British Virgin Islands
company. A group of individuals who have a significant indirect ownership
interest in Starnet Communications International Inc. also have a
significant indirect ownership interest in Murray Partners (BVI) Inc.
2
44
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
STARNET COMMUNICATIONS
CANADA INC.
(FORMERLY 496926 B.C. LTD.)
Unaudited-See Review Engagement Report
JANUARY 31, 1997
ERNST & YOUNG
45
<PAGE>
REVIEW ENGAGEMENT REPORT
To the Board of Directors and Shareholders of
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
We have reviewed the accompanying consolidated balance sheet of STARNET
COMMUNICATIONS CANADA INC. as of January 31, 1997 and the related
consolidated statements of income (loss), retained earnings (deficit) and
cash flows for the nine months then ended and for the period May 19, 1995
to January 31, 1996, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these
consolidated financial statements is the representation of the management
of Starnet Communications Canada Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less
in scope than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements in
order for them to be in conformity with accounting principles generally
accepted in the United States.
Vancouver, Canada, /s/ ERNST & YOUNG
March 31, 1997. Chartered Accountants
46
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
CONSOLIDATED BALANCE SHEET
(IN UNITED STATES DOLLARS)
Unaudited - See Review Engagement Report
JANUARY 31, APRIL 30,
1997 1996
$ $
- -------------------------------------------------------------------------
[reviewed] [audited]
ASSETS
CURRENT
Cash 154,285 -
Accounts receivable 140,209 64,706
Prepaid expenses 13,990 5,144
- -------------------------------------------------------------------------
TOTAL CURRENT ASSETS 308,484 69,850
- -------------------------------------------------------------------------
Capital assets (net) [NOTE 3] 532,352 351,423
Deferred website costs [NOTE 4] 154,179 35,338
Due from related company 912 902
- -------------------------------------------------------------------------
995,927 457,513
- -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT
Bank indebtedness - 1,161
Accounts payable and accrued liabilities 205,787 115,949
Income tax payable 16,815 -
Loans payable [NOTE 6] 207,869 -
Deferred revenue 213,766 89,211
Current portion of capital lease
obligations [NOTE 8] 32,376 18,407
Due to related parties [NOTE 7] 130,762 188,794
- -------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 807,375 413,522
- -------------------------------------------------------------------------
Non-current portion of capital lease
obligations [NOTE 8] 113,405 62,786
Deferred income tax [NOTE 5] 38,578 -
- -------------------------------------------------------------------------
TOTAL LIABILITIES 959,358 476,308
- -------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT)
Capital stock [NOTE 9] 7,498 7,416
Retained earnings (deficit) 25,396 (26,197)
Cumulative translation adjustment 3,675 (14)
- -------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 36,569 (18,795)
- -------------------------------------------------------------------------
995,927 457,513
- -------------------------------------------------------------------------
Commitments [NOTE 10]
SEE ACCOMPANYING NOTES
On behalf of the Board:
Director Director
47
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
CONSOLIDATED STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
(IN UNITED STATES DOLLARS)
Unaudited - See Review Engagement Report
PERIOD FROM PERIOD FROM
MAY 1, 1996 MAY 15, 1995
TO JANUARY 31, TO JANUARY 31,
1997 1996
$ $
- -------------------------------------------------------------------------
[reviewed] [reviewed]
REVENUE
Sales 1,331,644 154,144
Cost of sales [SCHEDULE 1] 564,006 49,631
- -------------------------------------------------------------------------
GROSS MARGIN 767,638 104,513
- -------------------------------------------------------------------------
EXPENSES
Wages and benefits 250,245 25,807
Depreciation 132,517 39,573
Bank charges and interest 59,147 4,884
Advertising and promotion 54,878 1,199
Legal and accounting 48,403 21,057
Premises costs 40,652 18,090
Office and miscellaneous 20,601 3,692
Telephone 17,844 9,194
Automotive 17,552 384
Other 18,980 17,036
- -------------------------------------------------------------------------
660,819 140,916
- -------------------------------------------------------------------------
Net income (loss) from operations
for the period 106,819 (36,403)
- -------------------------------------------------------------------------
Income tax expense:
- current [NOTE 5] 16,648 -
- deferred [NOTE 5] 38,578 -
- -------------------------------------------------------------------------
INCOME TAXES 55,226 -
- -------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE PERIOD 51,593 (36,403)
Retained earnings (deficit),
beginning of period (26,197) -
- -------------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT), END OF PERIOD 25,396 (36,403)
- -------------------------------------------------------------------------
PER COMMON SHARE
Net earnings (loss) for the period 5.11 (8.13)
Dividends - -
Weighted average number of common shares
outstanding 10,101 4,478
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
48
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN UNITED STATES DOLLARS)
Unaudited - See Review Engagement Report
PERIOD FROM PERIOD FROM
MAY 1, 1996 MAY 19, 1995
TO JANUARY 31, TO JANUARY 31,
1997 1996
$ $
- -------------------------------------------------------------------------
[reviewed] [reviewed]
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 51,593 (36,403)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 132,517 39,573
Amortization of deferred website costs 98,081 3,263
Deferred income taxes 38,578 -
Foreign exchange (567) (55)
Changes in current assets and liabilities:
Increase in accounts receivable (75,503) (46,840)
Increase in prepaid expenses (8,846) (5,406)
Increase in accounts payable and
accrued liabilities 89,838 90,084
Increase in income taxes payable 16,815 -
Increase in deferred revenue 124,555 35,988
- -------------------------------------------------------------------------
Total adjustment 415,468 116,607
- -------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 467,061 80,204
- -------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (229,124) (255,865)
Deferred website costs (216,529) (8,614)
Advance to related company - (894)
- -------------------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (445,653) (265,573)
- -------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bank indebtedness (1,161) -
Proceeds from loan 207,869 36,406
Proceeds from issuance of common shares - 73
Advance from (repayments to) related parties (58,032) 159,500
Principal repayments under capital lease
obligations (15,799) -
- -------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 132,877 195,979
- -------------------------------------------------------------------------
NET INCREASE IN CASH DURING THE PERIOD 154,285 10,810
Cash, beginning of period - -
- -------------------------------------------------------------------------
CASH, END OF PERIOD 154,285 10,810
- -------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 9,305 -
Income tax paid - -
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
49
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997 Unaudited - See Review Engagement Report
1. NATURE OF BUSINESS
Starnet Communications Canada Inc. (the "Company") was incorporated on May
19, 1995 under the laws of the Province of British Columbia, Canada. The
Company was established for the purpose of providing video magazines on the
Internet.
2. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiary, Starnet USA Inc.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated or amortized using the straight-line
method over the estimated useful life of the assets at the following rates:
Furniture and fixtures 3 years
Computer hardware and equipment 3 years
Computer software 3 years
Automobile 4 years
Leasehold improvements are amortized over the term of the related lease
using the straight-line method.
One-half of the normal depreciation rate is applied in the year of
acquisition or capitalization of the capital assets.
REVENUE RECOGNITION
Revenue from dial-up access is recognized at the time services are
rendered. Billings in advance of services are included in deferred revenue
and recognized at the time services are rendered.
On-line service revenues are recognized over the period services are
provided.
1
50
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997 Unaudited - See Review Engagement Report
2. ACCOUNTING POLICIES (cont'd.)
REPORTING CURRENCY
The Company's functional currency is the Canadian dollar as substantially
all of the Company's operations are in Canada. The Company uses the United
States dollar as its reporting currency for consistency with other United
States Securities and Exchange Commission domestic registrants.
WEBSITE COSTS
Costs which relate to the development of the Company's Internet sites are
capitalized when these costs are expected to be recovered through future
revenues. Deferred website costs are amortized one half in the year
incurred, one third in the following year, and one sixth in the second
following year. The website costs balance shown in the balance sheet is
presented net of accumulated amortization.
The recoverability of the website costs is dependent upon the realization
of sufficient future revenues from these products.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities which are to be settled in a foreign
currency are translated at the prevailing year-end rates of exchange.
Transactions in foreign currencies are translated at the approximate rate
of exchange in effect when the transactions occur. Translation adjustments
are reflected as a separate component of shareholders' equity.
LEASES
Leases which transfer substantially all of the benefits and risks of
ownership are recorded as the acquisition of assets and incurrence of
obligations. Under this method of accounting, both assets and obligations,
including interest thereon, are amortized over the life of the lease.
ADVERTISING
The Company expenses the costs of advertising as incurred.
NET EARNINGS AND DIVIDENDS PER COMMON SHARE
The calculations of net earnings and dividends per common share are based
upon the weighted average number of common shares of the Company
outstanding each year.
2
51
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997 Unaudited - See Review Engagement Report
2. ACCOUNTING POLICIES (cont'd.)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and related notes to the financial
statements. Actual results may differ from those estimates.
3. CAPITAL ASSETS
Property and equipment are recorded at cost and comprise:
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- -------------------------------------------------------------------------
JANUARY 31, 1997
Furniture and fixtures 27,936 7,579 20,357
Automobiles under capital leases 79,640 1,643 77,997
Computer hardware and equipment 473,854 147,435 326,419
Computer hardware under capital leases 84,971 35,043 49,928
Computer software 16,136 2,523 13,613
Leasehold improvements 51,346 7,308 44,038
- -------------------------------------------------------------------------
733,883 201,531 532,352
- -------------------------------------------------------------------------
APRIL 30, 1996
Furniture and fixtures 14,124 2,355 11,769
Computer hardware and equipment 304,220 50,722 253,498
Computer hardware under capital leases 84,035 14,011 70,024
Computer software 1,802 300 1,502
Leasehold improvements 16,256 1,626 14,630
- -------------------------------------------------------------------------
420,437 69,014 351,423
- -------------------------------------------------------------------------
Depreciation of assets under capital leases is included in depreciation
expense in the consolidated statement of income (loss) and retained
earnings (deficit).
3
52
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997 Unaudited - See Review Engagement Report
4. WEBSITE COSTS
Website costs are recorded at cost less accumulated amortization and
comprise:
MAY 1, 1996 MAY 19, 1995
TO JANUARY 31, TO APRIL 30,
1997 1996
$ $
- -------------------------------------------------------------------------
Net balance, beginning of period 35,731 -
Costs capitalized during the period 216,529 70,676
Current period amortization (98,081) (35,338)
- -------------------------------------------------------------------------
Net balance, end of period 154,179 35,338
- -------------------------------------------------------------------------
5. INCOME TAXES
(a) The reconciliation of the combined Canadian federal and provincial
statutory income tax rates to the effective tax rate on earnings
before taxes is as follows:
MAY 1, 1996 TO
JANUARY 31, 1997
$
- -------------------------------------------------------------------------
Combined basic federal and provincial statutory rate 45.6%
Expenses not deductible for income tax purposes 12.3
Deferred website costs (49.6)
Difference between depreciation calculated for
accounting purposes and for tax purposes 7.3
Increase in deferred tax 36.1
- -------------------------------------------------------------------------
Effective tax rate 51.7%
- -------------------------------------------------------------------------
The above reconciliation is not presented for the comparative period as
there was a net loss for that period.
4
53
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997 Unaudited - See Review Engagement Report
5. INCOME TAXES (cont'd.)
(b) Deferred income taxes arise from timing differences in the recognition
of income and expenses for financial reporting and tax purposes. The
sources of timing differences in operations and the related deferred
income tax amounts are as follows:
JANUARY 31, APRIL 30,
1997 1996
$ $
- -------------------------------------------------------------------------
Depreciation of capital assets (21,290) (13,490)
Deferred website costs 60,337 7,993
Other (469) (522)
- -------------------------------------------------------------------------
Deferred tax (asset) liability 38,578 (6,019)
Valuation allowance - 6,019
- -------------------------------------------------------------------------
Net deferred tax liability 38,578 -
- -------------------------------------------------------------------------
The deferred income tax asset at April 30, 1996 was not recorded due to the
uncertainty of its realization.
6. LOANS PAYABLE
The loans are interest bearing at 6% per annum and are secured by all
assets of the Company and guaranteed by key directors and employees. The
principal and interest under the notes are payable on April 6, 1997 or
earlier on demand. As the loans will be repaid within the next quarter,
the fair value of the debt approximates its carrying value.
At January 31, 1997, the loans were convertible to equity under terms
acceptable to the lender and to be determined pursuant to a Financing
Agreement between the Company and the lender. Subsequent to year end, the
Company and the lender have agreed that the Company will repay the loans
and the lender will use its proceeds to acquire equity in another company
which is to become the parent of the Company.
5
54
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997 Unaudited - See Review Engagement Report
7. DUE TO RELATED PARTIES
The amounts due to related parties are due to officers and directors of the
Company who have an indirect ownership interest in the Company. These
amounts are non-interest bearing and are unsecured. The amount due to one
individual of $37,210 is repayable in monthly installments of $3,712
through November 1997. All other amounts are without specified terms of
repayment.
These amounts arose during the initial year of the Company's operations
when six individuals advanced funds and sold capital assets to the Company
on credit terms to finance the development of the Company's products and
operations.
8. CAPITAL LEASE OBLIGATIONS
At January 31, 1997, the Company has entered into capital leases for
equipment and automobiles. The future payments for the 12 months ended
January 31 are:
$
- -------------------------------------------------------------------------
1998 47,231
1999 47,231
2000 40,409
2001 43,342
- -------------------------------------------------------------------------
Total minimum lease payments 178,213
Less amounts representing interest at rates varying
from 6.1% to 17.5% 32,432
- -------------------------------------------------------------------------
Present value of minimum lease payments 145,781
Current portion of capital lease obligations 32,376
- -------------------------------------------------------------------------
113,405
- -------------------------------------------------------------------------
Subsequent to January 31, 1997 the Company has entered into capital leases
for a vehicle and computer equipment. These leases require aggregate
monthly payments including interest of $5,124 through November 1999 and
$659 from December 1999 through September 2001.
The Company has the option to acquire two leased automobiles at the end of
the lease terms by paying amounts estimated at commencement of the leases
to be the residual values of the vehicles at the end of the leases. As a
condition of these leases the Company has guaranteed that the residual
value of each of the two leased vehicles will be $13,500 at the end of the
lease terms in November 2000.
6
55
<PAGE>
STARNET COMMUNICATIONS CANADA INC.
(FORMERLY 496926 B.C. LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997 Unaudited - See Review Engagement Report
9. SHARE CAPITAL
Share capital comprises:
JANUARY 31, APRIL 30,
1997 1996
$ $
- -------------------------------------------------------------------------
AUTHORIZED
200,000 Class A voting common shares, without
par value
200,000 Class B non-voting common shares,
without par value
200,000 Class C redeemable, retractable,
non-voting preferred shares with a
par value of $100 each
400,000 Class D redeemable, retractable,
non-voting preferred shares with a
par value of $.01 each
ISSUED AND OUTSTANDING
10,101 Class A common shares 7,498 7,416
- -------------------------------------------------------------------------
7,498 7,416
- -------------------------------------------------------------------------
10. COMMITMENTS
At January 31, 1997, the Company has entered into commitments for leases
for premises. The future payments for the 12 months ended January 31 are:
$
- -------------------------------------------------------------------------
1998 105,568
1999 116,704
2000 111,507
2001 13,586
- -------------------------------------------------------------------------
347,365
- -------------------------------------------------------------------------
11. SUBSEQUENT EVENTS
On March 25, 1997 ownership of the Company was transferred from Murray
Partners (BVI) Inc., a British Virgin Islands company, to Starnet
Communications International Inc., a U.S. company incorporated in the state
of Delaware. This ownership transfer was effected through the issuance of
10,000,000 common shares of Starnet Communications International Inc. to
Murray Partners (BVI) Inc. in exchange for all of the issued common shares
of Starnet Communications Canada Inc.
7
56
<PAGE>
STARNET COMMUNICATIONS CANADA INC. SCHEDULE 1
(FORMERLY 496926 B.C. LTD.)
SCHEDULE OF COST OF SALES
(IN UNITED STATES DOLLARS)
Unaudited - See Review Engagement Report
PERIOD FROM PERIOD FROM
MAY 1, 1996 MAY 19, 1995
TO JANUARY 31, TO JANUARY 31,
1997 1996
$ $
- -------------------------------------------------------------------------
Line charges 155,756 25,794
Wages and benefits 150,388 9,059
Amortization of deferred website costs 98,081 3,263
Video content 44,359 2,097
Other 37,555 6,594
Live performers 34,633 202
Audio content 9,111 1,728
Photo content 34,123 894
- -------------------------------------------------------------------------
Cost of sales 564,006 49,631
- -------------------------------------------------------------------------
57
<PAGE>
PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
STARNET COMMUNICATIONS
INTERNATIONAL INC.
Unaudited
JANUARY 31, 1997
58
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to a Share Purchase Agreement dated March 25, 1997, Starnet
Communications International Inc. ("SCII") acquired 100% of the issued and
outstanding capital stock of Starnet Communications Canada Inc. ("SCCI")
from Murray Partners (BVI) Inc. by issuing 10,000,000 common shares to
Murray Partners (BVI) Inc.
The following unaudited pro forma consolidated financial statements have
been derived from the balance sheet of SCII and the consolidated balance
sheet of SCCI as at January 31, 1997, the statement of loss and deficit of
SCII for the period June 28, 1996 (its date of incorporation) to January
31, 1997, the consolidated statement of income (loss) and retained earnings
(deficit) of SCCI for the 9 months ended January 31, 1997, and the
consolidated statement of loss and deficit of SCCI for the year ended April
30, 1996 and adjust such information to give effect to the Share Purchase
Agreement as if it had occurred on May 19, 1995 (the date of incorporation
of SCCI).
The unaudited pro forma consolidated financial statements and accompanying
notes should be read in conjunction with the historical financial
statements, including the notes thereto, of both SCII and SCCI. All
amounts in the unaudited pro forma consolidated financial statements are
stated in U.S. dollars. The unaudited pro forma consolidated financial
statements are presented for informational purposes only and do not purport
to represent what the results of operations would actually have been if the
Share Purchase Agreement had taken effect at the beginning of the period
indicated, or to project the financial position or results of operations
for any future period.
59
<PAGE>
STARNET COMMUNICATIONS INTERNATIONAL INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(IN UNITED STATES DOLLARS)
As at January 31, 1997 Unaudited
Starnet Starnet Pro Forma
Comm. Comm. Adjustments
Int'l Inc. Canada Inc. (note 2) Pro Forma
- --------------------------------------------------------------------------
ASSETS
CURRENT
Cash 154,285 154,285
Accounts receivable 140,209 140,209
Prepaid expenses 13,990 13,990
- --------------------------------------------------------------------------
TOTAL CURRENT ASSETS 308,484 308,484
- --------------------------------------------------------------------------
Capital assets (net) 532,352 532,352
Deferred website costs 154,179 154,179
Due from related company 912 912
- --------------------------------------------------------------------------
995,927 995,927
- --------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT
Accounts payable and accrued
liabilities 50,000 205,787 255,787
Income tax payable 16,815 16,815
Loans payable 207,869 207,869
Deferred revenue 213,766 213,766
Current portion of capital
lease obligations 32,376 32,376
Due to related parties 130,762 130,762
- --------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 50,000 807,375 857,375
- --------------------------------------------------------------------------
Non-current portion of capital
lease obligations 113,405 113,405
Deferred income tax 38,578 38,578
- --------------------------------------------------------------------------
TOTAL LIABILITIES 50,000 959,358 1,009,358
- --------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT)
Capital stock 10,000 7,498 17,498
Retained earnings (deficit) (60,000) 25,396 (34,604)
Cumulative translation
adjustment 3,675 3,675
- --------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY
(DEFICIT) (50,000) 36,569 (13,431)
- --------------------------------------------------------------------------
995,927 995,927
- --------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
60
<PAGE>
STARNET COMMUNICATIONS INTERNATIONAL INC.
PRO FORMA CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(IN UNITED STATES DOLLARS)
Unaudited
<TABLE>
<CAPTION>
Period to January 31, 1997 May 19, 1995 to April 30, 1996
------------------------------------------------- -----------------------------------------------------
Starnet Starnet
Comm. Comm. Starnet
Int'l Inc. Canada Inc. Pro Forma Comm. Starnet Pro Forma
(from (from Adjustments Int'l. Inc. Comm. Adjustments
June 28, May 1, (note 2) Pro Forma (note 1) Canada Inc. (note 2) Pro Forma
1996) 1996)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Sales 1,331,644 1,331,644 378,544 378,544
Cost of sales 564,006 564,006 172,755 172,755
- -------------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 767,638 767,638 205,789 205,789
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Wages and benefits 250,245 250,245 36,795 36,795
Depreciation 132,517 132,517 69,014 69,014
Bank charges and
interest 59,147 59,147 9,217 9,217
Legal and accounting 7,060 48,403 55,463 30,215 30,215
Advertising and
promotion 54,878 54,878 8,390 8,390
Consulting 52,940 0 52,940 - -
Premises costs 40,652 40,652 28,594 28,594
Office and
miscellaneous 20,601 20,601 8,397 8,397
Telephone 17,844 17,844 14,975 14,975
Automotive 17,552 17,552 3,892 3,892
Other 18,980 18,980 22,497 22,497
- -------------------------------------------------------------------------------------------------------------------------------
60,000 660,819 720,819 231,986 231,986
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss)
from operations for
the period (60,000) 106,819 46,819 (26,197) (26,197)
- -------------------------------------------------------------------------------------------------------------------------------
Income tax expense:
- current 16,648 16,648 0
- deferred 38,578 38,578 0
- -------------------------------------------------------------------------------------------------------------------------------
Income taxes 55,226 55,226
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss)
for the period (60,000) 51,593 (8,407) (26,197) (26,197)
Retained earnings
(deficit),
beginning of period 0 (26,197) (26,197) 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Retained earnings
(deficit), end
of period (60,000) 25,396 (34,604) (26,197) (26,197)
- --------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net earnings (loss)
for the period (0.01) 5.11 0.00 (3.40) 0.00
Dividends - - - - -
Weighted average
number of common
shares
outstanding 10,000,000 10,101 10,000,000 20,000,000 7,698 20,000,000 20,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
61
<PAGE>
STARNET COMMUNICATIONS INTERNATIONAL INC.
NOTES TO PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
January 31, 1997 Unaudited
(1) Not applicable for Starnet Communications International Inc. as that
company was incorporated on June 28, 1996.
(2) Reflects the net effect of Starnet Communications International Inc.'s
issuance of 10,000,000 shares to Murray Partners (BVI) Inc. as if it
had occurred on May 19, 1995 in exchange for 100% of the outstanding
shares of Starnet Communications Canada Inc.
Since the owners of Starnet Communications International Inc. are
substantially the same group as the indirect beneficial owners of
Murray Partners (BVI) Inc., the transaction has been accounted for as
a continuity of interest. As such, the net effect of recording the
transaction and eliminating the intercompany investment on
consolidation is to add together the pre-transaction balance sheets of
Starnet Communications International Inc. and Starnet Communications
Canada Inc. Since these two companies have no other intercompany
transactions or balances, no additional adjustments are required to
derive the unaudited pro forma consolidated balance sheet and the
unaudited pro forma consolidated statements of loss and deficit.
1
62
EXHIBIT 2.1
ACTION OF SOLE STOCKHOLDER
OF
STARNET COMMUNICATIONS INTERNATIONAL (DE) INC.
BY WRITTEN CONSENT
-----------------
The undersigned, being the sole stockholder of Starnet Communications
International (DE) Inc., a Delaware corporation (the "Corporation"), acting
by written consent in lieu of a meeting pursuant to the provisions of
Section 228 of the General Corporation Law of Delaware, hereby waives all
notice of time, place and purpose of meeting and adopt and consent to the
adoption of the following action with the same effect as if taken at a duly
called meeting of the directors:
WHEREAS, the undersigned, Starnet Communications International
Inc. (the "Parent"), is the legal and beneficial owner of one hundred
percent (100%) of the issued and outstanding shares of Class A voting
common stock, $.001 par value per share of the Corporation, which the
only issued and outstanding class of stock of the Corporation; and
WHEREAS, the Parent desires to redomesticate to Delaware by means
of a merger with and into the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that Corporation merge with the
Parent on the terms and conditions of the merger are as set forth in
the attached form of Plan and Agreement of Merger and the officers of
the Corporation are authorized to execute and deliver a Plan and
Agreement of Merger substantially in the form thereof; and
BE IT FURTHER RESOLVED, that effective upon the filing of an
appropriate Certificate of Merger with the Secretary of State of
Delaware and appropriate documentation with the Secretary of State of
Nevada the Corporation will be merged with the Parent, and, as the
surviving corporation, the Corporation will assume all of the
obligations of and succeed to the rights of the Parent; and
BE IT FURTHER RESOLVED, that upon consummation of the merger, the
name of the Corporation shall be changed to Starnet Communications
International Inc.
-1-
63
<PAGE>
BE IT FURTHER RESOLVED, that the President or any Vice President
of this Corporation be and each hereby is authorized to make and
execute, and the Secretary or Assistant Secretary be and each hereby
is authorized to attest, a Certificate of Merger providing for the
merger of the Parent with and into the Corporation and to cause the
same to be filed with the Delaware Secretary of State and such
officers are authorized to make, execute, attest and file any and all
documents required by the State of Nevada and to do all acts and
things, whatsoever whether within or without the States of Delaware
and Nevada, which may be in any way necessary or appropriate to effect
said merger.
The effective date of this action is March 10, 1997.
Attest: STARNET COMMUNICATIONS INTERNATIONAL INC.
/s/ By: /s/
- ------------------------- --------------------------------
Secretary President
[Corporate Seal]
-2-
64
EXHIBIT 2.2
ACTION OF DIRECTORS
OF
STARNET COMMUNICATIONS INTERNATIONAL INC.
BY
WRITTEN CONSENT
The undersigned, being all of directors of Starnet Communications
International Inc., a Nevada corporation (the "Corporation"), acting by
written consent in lieu of a meeting pursuant to the provisions of
Section 78.315 of the Nevada Revised statutes, hereby waive all notice of
time, place and purpose of meeting and adopt and consent to the adoption
of the following action with the same effect as if taken at a duly called
meeting of the directors:
WHEREAS, the Corporation is the legal and beneficial owner of
one hundred percent (100%) of the issued and outstanding shares of
Class A voting common stock $.001 par value per share of Starnet
Communications International (DE) Inc., a Delaware corporation (the
"Subsidiary"), which is the only issued and outstanding class of
stock of the Subsidiary; and
WHEREAS, the Corporation desires to redomesticate to Delaware
by means of a merger with and into the Subsidiary; and
WHEREAS, the Board considers it to be advisable and in the best
interests of the Corporation and its stockholders that the merger be
consummated;
NOW, THEREFORE, BE IT RESOLVED, that the Corporation merge with
the Subsidiary on the terms and conditions as set forth in the
attached form of Plan and Agreement of Merger and the officers of
the Corporation are authorized to execute and deliver a Plan and
Agreement of Merger substantially in the form thereof; and
BE IT FURTHER RESOLVED, that effective upon the filing of an
appropriate Certificate of Merger with the Secretary of State of
Delaware and appropriate Articles of Merger with the Secretary of
State of Nevada (but subject to the approval of the stockholders of
the Corporation and the Board and the sole stockholder of the
Subsidiary) the Corporation will be merged with the Subsidiary, and,
as the surviving corporation, the Subsidiary will assume all of the
obligations of and succeed to the rights of the Corporation; and
BE IT FURTHER RESOLVED, that the proposed merger be submitted
to the stockholders of this Corporation and that upon receiving the
written consent of at least a majority of voting power of such
stockholders the proposed merger shall be approved; and
65
<PAGE>
BE IT FURTHER RESOLVED, that the President and Secretary of
this Corporation be and each hereby is authorized to make and
execute Articles of Merger providing for the merger of the
Corporation with and into the Subsidiary and to cause the same to be
filed with the Nevada Secretary of State, and such officers are
authorized to make, execute, attest and file any and all documents
required by the State of Delaware and to do all acts and things,
whatsoever whether within or without the States of Delaware and
Nevada, which may be in any way necessary or appropriate to effect
said merger.
The effective date of this action is March 10, 1997.
/s/
----------------------------------------
/s/
----------------------------------------
/s/
----------------------------------------
/s/
----------------------------------------
/s/
----------------------------------------
2
66
EXHIBIT 2.3
ACTION OF DIRECTORS
OF
STARNET COMMUNICATIONS INTERNATIONAL (DE) INC.
BY
WRITTEN CONSENT
---------------
The undersigned, being all of directors of Starnet Communications
International (DE) Inc., a Delaware corporation (the "Corporation"),
acting by written consent in lieu of a meeting pursuant to the provisions
of Section 141(f) of the General Corporation Law of Delaware, hereby
waive all notice of time, place and purpose of meeting and adopt and
consent to the adoption of the following action with the same effect as
if taken at a duly called meeting of the directors.
WHEREAS, Starnet Communications International Inc., a Nevada
corporation (the "Parent"), is the legal and beneficial owner of one
hundred percent (100%) of the issued and outstanding shares of Class
A voting common stock, $.001 par value per share of the Corporation,
which is the only issued and outstanding class of stock of the
Corporation; and
WHEREAS, the Parent desires to redomesticate to Delaware by
means of a merger with and into the Corporation; and
WHEREAS, the Board considers it to be advisable and in the best
interests of the Corporation and its sole shareholder that the
merger be consummated;
NOW, THEREFORE, BE IT RESOLVED, that the Corporation merge with
the Parent on the terms and conditions as set forth in the attached
form of Plan and Agreement of Merger and the officers of the
Corporation are authorized to execute and deliver a Plan and
Agreement of Merger substantially in the form thereof; and
BE IT FURTHER RESOLVED, that effective upon the filing of an
appropriate Certificate of Merger with the Secretary of State of
Delaware and appropriate documentation with the Secretary of State
of Nevada (but subject to the approval of the Parent as sole
stockholder of the Corporation and the Board and sole stockholder of
the Parent) the Corporation will be merged with the Parent, and, as
the surviving corporation, the Corporation will assume all of the
obligations of and succeed to the rights of the Parent; and
67
<PAGE>
BE IT FURTHER RESOLVED, that the proposed merger be submitted
to the Parent, as sole stockholder of this Corporation and that upon
receiving the unanimous written consent of such stockholder the
proposed merger shall be approved; and
BE IT FURTHER RESOLVED, that upon consummation of the merger,
the name of the Corporation shall be changed to Starnet
Communications International Inc.
BE IT FURTHER RESOLVED, that the President or any Vice
President of this Corporation be and each hereby is authorized to
make and execute, and the Secretary or Assistant Secretary be and
each hereby is authorized to attest, a Certificate of Merger
providing for the merger of the Parent with and into the Corporation
and to cause the same to be filed with the Delaware Secretary of
State and such officers are authorized to make, execute, attest and
file any and all documents required by the State of Nevada and to do
all acts and things, whatsoever whether within or without the States
of Delaware and Nevada, which may be in any way necessary or
appropriate to effect said merger.
The effective date of this action is March 10, 1997.
/s/ JASON BOLDUC
-----------------------------------
Jason Bolduc, Director
/s/ CHRISTOPHER ZACHARIAS
-----------------------------------
Christopher Zacharias, Director
/s/ MARK DOHLEN
-----------------------------------
Mark Dohlen, Director
/s/ MITCHELL WHITE
-----------------------------------
Mitchell White, Director
/s/ JACK CARLEY
-----------------------------------
Jack Carley, Director
-2-
68
EXHIBIT 2.4
ORGANIZATIONAL ACTS OF
DIRECTORS OF
STARNET COMMUNICATIONS INTERNATIONAL (DE) INC.
BY WRITTEN CONSENT
------------------
The following resolutions constitute the acts of the directors of
Starnet Communications International (DE) Inc., a Delaware corporation
(the "Corporation"), regarding organization of the Corporation, adopted
by written consent in lieu of a meeting pursuant to 8 Del. C. Section 141
(f):
RESOLVED, that the adoption of the by-laws by the Incorporator
hereby is ratified and that the by-laws hereby are approved;
RESOLVED, that a certified copy of the Certificate of Incorporation
of the Corporation be filed with the minutes of the meetings of the Board
of Directors;
RESOLVED, that a form of stock certificate for the $0.001 par value
Class A voting common stock of the Corporation, is hereby approved;
RESOLVED, that pursuant to the by-laws hereinabove adopted, the
person identified below elected to the offices set forth opposite the
name to serve until the respective successors are chosen and qualify:
Jason Bolduc - President
Christopher Zacharias - Secretary
Christopher Zacharias - Treasurer
RESOLVED, that the fiscal year of the Corporation shall end on
December 31 of each year;
WHEREAS, Starnet Communications International Inc., a Nevada
Corporation, has offered to purchase 1 share of the authorized fully-paid
non-assessable $0.001 par value Class A voting common capital stock of
the Corporation for $100.00, and it appears to the undersigned director
that the sale of said common stock is necessary and desirable, and that
the price offered therefor is a fair value at least equal to the par
value of the stock to be issued therefor;
RESOLVED, that the above-described offer to purchase the number of
shares of the $0.001 par value Class A voting common capital stock of the
Corporation is accepted and the appropriate officers of the Corporation
are authorized and directed to execute, issue and deliver, in the name
and on behalf of the Corporation and under its seal, certificates of
stock for the number of shares of $0.001 par value Class A voting common
capital
69
<PAGE>
stock subscribed for by Starnet Communications International Inc. upon
receipt by the Corporation of the fully stated consideration therefor;
RESOLVED, that the entire consideration is hereby designated and
specified as capital;
RESOLVED, that the officers of the Corporation are hereby authorized
and directed to do all such acts and to execute all such documents and
certificates as may be necessary to accomplish the purpose and intent of
the foregoing resolutions;
RESOLVED, that the President and/or Treasurer of this Corporation
be, and he is hereby, authorized, instructed and directed to open and
keep a bank account or accounts with one or more reputable and well
established banks of the State of Delaware or any jurisdiction in which
the Company does business in the name and for the use of this
Corporation, to adopt a corporate resolution in the standard form
requested by any such bank, and to deposit in any such bank or banks to
the credit of this Corporation from time to time, any and all monies and
checks, and until otherwise ordered said bank or banks be and hereby are
authorized to make payments from the funds of the Corporation on deposit
with it or them upon and according to the check of this Corporation,
signed by its President, Secretary or Treasurer, and the said officers
are authorized to sign, endorse, accept, make, execute and deliver any
and all checks, notes, drafts and bills of exchange on behalf of this
Corporation;
RESOLVED, that the Treasurer is authorized and directed to pay all
fees and expenses incidental to the organization of the Corporation;
RESOLVED, that any officer of the Corporation is authorized and
directed to execute and deliver any and all agreements, contracts and
documents relating to the business of the Company, including, without
limitation, financial advisory, financial administration and other
agreements as such officers may deem appropriate, and to do all such acts
and to execute all such documents and certificates, as may be necessary
to accomplish the purpose and intent of the foregoing resolutions.
2
70
<PAGE>
The effective date of this Acts of Directors of the Corporation is
March 10, 1997.
/s/ JASON BOLDUC
-----------------------------------
Jason Bolduc, Director
/s/ CHRISTOPHER ZACHARIAS
-----------------------------------
Christopher Zacharias, Director
/s/ MARK DOHLEN
-----------------------------------
Mark Dohlen, Director
/s/ MITCHELL WHITE
-----------------------------------
Mitchell White, Director
/s/ JACK CARLEY
-----------------------------------
Jack Carley, Director
3
71
EXHIBIT 2.5
ARTICLES OF MERGER
OF
STARNET COMMUNICATIONS INTERNATIONAL INC.
WITH AND INTO
STARNET COMMUNICATIONS INTERNATIONAL (DE) INC.
To the Secretary of State
State of Nevada
Pursuant to the provisions of Chapter 92A of the Nevada Revised
Statutes ("NRS"), Starnet Communications International (DE) Inc., a
Delaware corporation (the "Subsidiary"), does hereby submit the following
Articles of Merger:
1. A Plan of Merger (the "Plan") for merging Starnet
Communications International Inc., a Nevada corporation (the "Parent"),
with and into the Subsidiary (the "Merger"), has been adopted by the
Board of Directors of the Parent and by the Board of Directors of the
Subsidiary.
2. The governing law of the Parent is Chapter 78 of the NRS and
the governing law of the Subsidiary is the Delaware General Corporation
Law.
3. The Plan was approved by the written consent of a majority of
the stockholders of the Parent, effective March 11, 1997, and the consent
of such majority is sufficient for approval by the stockholders of the
Parent. The Plan also was approved by the written consent of the sole
stockholder of the Subsidiary, effective March 10, 1997.
4. Upon the effective date of the Merger, the Certificate of
Incorporation of the Subsidiary on file with the Delaware Secretary of
State shall be amended to reflect a change of the Subsidiary's name to
"Starnet Communications International Inc." No other amendments to the
Certificate of Incorporation of the Subsidiary are effected by the
Merger.
5. The Plan is on file at the principal place of business of the
Subsidiary located at 425 Carrall Street, Mezzanine Level, Vancouver,
B.C., Canada V6B 6E3, and will be provided upon request and without cost
to any stockholder of the Parent and the Subsidiary.
Executed on March 11, 1997
STARNET COMMUNICATIONS INTERNATIONAL (DE)
INC.
A Delaware corporation
By: /s/ JASON BOLDUC
--------------------------------
Its President Jason Bolduc
By: /s/ CHRIS ZACHARIAS
--------------------------------
Its Secretary Chris Zacharias
72
<PAGE>
PROVINCE OF B.C. )
)ss.
CANADA )
This instrument was acknowledged before me on March 11, 1997 by
Jason Bolduc as President of Starnet Communications International (DE)
Inc.
/s/ WILLIAM GEE
-----------------------------------
NOTARY PUBLIC
WILLIAM W.M. GEE
NOTARY PUBLIC PERMANENT
#202 10 E. PENDER STREET COMMISSION
VANCOUVER, B.C. V8A 1T1
PROVINCE OF B.C. )
)ss.
CANADA )
This instrument was acknowledged before me on March 11, 1997 by
Chris Zacharias as Secretary of Starnet Communications International (DE)
Inc.
/s/ WILLIAM GEE
-----------------------------------
NOTARY PUBLIC
WILLIAM W.M. GEE
NOTARY PUBLIC PERMANENT
#202 10 E. PENDER STREET COMMISSION
VANCOUVER, B.C. V8A 1T1
2
73
EXHIBIT 2.6
ACTION OF STOCKHOLDERS
OF
STARNET COMMUNICATIONS INTERNATIONAL INC.
BY
WRITTEN CONSENT
The undersigned, being a majority of the voting power of the
stockholders of Starnet Communications International Inc., a Nevada
corporation (the "Corporation"), acting by written consent in lieu of a
meeting pursuant to the provisions of Section 78.320 of the Nevada
Revised Statutes, hereby waive all notice of time, place and purpose of
meeting and adopt and consent to the adoption of the following action
with the same effect as if taken at a duly called meeting of the
stockholders:
WHEREAS, the undersigned are the legal and beneficial
owners of Ninety percent (90%) of the issued and outstanding
shares of Class A voting common stock, $.001 par value per
share of the Corporation, which is the only issued and
outstanding class of stock of the Corporation; and
WHEREAS, Starnet Communications International (DE) Inc., a
Delaware corporation and a wholly owned subsidiary of the
Corporation (the "Subsidiary"), desires to redomesticate to
Delaware by means of a merger with the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that the Corporation merge
with the Subsidiary on the terms and conditions of the merger
as set forth in the attached form of Plan and Agreement of
Merger, and the officers of the Corporation are authorized to
execute and deliver a Plan and Agreement of Merger
substantially in the form thereof, and
BE IT FURTHER RESOLVED, that effective upon the filing of
an appropriate Certificate of Merger with the Secretary of the
State of Delaware and appropriate Articles of Merger with the
Secretary of State of Nevada, the Corporation will be merged
with the Subsidiary, and, as the surviving corporation, the
Subsidiary will assume all of the obligations of and succeed to
the rights of the Corporation; and
BE IT FURTHER RESOLVED, that the President and Secretary
of this Corporation be and each hereby is authorized to make
and execute Articles of Merger providing for the merger of the
corporation with and into the Subsidiary and to cause the same
to be filed with the Nevada Secretary of State, and such
officers are authorized to make, execute, attest and file a
Certificate of Merger with the Delaware Secretary of State and
to do all acts and things, whatsoever whether within or without
the States of Delaware and Nevada, which may be in any way
necessary or appropriate to effect said merger.
POWER OF ATTORNEY PACIFIC RIM INVESTMENT INC.
AND SIGNATURE ON FILE /s/ CHARLES BURN, C.E.O.
/s/ Per-----------------------
- --------------------------- CHARLES BURN, C.E.O.
PACIFIC RIM INVESTMENT INC. [SEAL]
74
<PAGE>
The effective date of this action is March 10th, 1997.
QUEEN EQUITIES INC.
NOMINATED INTERNATIONAL INC.
CORN CORPORATION
LEA INTERNATIONAL EQUITIES INC.
SUNNY LTD.
FAIRFIELD COMMUNICATIONS INC.
HEADS INVESTMENT INC.
T.C.I. EQUITIES INC.
BRIS INTERNATIONAL INC.
GOLD EQUITIES INC.
By Powers of Attorney, granted to Charles Burn and/or Pacific Rim
Investment Inc. of Box 782, Port Vila, Vanuatu, South Pacific; the
undersigned hereby executes the attached documents on behalf of the above
corporations dated March 10, 1997.
PACIFIC RIM INVESTMENT INC.
Per /s/ CHARLES BURN
-----------------------------
CHARLES BURN, C.E.O.
Charles Burn, pursuant to a
registered Power of Attorney.
[SEAL]
POWER OF ATTORNEY
AND SIGNATURE ON FILE
/s/
---------------------------
PACIFIC RIM INVESTMENT INC.
75
<PAGE>
CERTIFICATION OF ACKNOWLEDGEMENT AND
------------------------------------
AGREEMENT
---------
This document certifies that I am a shareholder of Starnet
Communications International Inc., with registered offices at 7631
Bermuda Road, Las Vegas, Nevada, and that I have read the PLAN AND
AGREEMENT OF MERGER OF STARNET COMMUNICATIONS INTERNATIONAL INC. into
STARNET COMMUNICATIONS INTERNATIONAL (DE) INC.
By signing this document, I certify that I agree with and have
adopted the foregoing Plan and Agreement of Merger.
QUEEN EQUITIES INC.
NOMINATED INTERNATIONAL INC.
CORN CORPORATION
LEA INTERNATIONAL EQUITIES INC.
SUNNY LTD.
FAIRFIELD COMMUNICATIONS INC.
HEADS INVESTMENT INC.
T.C.I. EQUITIES INC.
BRIS INTERNATIONAL INC.
GOLD EQUITIES INC.
By Powers of Attorney, granted to Charles Burn and/or Pacific Rim
Investment Inc. of Box 782, Port Vila, Vanuatu, South Pacific; the
undersigned hereby executes the attached documents on behalf of the above
corporations dated March 10th, 1997.
PACIFIC RIM INVESTMENT INC.
Per /s/ CHARLES BURN
-----------------------------
CHARLES BURN, C.E.O.
Charles Burn, pursuant to a
registered Power of Attorney.
[SEAL]
POWER OF ATTORNEY
AND SIGNATURE ON FILE
/s/
---------------------------
PACIFIC RIM INVESTMENT INC.
76
EXHIBIT 2.7
PLAN AND AGREEMENT OF MERGER
OF
STARNET COMMUNICATIONS INTERNATIONAL INC.
INTO
STARNET COMMUNICATIONS INTERNATIONAL (DE) INC.
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement of Merger") is
made this 10th day of March, 1997, between Starnet Communications
International, Inc., a Nevada corporation with an address of 7631 Bermuda
Road, Las Vegas, Nevada 89123 (the "Merging Corporation"), and Starnet
Communications International (DE) Inc., a Delaware corporation with an
address of 425 Carrall Street, Mezzanine Level, Vancouver, B.C., Canada
V6B 6E3 (the "Surviving Corporation").
WHEREAS, the Merging Corporation has authorized capital stock
consisting of 200,000,000 shares of common stock, $.001 par value per
share, of which 10,000,000 shares have been duly issued and are not
outstanding;
WHEREAS, the Surviving Corporation has authorized capital stock
consisting of 200,000,000 shares of capital stock, $.001 par value per
share, of which 1 share of the Class A voting common stock has been duly
issued to the Merging Corporation and is now outstanding;
WHEREAS, the shareholders and boards of directors of the Merging
Corporation and the Surviving Corporation, respectively, deem it
advisable and generally to the advantage and welfare of the two corporate
parties that the Merging Corporation merge with and into the Surviving
Corporation under and pursuant to the provisions of Nevada law and of the
General Corporation Law of the State of Delaware.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and of the mutual benefits hereby provided,
it is agreed by and between the parties hereto as follows:
1. MERGER. Upon the filing of appropriate documents with the
Secretaries of State of Delaware and Nevada, the Merging Corporation
shall be hereby merged with and into the Surviving Corporation.
2. EFFECTIVE DATE. This Agreement of Merger shall become
effective immediately upon compliance with the laws of the States of
Nevada and Delaware, the time of such effectiveness being hereinafter
called the Effective Date.
POWER OF ATTORNEY
AND SIGNATURE ON FILE
/s/ [SEAL]
- -------------------------
PACIFIC RIM INVESTMENT INC. 77
<PAGE>
3. SURVIVING CORPORATION. The Surviving Corporation shall survive
the merger herein contemplated and shall continue to be governed by the
laws of the State of Delaware, but the separate corporate existence of
the Merging Corporation shall cease forthwith upon the Effective Date.
On the effective date, the name of the Surviving Corporation shall be
changed to "Starnet Communications International Inc."
4. AUTHORIZED CAPITAL. The authorized capital stock of the
Surviving Corporation following the Effective Date shall be 200,000,000
shares of stock with a par value of $.001, of which 100,000,000 shares
shall be Class A voting common stock, 50,000,000 shares shall be Class B
nonvoting common stock, and 50,000,000 shares shall be preferred stock,
unless and until the same shall be changed in accordance with the laws of
the State of Delaware.
5. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of Starnet Communications International (DE) Inc. shall be the
Certificate of Incorporation of the Surviving Corporation following the
Effective Date, except that such Certificate of Incorporation shall be
amended to reflect the name change referred to in Section 3 above, unless
and until the same shall be amended or repealed in accordance with the
provisions thereof, which power to amend or repeal is hereby expressly
reserved, and all rights or powers of whatsoever nature conferred in such
Certificate of Incorporation or herein upon any shareholder or director
or office of the Surviving Corporation or upon any other persons.
6. BY-LAWS. The By-laws of the Surviving Corporation as they
exist on the Effective Date shall be the By-laws of the Surviving
Corporation following the Effective Date (except that they shall be
further amended to reflect the name change to Starnet Communications
International Inc.) unless and until the same shall be further amended or
repealed in accordance with the provisions thereof.
7. OFFICERS. The Officers of the Surviving Corporation
immediately after the effective time of the merger shall be those persons
who were the Officers of the Surviving Corporation immediately prior to
the effective time of the merger, and such persons shall serve in such
offices, respectively, for the terms provided by law or in the By-laws,
or until their respective successors are elected and qualified.
8. FURTHER ASSURANCE OF TITLE. If at any time the Surviving
Corporation shall consider or be advised that any acknowledgments or
assurances in law or other similar actions are necessary or desirable in
order to acknowledge or confirm in and to the Surviving Corporation any
right, title, or interest of the Merging Corporation held immediately
prior to the Effective Date, the Merging Corporation and its proper
officers and directors
-2-
POWER OF ATTORNEY
AND SIGNATURE ON FILE
/s/ [SEAL]
- -------------------------
PACIFIC RIM INVESTMENT INC. 78
<PAGE>
shall and will execute and deliver all such acknowledgments or assurances
in law and do all things necessary or proper to acknowledge or confirm
such right, title, or interest in the Surviving Corporation as shall be
necessary to carry out the purposes of this Agreement of Merger, and the
Surviving Corporation and the proper officers and directors thereof are
fully authorized to take any and all such action in the name of the
Merging Corporation or otherwise.
9. RETIREMENT OF ORGANIZATIONAL STOCK. Forthwith upon the
Effective Date, the single share of the common stock of the Surviving
Corporation presently issued and outstanding in the name of the Merging
Corporation shall be retired, and no shares of common stock or other
securities of the Surviving Corporation shall be issued in respect
thereof.
10. CONVERSION OF OUTSTANDING STOCK. Forthwith upon the Effective
Date, each of the issued and outstanding shares of capital stock of the
Merging Corporation, and all rights in respect thereof, shall be
converted into one (1) fully paid and nonassessable share of the $.001
par value Class A voting common stock of the Surviving Corporation, such
that the certificate or certificates nominally representing the
10,000,000 issued shares of capital stock of the Merging Corporation
shall for all purposes be deemed to evidence the ownership of in the
aggregate 10,000,000 shares of common stock of the Surviving Corporation.
The shareholders of the Merging Corporation shall surrender their
certificates representing shares of capital stock of the Merging
Corporation in exchange for certificates of Class A voting common stock
in the Surviving Corporation. Any stock option plan to which the Merging
Corporation is subject shall become an obligation of the Surviving
Corporation and any options issued pursuant thereto shall be valid with
respect to the stock of the Surviving Corporation.
11. RIGHTS AND LIABILITIES OF SURVIVING CORPORATION. At and after
the effective time of the merger, the Surviving Corporation shall succeed
to an possess, without further act or deed, all of the estate, rights,
privileges, powers, and franchises, both public and private, and all of
the property, real, personal, and mixed, of each of the parties hereto;
all debts due to the Merging Corporation or whatever account shall be
vested in the Surviving Corporation; all claims, demands, property,
rights, privileges, powers and franchises and every other interest of
either of the parties hereto shall be as effectively the property of the
Surviving Corporation as they were of the respective parties hereto; the
title to any real estate vested by deed or otherwise in the Merging
Corporation shall not revert or be in any way impaired by reason of the
merger, but shall be vested in the Surviving Corporation; all rights of
creditors and all liens upon any property of either of the parties hereto
shall be preserved unimpaired, limited in lien to the property affected
by such lien at the effective time of the merger; all debts, liabilities
and
-3-
POWER OF ATTORNEY
AND SIGNATURE ON FILE
/s/ [SEAL]
- -------------------------
PACIFIC RIM INVESTMENT INC. 79
<PAGE>
duties of the respective parties hereto shall thenceforth attach to the
Surviving Corporation and may be enforced against it to the same extent
as if such debts, liabilities, and duties had been incurred or contracted
by it; and the Surviving Corporation shall indemnify and hold harmless
the officers and directors of each of the parties hereto against all such
debts, liabilities and duties and against all claims and demands arising
out of the merger.
12. BOOK ENTRIES. The merger contemplated hereby shall be treated
as a pooling of interests and as of the Effective Date entries shall be
made upon the books of the Surviving Corporation in accordance with the
following.
(a) The assets and liabilities of the Merging Corporation
shall be recorded at the amounts at which they are carried on the books
of the Merging Corporation immediately prior to the Effective Date with
appropriate adjustment to reflect the retirement of the 10,000,000 shares
of common stock of the Surviving Corporation presently issued and
outstanding.
(b) There shall be credited to the capital account of the
Surviving Corporation the aggregate amount of capital equal to that
carried on the capital account of the Merging Corporation immediately
prior to the Effective Date.
(c) There shall be credited to the capital surplus and earned
surplus accounts an amount equal to that carried on such accounts of the
Merging Corporation immediately prior to the Effective Date.
13. SERVICE OF PROCESS ON SURVIVING CORPORATION. The Surviving
Corporation agrees that it may be served with process in the State of
Nevada in any proceeding for enforcement of any obligation of the Merging
Corporation as well as for the enforcement of any obligation of the
Surviving Corporation arising from the merger, including any suit or
other proceeding to enforce the right of any dissenting shareholder.
14. TERMINATION. This Agreement of Merger may be terminated and
abandoned by action of the shareholders of the Merging Corporation at any
time prior to the Effective Date, whether before or after approval by the
shareholders of the two corporate parties hereto.
15. PLAN OF REORGANIZATION. This Plan and Agreement of Merger
constitutes a Plan of Reorganization to be carried out in the manner, on
the terms and subject to the conditions herein set forth.
-4-
POWER OF ATTORNEY
AND SIGNATURE ON FILE
/s/ [SEAL]
- -------------------------
PACIFIC RIM INVESTMENT INC. 80
<PAGE>
IN WITNESS WHEREOF, each of the corporate parties hereto, pursuant
to the authority duly granted by the shareholders, has caused this
Agreement of Merger to be executed by its President and attested by its
Secretary.
Attest: STARNET COMMUNICATIONS INTERNATIONAL INC.
- ----------------------- By:-------------------------------------
Secretary President
[CORPORATE SEAL]
Attest: STARNET COMMUNICATIONS
INTERNATIONAL (DE) INC.
- ----------------------- By:-------------------------------------
Secretary President
[CORPORATE SEAL]
_____________________________, the Secretary of Starnet Communications
International (DE) Inc., hereby certifies that the terms of the foregoing
Plan and Agreement of Merger have been fully adopted by the holders of a
majority of the outstanding stock of the corporation.
--------------------------------------
Secretary
_____________________________, the Secretary of Starnet Communications
International Inc. hereby certifies that the terms of the foregoing Plan
and Agreement of Merger have been fully adopted by the holders of a
majority of the outstanding stock of the corporation.
--------------------------------------
Secretary
-5-
POWER OF ATTORNEY
AND SIGNATURE ON FILE
/s/ [SEAL]
- -------------------------
PACIFIC RIM INVESTMENT INC. 81
EXHIBIT 2.8
CERTIFICATE OF MERGER
MERGING
STARNET COMMUNICATIONS INTERNATIONAL INC.
INTO
STARNET COMMUNICATIONS INTERNATIONAL (DE) INC.
----------------------------------------------
Starnet Communications International (DE), Inc., a Delaware
corporation (the "Surviving Corporation"), DOES HEREBY CERTIFY:
FIRST: An agreement of merger (the "Plan of Merger") has been
approved, adopted, certified, executed and acknowledged by each of the
Surviving Corporation and Starnet Communications International Inc., a
Nevada corporation, in accordance with Sections 141(f), 228 and 252(c) of
the Delaware General Corporation Law.
SECOND: Starnet Communications International (DE) Inc. shall be
the surviving corporation.
THIRD: The Certificate of Incorporation of Starnet Communications
International (DE) Inc. shall be the certificate of incorporation of the
Surviving Corporation, except that upon the consummation of the merger,
the name of the Surviving Corporation shall be changed to Starnet
Communications International Inc. and Article FIRST of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read:
FIRST: The name of the corporation is Starnet Communications
International Inc.
FORTH: The executed Plan of Merger is on file at the principal
place of business of the Surviving Corporation, which is:
Starnet Communications International Inc.
425 Carrall Street, Mezzanine Level
Vancouver, B.C., Canada
V6B 6E3
82
<PAGE>
A copy of the Plan of Merger will be provided by the Surviving
Corporation, on request and without cost, to any stockholder of either
constituent corporation.
FIFTH: The authorized capital stock of Starnet Communications
International Inc. prior to the effective date of the merger is
200,000,000 shares.
IN WITNESS WHEREOF, the Surviving Corporation has caused this
Certificate to be signed and acknowledged by its President this 10th day
of March, 1997.
STARNET COMMUNICATIONS INTERNATIONAL (DE) INC.
/s/ JASON BOLDUC
-----------------------------------------
[CORPORATE SEAL] Jason Bolduc, President
83
EXHIBIT 3.1
SECRETARY OF STATE
[SEAL]
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State,
do hereby certify that CREATIVE SPORTS MARKETING INC. did on the
TWENTY-EIGHTH day of JUNE, 1996 file in this office the original Articles of
Incorporation; that said Articles are now on file and of record in the
office of the Nevada Secretary of State, and further, that said Articles
contain all the provisions required by the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed the Great Seal of State, at
my office, in Carson City, Nevada, this
TWENTY-EIGHTH day of JUNE, 1996.
/s/
---------------------------------------
Secretary of State
By: /s/
-------------------------------------
Certification Clerk
84
<PAGE>
ARTICLES OF INCORPORATION
OF
CREATIVE SPORTS MARKETING INC
KNOW ALL MEN BY THESE PRESENTS:
That we the undersigned, have this day voluntarily associated
ourselves together for the purpose of forming a corporation under the laws
of the State of Nevada and do hereby certify:
ONE
The name of this corporation is CREATIVE SPORTS MARKETING INC.
TWO
The resident agent of said corporation shall be Pacific Corporate
Services Company, 7631 Bermuda Road, Las Vegas, NV., 89123 and such other
offices as may be determined by the By-Laws in and outside the State of
Nevada.
THREE
The objects to be transacted, business and pursuit and nature of the
business, promoted or carried on by this corporation are and shall continue
to be engaged in any lawful activity.
FOUR
The members of the governing board shall be styled Directors and the
first Board of Directors shall consist of one (1). The number of
stockholders of said corporation shall consist of one (1). The number of
directors and shareholders of this corporation may, from time to time, be
increased or decreased by an amendment to the By-Laws of this corporation
in that regard, and without the necessity of amending these Articles of
Incorporation. The name and address of the first Board of Directors and of
the Incorporator signing these Articles as follows:
Kendall White P.O. Box 308
Nerang, 4211
Queensland
Australia.
85
<PAGE>
FIVE
The Corporation is to have perpetual existence.
SIX
The total authorized capitalization of this Corporation shall be and
is the sum of 200,000,000 shares Common Stock at $0.001 par value, said
stock to carry full voting power and the said shares shall be issued fully
paid at such time as the Board of Directors may designate in exchange for
cash, property, or services, the stock of other corporations or other
values, rights, or things, and the judgement of the Board of Directors as
to the value thereof shall be conclusive.
SEVEN
The capital stock shall be and remain non-assessable. The private
property of the stockholders shall not be liable for the debts or
liabilities of the Corporation.
IN WITNESS WHEREOF, I have set my hand this 24th June, 1996.
/s/ KENDALL WHITE
---------------------
Kendall White
STATE OF QUEENSLAND )
)
AUSTRALIA )
On this 24th day of, June 1996, before me, a Notary Public in and for
said State of Queensland, Australia. Personally appeared Kendall White,
known to me to be the person whose name is subscribed to the foregoing
instrument, and she duly acknowledged to me that she executed the same for
the purpose therein mentioned.
IN WITNESS WHEREOF, I have set my hand and offered by official seal in
said State of Queensland, Australia, the day and year in this Certificate
first above written.
/s/ PETER JOHN O'NEAL
----------------------
Notary Public
86
EXHIBIT 3.2
BY-LAWS
87
<PAGE>
BYLAWS
OF
CREATIVE SPORTS MARKETING INC
A Nevada Corporation
ARTICLE 1
---------
OFFICES
SECTION 1. The registered office of this corporation shall be in
the County of Clark, State of Nevada.
SECTION 2. The corporation may also have offices at such other
places both within and without the State of Nevada as the Board of
Directors may from time to time determine or the business of the
corporation may require.
ARTICLE 2
---------
MEETINGS OF STOCKHOLDERS
SECTION 1. All annual meetings of the stockholders shall be held
at the registered office of the corporation or at such other place within
or without the State of Nevada as the Directors shall determine. Special
meetings of the stockholders may be held at such time and place within or
without the State of Nevada as shall be stated in the notice of the
meeting, or in a duly executed waiver of notice thereof.
SECTION 2. Annual meeting os the stockholders, commencing with
the year 1997 shall be held on the 15th July, each year if not a legal
holiday and, if a legal holiday, then on the next secular day following, or
at such other time as may be set by the Board of Directors from time to
time, at which the stockholders shall elect by vote a Board of Directors
and transact such other business as may properly be brought before the
meeting.
SECTION 3. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called by the President or the Secretary by
resolution of the Board of Directors or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose of the proposed meeting.
SECTION 4. Notice of meetings shall be in writing and signed by
the President or Vice-President or the Secretary or an Assistant Secretary
or by such other person or persons as the Directors shall designate. Such
notice shall state the purpose or purposes for which the meeting is called
and the time and the place, which may be within or without this State,
where it is to be held. A copy of such notice shall be either delivered
personally to or shall be mailed, postage prepaid, to each stockholder of
record entitled to vote at such meeting not less than ten nor more than
sixty days before such meeting. If mailed, it shall be directed to a
stockholder at his address as it appears upon the records of the
corporation and upon such mailing of any such notice, the service thereof
shall be complete and the time of the notice shall begin to run from the
date upon which such notice is deposited in the mail for transmission to
such stockholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership shall
constitute delivery of such notice to such corporation, association or
partnership. In the event of the transfer of stock after delivery of such
notice of and prior to the holding of the meeting it shall not be necessary
to deliver or mail notice of the meeting to the transferee.
SECTION 5. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
SECTION 6. The holders of a 10% of the stock issued and
outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for
the transaction of business except as otherwise provided by statute or by
the Articles of Incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote there at, present in person or represented by proxy, shall
have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been
transacted at the meeting
1
88
<PAGE>
as originally notified.
SECTION 7. When a quorum is present or represented at any meeting,
the vote of the holders of a 10% of the stock having voting power present
in person or represented by proxy shall be sufficient to elect directors or
to decide any question brought before such meeting, unless the question is
one upon which by express provision of the statutes or of the Articles of
Incorporation, a different vote shall govern and control the decision of
such question.
SECTION 8. Each stockholder of record of the corporation shall be
entitled at each meeting of stockholders to one vote for each share of
stock standing in his name of the books of the corporation. Upon the demand
of any stockholder, the vote for Directors and the vote upon any question
before the meeting shall be by ballot.
SECTION 9. At any meeting of the stockholders any stockholder may
be represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate
two or more persons to act as proxies, a majority of such persons present
at the meeting, or, if only one shall be present, then that one shall have
and may exercise all of the powers conferred by such written instrument
upon all of the persons so designated unless the instrument shall otherwise
provide. No proxy or power of attorney to vote shall be used to vote at a
meeting of the stockholders unless it shall have been filed with the
secretary of the meeting when required by the inspectors of election. All
questions regarding the qualifications of voters, the validity of proxies
and the acceptance of or rejection of votes shall be decided by the
inspectors of election who shall be appointed by the Board of Directors, or
if not so appointed, then by the presiding officer of the meeting.
SECTION 10. Any action which may be taken by the vote of the
stockholders at a meeting may be taken without a meeting if authorised by
the written consent of stockholders holding at least a majority of the
voting power, unless the provisions of the statutes or of the Articles of
Incorporation require a greater proportion of voting power to authorize
such action in which case such greater proportion of written consents shall
be required.
ARTICLE 3
---------
DIRECTORS
SECTION 1. The business of the corporation shall be managed by
it's Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or
by the Articles of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
SECTION 2. The number of Directors which shall constitute the
whole board shall be One. The number of Directors may from time to time be
increased or decreased to not less than one nor more than fifteen by action
of the Board of Directors. The Directors shall be elected at the annual
meeting of the stockholders and except as provided in section 2 of this
Article, each Director elected shall hold office until his successor is
elected and qualified. Directors need not be stockholders.
SECTION 3. Vacancies in the Board of Directors including those
caused by an increase in the number of directors, may be filled by a
majority of the remaining Directors, though less than a quorum, or by a
sole remaining Director, and each Director so elected shall hold office
until his successor is elected at an annual or a special meeting of the
stockholders. The holders of a two-thirds of the outstanding shares of
stock entitled to vote may at any time peremptorily terminate the term of
office of all or any of the Directors by vote at a meeting called for such
purpose or by a written statement filed with the secretary or, in his
absence, with any other officer. Such removal shall be effective
immediately, even if successors are not elected simultaneously and the
vacancies on the Board of Directors resulting therefrom shall only be
filled from the stockholders.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in case of the death, resignation or removal of any Directors, or if
the authorised number of Directors be increased, or if the stockholders
fail at any annual or special meeting of stockholders at which any Director
or Directors are elected to elect the full authorised number of Directors
to be voted for at that meeting.
The stockholders may elect a Director or Directors at any time to fill
any vacancy or vacancies not filled by the Directors. If the Board of
Directors accepts the resignation of a Director tendered to take effect at
a future time, the Board or the stockholders shall have power to elect a
successor to take office when the resignation is to become effective.
No reduction of the authorised number of Directors shall have the
effect of removing any Director prior to the expiration of his term of
office.
2
89
<PAGE>
ARTICLE 4
---------
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 1. Regular meetings of the Board of Directors shall be
held at any place within or without the State which has been designated
from time to time by resolution of the Board or by written consent of all
members of the Board. In the absence of such designation regular meeting
shall be held at the registered office of the corporation. Special
meetings of the Board may be held either at a place so designated or at the
registered office.
Section 2. The first meeting of each newly elected Board of
Directors shall be held immediately following the adjournment of the
meeting of stockholders and at the place thereof. No notice of such
meeting shall be necessary to the directors in order legally to constitute
the meeting, provided a quorum be present. In the event such meeting is not
so held, the meeting may be held at such time and place as shall be
specified in a notice given hereinafter provided for special meetings of
the Board of Directors.
SECTION 3. Regular meetings of the Board of Directors may be held
without call or notice at such time and at such place as shall from time to
time be fixed and determined by the Board of Directors.
SECTION 4. Special meetings of the Board of Directors may be
called by the Chairman or the President or by the Vice-President or by any
two directors.
Written notice of the time and place of special meetings shall be
delivered personally to each director, or sent to each director by mail or
by other form of written communication, charges prepaid, addressed to him
at his address as it is shown upon the records or if not readily
ascertainable, at the place in which the meetings of the directors are
regularly held. In case such notice is mailed or telegraphed, it shall be
deposited in the United States mail or delivered to the telegraph company
at least forty-eight (48) hours prior to the time of the holding of the
meeting. In case such notice is delivered as above provided, it shall be so
delivered at least twenty-four (94) hours prior to the time of the holding
of the meeting. Such mailing, telegraphing or delivery as above provided
shall be due, legal and personal notice to such director.
SECTION 5. Notice of the time and place of holding an adjourned
meeting need not be given to the absent directors if the time and place be
fixed at the meeting adjourned.
SECTION 6. The transaction of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid
as though had at a meeting duly held after regular call and notice, if a
quorum be present, and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, or a consent to
holding such meeting, or approvals of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 7. A majority of the authorised number of directors shall
be necessary to constitute a quorum for the transaction of business, except
to adjourn as hereinafter provided. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors,
unless a greater number be required by law or by the Articles of
Incorporation. Any action of a majority, although not at a regularly called
meeting, and the record thereof, if assented to in writing by all of the
other members of the Board shall be as valid and effective in all respects
as if passed by the Board in regular meeting.
SECTION 8. A quorum of the directors may adjourn any directors
meeting to meet again at stated day and hour; provided, however, that in
the absence of a quorum, a majority of the directors present at any
directors meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the Board.
ARTICLE 5
---------
COMMITTEES OF DIRECTORS
SECTION 1. The Board of Directors may, by resolution adopted by a
majority of the whole Board, designate one or more committees of the Board
of Directors, each committee to consist of two or more of the directors of
the corporation which, to the extent provided in the resolution, shall and
may exercise the power of the Board of Directors in the management of the
business and affairs of the corporation and may have power to authorise the
seal of the corporation to be affixed to all papers which may require it
Such committee or committees shall have such name or names as may be
determined from time to time by the Board of Directors. The members of any
such committee present at any meeting and not disqualified from voting may,
whether or not they constitute a quorum, unanimously appoint
3
90
<PAGE>
another member of the Board of Directors to act at the meeting in the place
of any absent or disqualified member. At meetings of such committees, a
majority of the members or alternate members at any meeting at which there
is a quorum shall be the act of the committee.
SECTION 2. The committee shall keep regular minutes of their
proceedings and report the same to the Board of Directors.
SECTION 3. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of
the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or
committee.
ARTICLE 6
---------
COMPENSATION OF DIRECTORS
Section 1. The directors may be paid their expenses of attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like reimbursement
and compensation for attending committee meetings.
ARTICLE 7
---------
NOTICES
SECTION 1. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders
at their addresses appearing on the books of the corporation. Notice by
mail shall be deemed to be given at the time when the same shall be mailed.
Notice to directors may also be given by telegram.
SECTION 2. Whenever all parties entitled to vote at any meeting,
whether of directors or stockholders, consent, either by a writing on the
records of the meeting or filed with the secretary, or by presence at such
meeting and oral consent entered on the minutes, or by taking part in the
deliberations at such meeting without objection, the doings of such meeting
shall be as valid as if had at a meeting regularly called and noticed, and
at such meeting any business may be transacted which is not excepted from
the written consent to the consideration of which no object for want of
notice is made at the time, and if any meeting be irregular for want of
notice or of such consent, provided a quorum was present at such meeting,
the proceedings of said meeting may be ratified and approved and rendered
likewise valid and the irregularly or defect therein waived by a writing
signed by all parties having the right to vote at such meeting; and such
consent or approval of stockholders may be by proxy or attorney, but all
such proxies and powers of attorney must be in writing.
SECTION 3. Whenever any notice whatever is required to be given
under the provisions of the statutes, of the Articles of Incorporation or
of these Bylaws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE 8
---------
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a President, a Secretary and a Treasurer.
Any person may hold two or more officers.
SECTION 2. The Board of Directors at it's first meeting after each
annual meeting of stockholders shall choose a Chairman of the Board who
shall be a director, and shall choose a President, a Secretary and a
Treasurer, none of whom need be directors.
SECTION 3. The Board of Directors may appoint a Vice-Chairman of
the Board, Vice-Presidents and one or more Assistant Secretaries and
Assistant Treasurers and such other officers and agents as it shall deem
necessary who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
4
91
<PAGE>
SECTION 4. The salaries and compensation of all officers of the
corporation shall be fixed by the Board of Directors.
SECTION 5. The officers of the corporation shall hold office at
the pleasure of the Board of Directors. Any officer elected or appointed by
the Board of Directors may be removed any time by the Board of Directors.
Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise shall be filled by the Board of
Directors.
SECTION 6. The CHAIRMAN OF THE BOARD shall, preside at meetings of
the stockholders and the Board of Directors, and shall see that all orders
and resolutions of the Board of Directors are carried into effect.
SECTION 7. The VICE-CHAIRMAN shall, in the absence or disability
of the Chairman of the Board, perform the duties and exercise the powers of
the Chairman of the Board and shall perform other such duties as the Board
of Directors may from time to time prescribe.
SECTION 8. The PRESIDENT shall be the chief executive officer of
the corporation and shall have active management of the business of the
corporation. He shall execute on behalf of the corporation all instruments
requiring such execution except to the extent the signing and execution
thereof shall be expressly designated by the Board of Directors to some
other officer or agent of the corporation.
SECTION 9. The VICE-PRESIDENT shall act under the direction of the
President and in the absence or disability of the President shall perform
the duties and exercise the powers of the President. They shall perform
such other duties and have such other powers as the President or the Board
of Directors may from time to time prescribe. The Board of Directors may
designate one or more Executive Vice-Presidents or may otherwise specify
the order of seniority of the Vice-Presidents. The duties and powers of the
President shall descend to the Vice-Presidents in such specified order of
seniority.
SECTION 10. The SECRETARY shall act under the direction of the
President. Subject to the direction of the President he shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record the proceedings. He shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of
all meetings of the stockholders and special meetings of the Board of
Directors, and will perform other such duties as may be prescribed by the
President or the Board of Directors.
SECTION 11. The ASSISTANT SECRETARIES shall act under the direction
of the President. In order of their seniority, unless otherwise determined
by the President or the Board of Directors, they shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of
the Secretary. They shall perform other such duties and have such other
powers as the President or the Board of Directors may from time to time
prescribe.
SECTION 12. The TREASURER shall act under the direction of the
President. Subject to the direction of the President he shall have custody
of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all monies and other valuable effects in the
name and to the credit of the corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the President or the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the
President and the Board of Directors, at it's regular meetings, or when the
Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the corporation.
SECTION 13. If required by the Board of Directors, he shall give
the corporation a bond in such sum and with such surety as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the corporation.
SECTION 14. The ASSISTANT TREASURER in the order of their
seniority, unless other wise determined by the President or the Board of
Directors, shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer. They shall perform
such other duties and have such other powers as the President or the Board
of Directors may from time to time prescribe.
5
92
<PAGE>
ARTICLE 9
Certificates of Stock
SECTION 1. Every stockholder shall be entitled to have a
certificate signed by the President or a Vice-President and the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of
the corporation, certifying the number of shares owned by him in the
corporation. If the corporation shall be authorised to issue more than one
class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights
of the various classes of stock or series thereof and the qualifications,
limitations or restrictions of such rights, shall be set forth in full or
summarized on the face or back of the certificate which the corporation
shall issue to represent such stock.
SECTION 2. If a certificate is signed (a) by a transfer agent
other than the corporation or it's employees or (b) by a registrar other
than the corporation or it's employees, the signatures of the officers of
the corporation may be facsimiles. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall cease to
be such officer before such certificate is issued, such certificate may be
issued with the same effect as though the person had not ceased to be such
officer. The seal of the corporation, or a facsimile thereof, may, but need
not be, affixed to certificates of stock.
SECTION 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or
destroyed upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorising
such issue of a new certificate or certificates, the Board of Directors
may, in it's discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against
the corporation with respect to the certificate alleged to have been lost
or destroyed.
SECTION 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, it
shall be the duty of the corporation, if it is satisfied that all
provisions of the laws and regulations applicable to the corporation
regarding transfer and ownership of shares have been complied with, to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon it's books.
SECTION 5. The Board of Directors may fix in advance a date not
exceeding sixty (60) days nor less than ten (10) days preceding the date of
any meeting of stockholders, or the date for the payment of any dividend,
or the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining the consent of stockholders for any purpose, as
a record date for the termination of the stockholders entitled to notice of
and to vote at any such meeting, and any adjournment thereof, or entitled
to receive payment of any such dividend, or to give such consent, and in
such case, such stockholders, and only such stockholders as shall be
stockholders of record on the date so fixed, shall be entitled to notice of
and to vote at such meeting, or any adjournment thereof, or to receive such
payment of dividend, or to receive such allotment of rights, or to exercise
such rights, or to give such consent, as the case may be, notwithstanding
any transfer of any stock on the books of the corporation after any such
record date fixed as aforesaid.
SECTION 6. The corporation shall be entitled to recognise the
person registered on it's books as the owner of shares to be the exclusive
owner for all purposes including voting and dividends, and the corporation
shall not be bound to recognise any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Nevada.
ARTICLE 10
----------
GENERAL PROVISIONS
SECTION 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the Articles of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property or in shares of
the capital stock, subject to the provisions of the Articles of
Incorporation.
SECTION 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion,
think proper as a
6
93
<PAGE>
reserve or reserves to meet contingencies, or for equalizing dividends or
for repairing or maintaining any property of the corporation or for such
other purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
SECTION 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time
designate.
SECTION 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SECTION 5. The corporation may or may not have a corporate seal,
as may be from time to time be determined by resolution of the Board of
Directors. If a corporate seal is adopted, it shall have inscribed thereon
the name of the corporation and the words "Corporate Seal" and "Nevada".
The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any manner reproduced.
ARTICLE 11
----------
INDEMNIFICATION
Every person who was or is a party or is a threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or
a person of whom he is the legal representative is or was a director or
officer of the corporation or is or was serving at the request of the
corporation or for it's benefit as a director or officer of another
corporation, or as its representative in a partnership, joint venture,
trust or other enterprise, shall be indemnified and held harmless to the
fullest extent legally permissible under General Corporation Law of the
State of Nevada time to time against all expenses, liability and loss
(including attorney's fees, judgements, fines and amounts paid or to be
paid in settlement) reasonably incurred or suffered by him in connection
therewith. The expenses of officers and directors incurred in defending a
civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of
the action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to
be indemnified by the corporation. Such right of indemnification shall be
a contract right which may be enforced in any manner desired by such
person. Such right of indemnification shall not be exclusive of any other
right which such directors, officers or representatives may have or
hereafter acquire and, without limiting the generality of such statement,
they shall be entitled to their respective rights of indemnification under
any bylaw, agreement, vote of stockholders, provision of law or otherwise,
as well as their rights under this Article.
The Board of Directors may cause the corporation to purchase and
maintain insurance on behalf of any person who is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, or as it's
representative in a partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the corporation
would have the power to indemnify such person.
The Board of Directors may from time to time adopt further Bylaws with
respect to indemnification and amend these and such Bylaws to provide at
all times the fullest indemnification permitted by the General Corporation
Law of the State of Nevada.
ARTICLE 12
----------
AMENDMENTS
SECTION 1. The Bylaws may be amended by a majority vote of all the
stock issued and outstanding and entitled to vote at any annual or special
meeting of the stockholders, provided notice of intention to amend shall
have been contained in the notice of the meeting.
SECTION 2. The Board of Directors by a majority vote of the whole
Board at any meeting may amend these Bylaws, including Bylaws adopted by
the stockholders, but the stockholders may from time to time specify
particular provisions of the Bylaws which shall not be amended by the Board
of Directors.
7
94
<PAGE>
APPROVED AND ADOPTED this 15th July, 1996.
CERTIFICATE OF SECRETARY
------------------------
I, Kendall White, hereby certify that I am the Secretary of Creative
Sports Marketing Inc., and the foregoing Bylaws, consisting of 8 pages,
constitute the code of Bylaws of Creative Sports Marketing Inc., as duly
adopted at a regular meeting of the Board of Directors of the corporation
held 15TH July, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 15th July,
1996.
[SEAL]
8
95
EXHIBIT 10.1
Bank of Montreal
55 Bloor Street West 9th Floor
Toronto. Ontario M4W 3N5
Telephone No. 416 927-6270
Fax No. 416 927 5528
June 14th 1996
Mr. Jason Bolduc, Director,
STARNET INTERNATIONAL,
425 Carral Street, Mezzanine Level,
Vancouver, B.C.V6B 6E3
Dear Jason,
I am pleased to advise that your software package, as presented to me
earlier this month, has been certified. Please see the attached "Letter
of Certification" that outlines the transactions certified for Starnet
International's EFT/POS Proprietary Code developed by Starnet and
interfacing with Starnet's Transaction Server IRIX 5.3+ Software. If in
the future, you wish to add transactions to your software please contact
me for re-certification arrangements.
Bank of Montreal, Sales Representative, Leslie McCurrach, will co-ordinate
input and obtain the set-up information required to connect to
our production system for the processing and deposit of Credit Card
transactions.
Please call me if you have any further questions.
Sincerely,
G.A. Brown
Senior Manager Sales Support,
Merchant Products & Services,
Electronic Banking Services.
cc: Lyn Stoney, Merchant Products & Services, Bank of Montreal, Edith
Galaites, Applications Technical Support-Certification, Operations
Group, Bank of Montreal, Leslie McCurrach, Sales Representative,
Sales & Marketing, Electronic Banking Services, Bank of Montreal,
Lisa Kendal, Project Manager, Implementation & Training, Electronic
Banking Services, Bank of Montreal
96
EXHIBIT 10.2
CREATIVE SPORTS MARKETING INC
OFFERING SALES AGENCY AGREEMENT
This Agreement is made by and between CREATIVE SPORTS MARKETING INC.,
a Nevada Corporation ("the Company") and PACIFIC RIM INVESTMENT INC., a
Corporation organised under the laws of the Vanuatu (the "Sales Agent")
concerning an offering of Shares of the Company's Common Stock to be
conducted by the Sales Agent (the "Shares" and the "Offering").
The Parties Agree as follows:
1. ENGAGEMENT AS SALES AGENT. PACIFIC RIM INVESTMENT INC., is
hereby engaged by the Company as a Sales Agent for the Offering to sell up
to 10,000,000 Common Shares at a price to the Purchasers thereof of $0.001
per Share. The Sales Agent's engagement shall be on a "best efforts"
"continuous offering" basis. This Agreement shall terminate when all of the
Shares to be offered pursuant to this Agreement are sold unless terminated
earlier pursuant to this Agreement. The Sales Agent will promptly deliver
funds by noon of the third business day following it's receipt into an
account of the Company, and all payments will be made by wire transfer of
funds to the Company. Promptly upon execution of this Agreement, the
Company shall cause such certificates representing 10,000,000 Shares of
Common Stock to be issued in the name of the Sales Agent. Such certificates
shall be free of any restrictive legend as to it's transferability.
However, the Company's Transfer Agent shall prohibit the transfer of Shares
except as certified by the Sales Agent and the Company of the sale of the
Shares pursuant to this Offering and as set forth in Paragraph below.
2. COMPLIANCE WITH SECURITIES LAWS. The Company and the Sales Agent
have and will comply with all necessary or desirable statutory or
regulatory requirements in the United States of America ("United States"),
Vanuatu and each state or nation in which the securities may be offered or
sold in connection with the Offering. The Sales Agent will not act without
having received all such consents or approvals of governmental or other
agencies, persons or institutions which may be reasonably considered
necessary or desirable in connection with the Offering and such consents or
approvals having been received in terms acceptable to the Company and the
Sales Agent and being in full force and effect. The Company and the Sales
Agent agree that the Offering shall be conducted in Vanuatu and that the
Sales Agent shall provide a legal opinion acceptable to the Company as to
compliance with all relevant laws of Vanuatu.
3. MATERIAL INFORMATION AND OFFERING MATERIALS. The Company has
provided the Sales Agent with all material information regarding the
Company, it's operations, management, principal owners, financial condition
and business plans. Upon request of the Sales Agent, the Company shall
prepare an Offering Memorandum which fully and fairly describes the
Company, the securities and terms of the Offering in compliance with the
requirements of Regulation D of the United States Securities and Exchange
Commission (the "Memorandum"). The Company will prepare and deliver to the
Sales Agent as many copies of the Memorandum as the Sales Agent may
reasonably require. The Sales Agent shall not prepare or use a Memorandum
or other sales material without the prior review and written consent of the
Company.
4. SALES COMMISSION. The Sales Agent shall be paid a sales
commission of 10% of the sales price per Share for each Share sold by the
Sales Agent in the Offering. The commission shall be deducted from the
proceeds of the Sale of the Shares deposited from time to time by the Sales
Agent with the Company and accompanied by an accounting of the sales and
commissions deducted therefrom.
1
97
<PAGE>
5. DUE DILIGENCE COOPERATION. The Company agrees that all documents
and other information relating to the Company's affairs have been and will
be made available upon request to the Sales Agent at the Sales Agent's
office and copies of any such documents will be furnished upon request to
the Sales Agent. Included within the documents which must be made available
as soon as possible to the extent not already in the possession of the
Sales Agent are at least the Company's Articles of Incorporation and all
amendments thereto, the Company's By-Laws and all amendments thereto,
Minutes of all the Company's Incorporates, Directors and Shareholders
Meetings, all financial statements of the Company, and correct copies of
any material contracts or agreements to which the Company is a party.
6. SALES & BENEFICIAL OWNERSHIP RECORDS. Within 30 days of the
completion or termination of the Offering, the Sales Agent shall provide
the Company with an accurate account of all sales made in the Offering.
Such account shall indicate the name and address of each individual
purchaser, the number of Shares purchased and whether the certificate or
certificates evidencing the Shares purchased are to be issued to the
purchasers in joint tenancy or otherwise. In the event the purchaser is
reasonably believed to be subject to U.S. income taxation, the Sales Agent
shall also provide the purchaser's social security number or taxation ID
number of the Purchaser. In the event, that Purchasers do not elect to
receive individual certificates for Shares purchased, the Sales Agent shall
continue to hold the certificates for the Shares as the Record Owner on
behalf of the Beneficial Owner(s) who are such Purchaser(s) as have elected
for the Sales Agent to hold the Shares. The Sales agent shall promptly
notify the Company of changes to the Beneficial Owners for whom it serves
as record owner and shall indemnify and hold harmless the Company and it's
Transfer Agent form all liability arising from it's holding Shares on
behalf of the Purchasers thereof.
7. COMPANY'S EXPENSES. The Company agrees that it will bear all
costs and expenses incident to the issuance, offer, sale and delivery of
the Shares, including all expenses, fees and legal counsel fees of
qualification under securities laws, the fees and disbursements of legal
counsel and accountants for the Company, the cost of preparing and printing
sales material or Memorandum and related exhibits, including all amendments
and supplements to the Memorandum, the cost of printing as many Memorandums
as the Sales Agent reasonably may deem necessary, and the expenses incurred
by Company representatives in attending a reasonable number of "due
diligence" meetings (which shall include all expenses of presentations
reasonably specified by the Sales Agent) with the Sales Agent's
representatives and any other expenses customarily paid by an issuer.
8. SALES AGENT EXPENSES. The Sales Agent shall pay it's own
expenses including all mailing, telephone, travel and clerical costs and
all other office costs incurred or to be incurred by the Sales Agent or by
it's sales personnel in connection with the Offering as well as all fees
and expenses of any legal counsel whom it may employ to represent it in
connection with the Offering.
9. RIGHT OF INSPECTION. For a period of five years after the
date of this Agreement, the Sales Agent will have the right, at the Sales
Agent's expense, to have a person or persons selected by the Sales Agent,
review the books and records of the Company, provided that the Sales Agent
may cause such review no more than once in any twelve (12) month period.
10. FINDER. The Company and the Sales Agent represent to each other
that no person has acted as a finder in connection with this Agreement and
each will indemnify the other party with respect to any claim for finders
fees in connection herewith.
11. INDEMNIFICATION. The Parties agree to indemnify, defend, and
hold each other and each person, if any, who controls the Company or the
Sales Agent, free and harmless from and against any and
2
98
<PAGE>
all losses, claims, demands, liabilities, and expenses (including
reasonable legal or other expenses incurred in connection with defending or
investigating any such claims or liabilities, whether or not resulting in
any liability to the Party or controlling person(s) which the Party or
controlling person(s) may incur under the United States law, U.S. State
Securities Laws, common law or Vanuatu law or otherwise, but only to the
extent that such liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact (or omission of a
material fact necessary to make the statements not misleading) contained in
any document prepared pursuant to this Agreement; provided, however, that
this indemnity agreement shall not apply to statements or omissions made in
reliance upon information furnished by either Party, in writing, expressly
in use for any document prepared pursuant to this Agreement. The foregoing
indemnity shall not be deemed to protect Party or controlling person(s) to
which either Party would otherwise be subject by reason of wilful
misfeasance, bad faith, or gross negligence in the performance of their
duties, or by reason of their reckless disregard of their obligations and
duties under this Agreement; and such indemnity shall further not apply to
any violations, statements or omissions made in reliance upon written
information furnished to either Party expressly for use in any documents
prepared pursuant to this Agreement. Each Party and their controlling
person(s) agree to give the other Party and their controlling person(s) an
opportunity to participate in the defence or preparation of the defence of
any action brought to enforce any such claim or liability for which the
Parties have agreed to indemnify and defend, and each Party shall have the
right so to participate. The agreement of each Party under the foregoing
indemnity is expressly conditioned upon notice of any such action having
been sent by the Party or controlling person(s), as the case may be, to the
other Party, promptly after the commencement of such action against either
Party or controlling person(s), such notice either being accompanied by
copies of papers served or filed in connection with such action or by a
statement of the nature of the action to the extent known to the Party.
Failure to notify the other Party within a reasonable amount of time of any
such action shall relieve the other Party of it's respective liabilities
under the foregoing indemnity, but failure to notify the other Party shall
not relieve it from any liability which it may have to the other Party or
controlling person(s) other than on account of this indemnity provision.
Neither Party shall be liable for amounts paid in settlement of any such
claim if such settlement was effected without it's prior notification. The
provisions of this paragraph shall not in any way prejudice any right or
rights which either Party may have against the other Party under any
Federal or State securities law, at common law or otherwise.
12. NOTICE OF LEGAL PROCEEDINGS. It is agreed that the Company and
the Sales Agent will each advise the other party immediately and confirm in
writing the receipt of any threat of or the initiation of any steps or
procedures which would impair or prevent the right to offer the Shares or
the issuance of any orders or other prohibitions, preventing or impairing
the proposed offering, by the SEC or any other regulatory authority. In the
case of the happening of any such event, neither the Company nor the Sales
Agent will acquiesce in such steps, procedures or suspension orders and
each party agrees to actively defend any such actions or orders unless both
parties agree in writing to the acquiescence in such actions or orders.
13. CANCELLATION. If for any reason the Company or the Sales Agent
decides in their sole discretion not to proceed with the Offering, such
party shall provide written notice of such termination to the other party.
The Company nor the Sales Agent shall have any liability to the other if
either decides not to proceed with the Offering for any reason whatsoever.
14. NOTICES. All notices hereunder shall be in writing and be
delivered or mailed, certified mail with return receipt requested, to the
following addresses, or be by telegram sent to the following addresses with
written confirmation thereafter forwarded:
To the Company: President
Creative Sports Marketing Inc.
P.O. Box 308
Nerang, 4211
Queensland, Australia
3
99
<PAGE>
Nerang, 4211
Queensland, Australia
To the Sales Agent: Pacific Rim Investment Inc.
Box No. 782
Port Villa, Vanuatu
South West Pacific
15. INDEPENDENT STATUS OF PARTIES. Nothing in this Agreement shall
render either Party a general partner of the other. Nor shall either Party
be a general agent for the other, nor any agency authority be deemed given
to the other Party except as expressly set forth in this Agreement or by
subsequent written authorization of either Party.
16. DISPUTE RESOLUTION. Any dispute or controversy arising out of or
relating to this Agreement, or any breach of this Agreement shall be
settled by negotiated and good faith use of dispute resolution alternatives
prior to litigation. Any Party who fails to proceed in good faith with
alternative dispute resolution as determined by a Court with jurisdiction
or by the competent Finder of Fact in Arbitration shall be liable to the
non-breaching Party for the cost of defending the claim in dispute
regardless of the outcome of said dispute resolution.
17. ENTIRE AGREEMENT. This Agreement contains the entire Agreement
among the parties which may not be amended nor may any rights hereunder be
waived except by an instrument in writing signed by the party sought to be
charged with such amendment or waiver.
18. GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by, the laws of Nevada.
19. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective personal
representatives and assigns, except as above set forth.
20. COUNTERPART SIGNATURES. This Agreement may be executed in any
number of counterparts of the signature page, each of which shall be
considered an original. In addition, a signature transmitted by fax
identifying the source thereof shall be considered an original signature.
EXECUTED BY THE PARTES AS SET FORTH BELOW AS OF THIS 15th DAY OF JULY,
1996
Creative Sports Marketing, Inc. Pacific Rim
Investment Inc.
PACIFIC RIM INVESTMENT INC.
By: /s/ By: /s/ CHARLES BURN
-------------------------- -----------------------------
CHARLES BURN / C.E.O.
(President/Treasurer)
[SEAL] [SEAL]
4
100
EXHIBIT 10.3
SIMULCAST AGREEMENT
THIS AGREEMENT is entered into this 28th day of September, 1996.
Between:
PACIFIC RACING ASSOCIATION, with offices at Hastings Park, Vancouver,
British Columbia, Canada (the "Host")
and
STARNET COMMUNICATIONS INTERNATIONAL INCORPORATED, with offices at
Chancery House, High Street, Bridgetown, Barbados (the "Guest
Facility").
WHEREAS,
A. The Host conducts thoroughbred race meets (the "Races" or individually
one race meet, a "Race");
B. The Guest Facility desires to simultaneously Netcast, as hereinafter
defined, and accept parimutuel wagers on the Races conducted by the
Host; and
C. The Host desires to permit the Guest Facility to simultaneously
Netcast and accept parimutuel wagers on the Races conducted by the
Host;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
set forth, the parties agree as follows:
In this Agreement, the following definitions apply:
* "SIMULCAST" shall mean the video transmission of the Races taking
place at Hastings Park Race Course, Vancouver, British Columbia
contemporaneous with the happening of the race;
* "INTERNET" shall mean the network of independent computers, servers
and links that make up the "World Wide Web";
* "NET-CAST" shall mean the transmission of the Simulcast on the
Internet.
* "WEB PAGE" shall mean the Guest Facility's Internet address where its
services are provided.
* "TOTAL HANDLE" shall mean the total amount wagered by patrons on the
Races at the Guest Facility and sites listed in Attachment 1 of
Exhibit "A" less money returned to patrons by refund. In no event
shall the Total Handle be reduced due to any contractual
101
<PAGE>
or statutory obligations for the payment of purses or breeders awards,
or any other amounts, except as set forth in this Agreement.
1. The Guest Facility shall have a limited, non-exclusive license to
simultaneously Netcast and accept parimutuel wagers on the Races set forth
on attached Exhibit "A", which Exhibit may be amended from time to time by
the parties hereto, subject to the terms and conditions contained in this
Agreement.
2. The Guest Facility warrants and represents that it is in compliance
with all applicable Federal, State and local laws and ordinances and has
obtained all necessary approvals to enter into this Agreement.
3. The Guest Facility warrants and represents that it will obtain all
necessary approvals from all regulatory bodies prior to Netcasting and
accepting parimutuel wagers on the Races.
4. The Guest Facility warrants and represents that it will, by blocking
access to the Netcast from any and all Internet addresses in Canada and the
United States and by blocking access to their betting facilities from any
and all Internet addresses in Canada and the United States, not allow
persons situated in Canada and the United States to view or place a bet
with the Guest Facility based on the Netcast.
5. The Host shall, at its own expense, transmit audio and video signals
of the Races as well as audio and video signals of information relating to
the Races to a satellite (the "Signal").
6. The Guest Facility shall, at its own expense, be permitted to access
the Signal and retransmit the Signal over the Internet for viewing by
anyone with access to the Guest Facility's Web Page. The Guest Facility
shall have the sole responsibility for decoding the Signal, including the
provision of any necessary equipment and the payment of any necessary
expenses.
7. Data provided or compiled by the Host, which includes data from The
Jockey Club, and EQUIBASE, generally is accurate, but occasionally errors
and omissions occur as a result of incorrect data received by others,
mistakes in processing and other causes. EQUIBASE and The Jockey Club and
the Host disclaim responsibility for the consequences, if any, of such
errors, but would appreciate their being called to their attention.
8. If the Guest Facility accepts parimutuel wagers on a Race, the Guest
Facility shall compensate the Host as follows:
a) If a Race is not included in a wagering pool of two or more of
the Races, the fee due and owing to the Host for a Race shall be
calculated as follows:
(total handle - refunds) x (Exhibit "A" fee %)
2
102
<PAGE>
b) If a Race is included in a wagering pool of two or more of the
Races, the fee due and owing by the Guest Facility to the Host for a
Race shall be the fee determined by the above subparagraph 7a) plus an
additional fee calculated as follows:
(total pool - refunds) x (Exhibit "A" fee %)
----------------------
number of races in pool
9. The Guest Facility agrees that all amounts (including those for all
sites listed in Exhibit "A" - Attachment l) due and owing shall be
forwarded to the Host no later than five calendar days following completion
of the calendar week in which the Race(s) was conducted. All such payments
shall be in United States currency. Payments are to be made payable to
PACIFIC RACING ASSOCIATION and be forwarded to HASTINGS PARK RACECOURSE
VANCOUVER, BRITISH COLUMBIA V5K 3N8 ATTENTION: DIRECTOR OF FINANCE. The
Guest Facility further agrees to deliver to the Host, along with payment in
full, an accounting of the Total Handle for each type of bet placed at its
facility upon the Races.
10. In addition to the sum due and owing pursuant to paragraph 7 of this
Agreement, the Guest Facility shall forward to the Host, in accordance with
the terms and conditions of paragraph 8 of this Agreement, any and all
amounts due and owing for mutual settlements (including those for all sites
listed in Exhibit "A" - Attachment D, along with an accounting of such
settlements.
11. The Guest Facility warrants and represents that it shall maintain at
its offices complete books and records relating to its conducting of
parimutuel wagering on the Races, and that these books and records shall be
made available for review upon the Host's request.
12. In the event a Race is not conducted for any reason by the Host, the
Host shall be under no obligation or liability to the Guest Facility.
13. The Guest Facility agrees to defend, indemnify and hold harmless
Pacific Racing Association, its directors, officers, employees, agents,
predecessors, successors and affiliated entities from and against any and
all claims, suits, losses, damages, liabilities, costs and expenses,
including attorney's fees, which arise out of or are related to the
performance or nonperformance of this Agreement.
14. The Host hereby consents to the dissemination of the Signal at the
sites listed on Attachment 1 of Exhibit "A". In no event shall the Guest
Facility knowingly transmit the Signal to any other site operating in the
same manner as the Guest Facility without prior written approval of the
Host.
15. The Host acknowledges that the Signal will be Netcast and as such can
be viewed by any person having access to the Internet and access to the
Guest Facility's Web Page.
16. The Host acknowledges that the dissemination of the Signal in
accordance with paragraph 15 of this Agreement does not in any way violate
any part of this Agreement.
3
103
<PAGE>
17. The Host acknowledges that once the Signal is Netcast, it is
impossible to control what use will be made of the Signal and therefore the
Guest Facility is not responsible in any way for the actions of third
parities who may misuse the Netcast.
18. The Host hereby acknowledges that the Guest, without the consent of
the Host, has the right to assign all or a portion of its title, interest
and benefit in and to this Agreement to a wholly owned subsidiary or an
affiliated company of the Guest including all rights of action or other
rights accruing to the Guest which might after this assignment takes effect
to the Guest under this Agreement.
19. This Agreement may be terminated by either party at any time upon 48
hours' notice.
20. No modification of any of the terms and conditions of this Agreement
shall be effective unless reduced to writing and signed by both of the
parties to this Agreement.
21. This Agreement shall be construed and enforced in accordance with the
laws of the Province of British Columbia.
22. Any disputes arising out of this Agreement shall be submitted to a
court of competent jurisdiction with the Province of British Columbia.
23. This Agreement may be executed in counterparts, with each counterpart
being considered an original.
24. This Agreement contains the whole of the agreement between the parties
and any oral agreement or understanding not expressly addressed in this
Agreement is not binding on the parties and is of no legal effect.
PACIFIC RACING ASSOCIATION STARNET COMMUNICATIONS
INTERNATIONAL INCORPORATED
PER:______________________ Per:________________________________
Bill Taylor, Mark Dohlen, President
General Manager
Date: Date:
4
104
<PAGE>
EXHIBIT "A"
----------
1. Common Pool Terms
-----------------
Pacific Racing Association hereby grants the Guest Facility the right
to simultaneously netcast and accept parimutuel wagers on the Races set
forth in Attachment 2 of Exhibit "A" on a Common pool basis.
In the event the Guest Facility accepts parimutuel wagers on the
Races, on a common pool basis, the percentage of total handle and amount
owing to the Host shall be calculated pursuant to Paragraph 7 of the
Agreement, in accordance with the following terms:
1. All overnight races and stakes races other than Graded stakes
races - 5.0%
2. All Grades stakes races - 5.0%
When Pacific Racing Association undertakes to receive simulcasts from
a third party, the Guest Facility may elect to receive any or all such
simulcasts on a commingled basis as a "Satellite Association". In such
instances, the Satellite Association will receive said races at the rate
negotiated by the Host. Furthermore, the Host will be responsible for
supplying the Satellite association with all relevant racing information,
using its best efforts to insure that all information delivered to the
Satellite Association is accurate and given in a timely manner; provided
however, that the Satellite Association agrees that PACIFIC RACING
ASSOCIATION shall not be liable for any inaccuracy or incompleteness of the
information. The Satellite Association further agrees that it will abide by
each and every term of the agreements entered into by PACIFIC RACING
ASSOCIATION, will make all payments to PACIFIC RACING ASSOCIATION as
defined in each wagering agreement, such that PACIFIC RACING ASSOCIATION
will have received all funds from the Satellite Association in the allotted
time for payment to the third party.
II. Separate Pool Terms
-------------------
Pacific Racing Association hereby grants the Guest Facility the right
to simultaneously netcast and accept parimutuel wagers on the Races set
forth in Attachment 2 of Exhibit "A" on a separate pool basis. The
percentage of total handle due and owing to Host shall be calculated
pursuant to Paragraph 7 of this Agreement, in accordance with the following
terms:
1. All overnight races and stakes races other than Grades Stakes
races - 5.0%
2. All Grades Stakes races - 5.0%
5
105
<PAGE>
EXHIBIT "A" - ATTACHMENT 1
--------------------------
Pacific Racing Association hereby consents to the dissemination of the
Signal at the following site:
The Internet
6
106
<PAGE>
EXHIBIT "A" - ATTACHMENT 2
--------------------------
List of Races Approved for Simulcast Race(s)
Race(s) Indicate Method
- ------- ---------------
Common Pooled (CP)
7
107
<PAGE>
EXHIBIT "A" - ATTACHMENT 3
--------------------------
Stakes & Post Time Schedule
8
108
EXHIBIT 10.4
CompuServe
World Headquarters November 22, 1996 CONFIDENTIAL
5000 Arlington Centre Blvd.
P.O. Box 20212
Columbus, Ohio 43220-0212
U.S.A.
Mr. Winston Barta
Tel 614.457.8600 Starnet International
Fax 614.457.0348 425 Carrall Street, Mezzannine Level
Vancouver, BC V6B 6E3
Dear Mr. Barta:
With this letter we would like to set forth our intent with respect to
offer Adult Casino games from Starnet International for access by
CompuServe customers. Our intent is as follows:
Based upon verbal discussions between CompuServe and Starnet International,
CompuServe intends to offer Starnet International's adult casino games
content; and Starnet International intends to accept access of such Starnet
International content by CompuServe customers.
This is not intended to be a binding agreement but only a recitation of
points currently under discussion, although CompuServe is committed to
working diligently to complete a binding arrangement. Either party may
terminate discussions without liability or commitment of any kind, but
CompuServe is hopeful these discussions will be finalized at the earliest
possible moment.
The terms will be as follows:
1) The Adult Casino games client software and the applications which run in
or from the Starnet International service are WIN95 based, and will be
launchable from CompuServe through TCPIIP based gateway to Starnet
International.
2) CompuServe will pay Starnet International a 20% connect time royalty,
which will be based on actual connect time revenue (gross revenue)
collected from CompuServe members to access Starnet International games
content.
3) CompuServe will pay $20 bounty fee for a qualified member acquired
through specific Starnet International marketing efforts.
109
<PAGE>
CompuServe
4) CompuServe will provide and maintain necessary communication lines (such
as a T1) to Starnet International server location. This will be at no cost
to Starnet International.
5) Starnet International will bear all costs of development and operation
of its service and the applications which run in or from its service, for
hosting the client server platform, for supporting users of its service
with on-line sysops and hosts, and for technical support for users of
Starnet International's service.
We look forward to working with you.
Sincerely,
/s/ SRINI VASAN
Srini Vasan
Manager, Games, Chat and Conference
110
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Starnet USA, Inc., a corporation organized under the Washington
Business Corporation Act.
2. 496926 B.C. Ltd., a corporation organized under the Company Act
of the Province of British Columbia.
111
EXHIBIT 23.1
-------------------------------------------------
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
-------------------------------------------------
We consent to the inclusion in the Form 10-SB, of Starnet Communications
International Inc. dated on or about June 9, 1997, of our audit report
dated March 31, 1997 with respect to the financial statements of Starnet
Communications International Inc. as at January 31, 1997 and for the
period from incorporation (June 28, 1996) to January 31, 1997. We also
consent to the inclusion of our review engagement report dated March 31,
1997 with respect to the financial statements of Starnet Communications
Canada Inc. as at and for the nine month period ended January 31, 1997.
We also consent to the inclusion of our audit report dated September 3,
1996 with respect to the financial statements of Starnet Communications
Canada Inc. as at April 30, 1996 and for the period from incorporation
(May 19, 1995) to April 30, 1996.
Vancouver, Canada /s/ ERNST & YOUNG
June 9, 1997 Chartered Accountants
- -------------------------------------------------------------------------
ERNST & YOUNG
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Starnet Communications Canada Inc.
April 30, 1996 & January 31, 1997 Financial Statements
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> OTHER 9-MOS
<FISCAL-YEAR-END> APR-30-1996 APR-30-1997
<PERIOD-START> MAY-19-1995 MAY-01-1996
<PERIOD-END> APR-30-1996 JAN-31-1997
<CASH> 0 154,285
<SECURITIES> 0 0
<RECEIVABLES> 54,708 140,209
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 89,850 308,484
<PP&E> 420,437 733,883
<DEPRECIATION> 69,014 201,531
<TOTAL-ASSETS> 457,513 995,927
<CURRENT-LIABILITIES> 413,522 807,375
<BONDS> 0 0
0 0
0 0
<COMMON> 7,416 7,496
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 457,513 995,927
<SALES> 378,544 1,331,644
<TOTAL-REVENUES> 378,544 1,331,644
<CGS> 0 0
<TOTAL-COSTS> 404,741 1,224,825
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,432 9,789
<INCOME-PRETAX> (26,197) 106,819
<INCOME-TAX> 0 55,226
<INCOME-CONTINUING> (26,197) 51,593
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (26,197) 51,593
<EPS-PRIMARY> (3.40) 5.11
<EPS-DILUTED> (3.40) 5.11
</TABLE>
