AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1998
REGISTRATION NO. 333-
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PLAYSTAR WYOMING HOLDING CORP.
(Exact name of Registrant as specified in its charter)
WYOMING 7999 ________________
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
PlayStar Wyoming Holding Corp.
60 Nevis Street, 2nd Floor
St. John's
Antigua BW1
West Indies
(268) 562-0073
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
- ---------------------------------------------------------------------------
Mr. William F.E. Tucker
Chairman
c/o Corporation Service Company
80 State Street
Albany, New York 12207-2543
(518) 433-4740
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
- ---------------------------------------------------------------------------
Copy to:
Paul J. Pollock, Esq.
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020-1104
(212) 835-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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<PAGE>
CALCULATION OF REGISTRATION FEE
========================================================================
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit(1) Price Fee (2)
- -----------------------------------------------------------------------
Ordinary Shares 18,128,744 $0.62 $11,239,821.28 $3,315.75
=======================================================================
(1) The maximum number of Ordinary Shares of PlayStar Limited that may be
offered to the holders of Common Stock of PlayStar Corporation in the
transaction.
(2) The registration fee was calculated pursuant to Rule 457(f) as 0.0295
of one percent of $11,239,821.28, the average of the high and low
prices per share of PlayStar Corporation Common Stock as quoted on OTCBB
on April 15, 1998 multiplied by 18,128,744, the maximum number of shares
of PlayStar Corporation Common Stock which may be exchanged for Ordinary
Shares in the Reorganization.
-----------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(A) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(A), may determine.
<PAGE>
Dear Stockholder:
The Board of Directors of PlayStar Corporation ("PlayStar Delaware") and
the holders of more than 66-2/3% of the outstanding shares of PlayStar
Delaware's Common Stock (the "Consenting Holders") have approved the
reorganization (the "Reorganization") of PlayStar Delaware pursuant to which
PlayStar Delaware will be merged with and into a wholly-owned subsidiary,
PlayStar Wyoming Holding Corp. ("PlayStar Wyoming"); and immediately thereafter
PlayStar Wyoming will obtain Articles of Continuance from the Director of
International Business Corporations, Antigua, and thereby will become an Antigua
corporation ("PlayStar Antigua").
Accompanying this letter is an Information Statement/Prospectus describing
in more detail the reorganization and related matters.
The Board of Directors and the Consenting Holders believe that the
reorganization will enable PlayStar Delaware to create better returns for its
stockholders. The continuance of PlayStar Delaware into Antigua will allow us to
organize our international business activities so that we will be able to
benefit from more favorable business, tax and financing environments than would
be available to us if the parent were to continue to be a United States
corporation. The continuance into Antigua will minimize corporate income taxes
because PlayStar Antigua will become an international business corporation (an
"IBC") which will pay no Antigua corporate income taxes under the Antigua tax
system. By contrast, the United States Internal Revenue Code imposes corporate
income tax on the worldwide income of United States corporations. The United
States system imposes significant unnecessary legal and regulatory restrictions
and compliance costs for companies such as PlayStar Delaware that conduct
substantially all of their operations outside the United States. These costs
will be minimized to the extent that our operations are conducted after the
reorganization by PlayStar Antigua or its foreign subsidiaries.
At the effective time of the Reorganization, the holders of shares of the
Common Stock, $.0001 par value per share, will become holders of PlayStar
Antigua's Ordinary Shares (the "Ordinary Shares"). The Ordinary Shares will have
substantially the same attributes as PlayStar Delaware's Common Stock and will
be listed on the OTC Bulletin Board under the symbol "PSCKF." For United States
federal income tax purposes, the exchange of PlayStar Delaware Common Stock for
Ordinary Shares of PlayStar Antigua should be a nontaxable transaction in which
no gain or loss would be recognized by exchanging stockholders. However,
PlayStar Delaware stockholders who are United States persons that directly,
indirectly or by attribution own 10% or more of the outstanding stock of
PlayStar Delaware at the Effective Time of the Reorganization could be subject
to materially adverse United States federal income tax consequences as a result
of the Reorganization.
Please carefully read the accompanying Information Statement/Prospectus
for details of the reorganization and related information. In addition,
exchanging stockholders, especially stockholders of PlayStar Delaware who are
United States persons that directly, indirectly or by attribution own 10% or
more of the outstanding stock of PlayStar Delaware at the Effective Time of the
Reorganization, should consult their own tax advisors as to the United States
federal, state and local, as well as non-United States, tax consequences of the
Reorganization.
Thank you for your attention.
Sincerely,
Julius Patta
PRESIDENT
<PAGE>
PLAYSTAR CORPORATION
1 East North Street
Dover, Delaware 19901
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NOTICE OF ACTION TAKEN BY WRITTEN CONSENT
ON _________ , 1998
TO BE EFFECTIVE
ON [20th day after date of notice]
-----------------------------------------------------------
To the Stockholders of
PLAYSTAR CORPORATION
Notice is hereby given that on April __, 1998, the Board of Directors and
the holders of more than 66-2/3% of the outstanding shares of PlayStar
Corporation, a Delaware corporation ("PlayStar Delaware"), have considered and
approved (i) an Agreement and Plan of Merger, a copy of which is attached as
Annex I to the accompanying Information Statement/Prospectus, pursuant to which
PlayStar Delaware will be merged with and into PlayStar Wyoming Holding Corp., a
newly formed Wyoming company ("PlayStar Wyoming") and (ii) an Application for
Certificate of Transfer, a copy of which is attached as Annex II to the
accompanying Information Statement/Prospectus, upon the acceptance of which and
the issuance of the Certificate of Transfer by the Secretary of State of the
State of Wyoming, PlayStar Wyoming will obtain Articles of Continuance from the
Director of International Business Corporations, Antigua, and thereby will
become an Antigua company through a continuation procedure under Wyoming and
Antigua law, all as more fully described in the accompanying Information
Statement/Prospectus. The foregoing transactions are expected to become
effective on [insert 20th day following the date of the notice].
This notice, the Information Statement/Prospectus and the other materials
that are enclosed herewith are sent to you by order of the Board of Directors of
PlayStar Delaware.
By Order of the Board of
Directors
William F.E. Tucker
SECRETARY
St. Johns, Antigua
April __, 1998
<PAGE>
PLAYSTAR CORPORATION
INFORMATION STATEMENT TO STOCKHOLDERS
---------------------------------------------------
PLAYSTAR WYOMING HOLDING CORP./PLAYSTAR LIMITED
PROSPECTUS FOR UP TO 18,128,744 ORDINARY SHARES
---------------------------------------------------
This Information Statement/Prospectus ("Information Statement/Prospectus")
is being furnished to stockholders of PlayStar Corporation, a Delaware
corporation ("PlayStar Delaware"), in connection with the proposed
reorganization (the "Reorganization") pursuant to which PlayStar Delaware will
obtain Articles of Continuance from the Director of International Business
Corporations, Antigua, and will thereby become an Antigua corporation by merging
(the "Merger") PlayStar Delaware with and into a newly formed Wyoming
corporation, PlayStar Wyoming Holding Corp. ("PlayStar Wyoming"), with PlayStar
Wyoming being the surviving corporation; and, immediately thereafter, PlayStar
Wyoming will become an Antigua corporation ("PlayStar Antigua") pursuant to a
continuation procedure under Antigua and Wyoming law. The Reorganization will be
effected pursuant to an Agreement and Plan of Merger, dated as of [April] __,
1998 (the "Merger Agreement"), between PlayStar Delaware and PlayStar Wyoming,
and the Application for Certificate of Transfer of PlayStar Wyoming (the
"Application for Certificate of Transfer"). Upon consummation of the Merger,
each outstanding share of common stock, par value $.0001 per share, of PlayStar
Delaware (the "Common Stock") (other than those shares, if any, held by PlayStar
Delaware in its treasury) will be automatically converted into one share of
Common Stock, par value $.0001 per share, of PlayStar Wyoming (the "PlayStar
Wyoming Shares") and, upon the issuance of the Certificate of Transfer of
PlayStar Wyoming (the "Certificate of Transfer") by the Secretary of State of
the State of Wyoming and obtaining the Articles of Continuance from the Director
of International Business Corporations, Antigua, the PlayStar Wyoming Shares
will be automatically converted into Ordinary Shares, par value U.S. $.0001 per
share (the "Ordinary Shares"), of PlayStar Antigua. PlayStar Delaware and its
subsidiaries, PlayStar Limited, a Channel Islands corporation ("PlayStar
Limited"), and Antigua Casino & Sportsbook Limited, an Antigua corporation
("Antigua Casino," and together with PlayStar Limited, the "Subsidiaries"),
together with PlayStar Wyoming and PlayStar Antigua are sometimes collectively
referred to herein as "PlayStar."
PlayStar Delaware Common Stock is currently listed on the OTC Bulletin
Board ("OTCBB") under the symbol "PSCK" and, immediately following the
Reorganization, the Ordinary Shares will be listed on the OTCBB under a similar
symbol, "PSCKF." The last reported sale price for the PlayStar Delaware Common
Stock on the OTCBB on April 15, 1998, was $0.62. Currently, there is no
established public trading market for the Ordinary Shares.
FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH THE REORGANIZATION, SEE "RISK FACTORS," BEGINNING ON PAGE 13.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This Information Statement/Prospectus is first being mailed to the
stockholders of PlayStar Delaware on or about April __, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS INFORMATION STATEMENT/PROSPECTUS IS APRIL __, 1998.
<PAGE>
AVAILABLE INFORMATION
PlayStar Delaware is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by PlayStar Delaware may be inspected and
copied at the public reference facilities maintained by the Commission, 450
Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549; and at
regional offices of the Commission at Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60611; and at 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material may be obtained at
prescribed rates by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Commission maintains a Website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Website is
http://www.sec.gov. The PlayStar Delaware Common Stock is listed on the OTCBB.
Commencing after the consummation of the Reorganization, PlayStar Antigua will
file such reports and other information under the Exchange Act.
PlayStar Wyoming has filed with the Commission a Registration Statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Ordinary Shares offered
hereby. This Information Statement/Prospectus, which constitutes a part of that
Registration Statement, does not contain all the information set forth in that
Registration Statement and the exhibits related thereto. Statements made in this
Information Statement/Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete; and while PlayStar Wyoming
believes the descriptions of the material provisions of such contracts,
agreements and other documents contained in this Information
Statement/Prospectus are accurate summaries of such material provisions,
reference is made to such contract, agreement or other document filed as an
Annex to this Information Statement/Prospectus and as an exhibit to the
Registration Statement for a more complete description of the matter involved,
and each such statement is qualified in its entirety by such reference.
This Information Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. These documents are
available upon request from William F.E. Tucker, Chairman and Chief Executive
Officer of PlayStar, West Dunes, 44 South Road, Paget PG 04, Bermuda. In order
to ensure timely delivery of the documents, any request should be made by date
five business days prior to the date on which the final investment decision must
be made.
Upon completion of the Reorganization, the Ordinary Shares will be listed
on the OTCBB. At the time of such listing, the PlayStar Delaware Common Stock
will be delisted and will no longer be registered pursuant to Section 12 of the
Exchange Act.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS INFORMATION STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS INFORMATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
Neither delivery of this Information Statement/Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of PlayStar since the date of this Information
Statement/Prospectus.
2
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
PlayStar Antigua is an Antigua company, certain of its officers and
directors will be residents of various jurisdictions outside the United States
and its Antigua counsel, Roberts & Company, St. John's, Antigua, is a resident
of Antigua. All or a substantial portion of the assets of PlayStar Antigua and
of such persons may be located outside the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon such persons or to enforce in United States court judgments obtained
against such persons in United States courts and predicated upon the civil
liability provisions of the Securities Act. Notwithstanding the foregoing,
PlayStar Antigua has irrevocably agreed that it may be served with process with
respect to actions based on offers and sales of securities made hereby in the
United States by serving Corporation Service Company, its United States agent
appointed for that purpose. PlayStar Antigua has been advised by its Antigua
counsel, Roberts & Company, St. John's, Antigua, that there is doubt as to
whether Antigua courts would enforce (a) judgments of United States courts
obtained in actions against such persons or PlayStar Antigua that are predicated
upon the civil liability provisions of the Securities Act or (b) in original
actions brought against PlayStar Antigua or such persons predicated upon the
Securities Act. There is no treaty in effect between the United States and
Antigua providing for such enforcement, and there are grounds upon which Antigua
courts may not enforce judgments of United States courts. Certain remedies
available under the United States federal securities laws would not be allowed
in Antigua courts as contrary to that nation's policy.
3
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF SECURITIES TO BE RECEIVED IN CONNECTION WITH
THE REORGANIZATION............................................7
SUMMARY OF THE REORGANIZATION....................................8
PER SHARE MARKET VALUE OF PLAYSTAR ANTIGUA AND PLAYSTAR
DELAWARE.....................................................12
RISK FACTORS....................................................13
History of Losses and Company's Ability to Continue as a
Going Concern.............................................13
Government Regulation........................................13
Need for Additional Financing................................14
Certain Tax Consequences.....................................14
Absence of Prior Market......................................15
The Internet Gaming Industry Generally.......................15
Technological Changes/Competition............................15
Risks of Foreign Operations..................................16
Dependence on Key Personnel..................................16
Patents, Copyrights and Trade Secrets........................16
Future Sales of Common Stock; Exercise of Options and
Warrants..................................................17
Possible Volatility of Stock Price...........................17
Potential Anti-Takeover Effect...............................17
THE REORGANIZATION..............................................18
General......................................................18
Background and Reasons for the Reorganization................18
THE MERGER AGREEMENT AND APPLICATION FOR CERTIFICATE OF
TRANSFER.....................................................19
General......................................................19
Amendment/Termination........................................20
Effective Time...............................................20
Rights of Dissenting Stockholders............................20
Exchange of Share Certificates...............................20
Stock Option Plan............................................21
Stock Listing................................................21
Accounting Treatment of the Reorganization...................21
CERTAIN TAX CONSIDERATIONS......................................21
United States Federal Income Tax Consequences................21
Definition of United States Holder...........................22
The Reorganization of PlayStar...............................22
Receipt of Ordinary Shares................................23
Reporting Requirements....................................24
The Continuing Business Operations of PlayStar...............24
Taxation of PlayStar Antigua..............................24
Taxation of Stockholders - United States Holders..........25
Taxation of Dividends..................................25
4
<PAGE>
Taxation of Dispositions of Ordinary Shares............26
Passive Foreign Investment Company Rules...............26
Foreign Personal Holding Company Rules.................29
Personal Holding Company Rules.........................29
Controlled Foreign Corporation Rules...................30
Taxation of Stockholders - Non-United States Holders......30
United States Backup Withholding Tax and Information
Reporting...............................................31
Antigua Tax Consequences.....................................31
Canadian Tax Consequences....................................31
DESCRIPTION OF PLAYSTAR ANTIGUA CAPITAL STOCK...................33
Capitalization...............................................33
Voting and Other Rights......................................33
Dividend Rights..............................................34
Changes in Capitalization....................................34
Reduction of Capital and Purchase of Shares..................34
Transfer of Shares...........................................34
Preference Shares............................................34
COMPARISON OF STOCKHOLDER RIGHTS................................35
Stockholder Approval of Business Combinations................35
Absence of Required Vote for Certain Mergers.................35
Appraisal Rights.............................................36
Special Meetings of Stockholders.............................36
Distributions and Dividends; Repurchases and Redemptions.....36
Vacancies on Board of Directors..............................37
Removal of Directors.........................................37
Inspection of Books and Records..............................37
Amendment of Charter.........................................37
Amendment of By-Laws.........................................37
Indemnification of Directors and Officers....................38
Limited Liability of Directors...............................38
PRO FORMA FINANCIAL INFORMATION.................................39
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.......41
BUSINESS OF PLAYSTAR............................................43
Introduction.................................................43
Description of Business of PlayStar..........................43
PlayStar..................................................43
PlayStar Limited and Antigua Casino.......................43
Customers and Marketing......................................44
Research and Development.....................................44
Employees....................................................45
Properties...................................................45
Competition..................................................45
Patents, Copyrights and Trade Secrets........................45
Regulation...................................................46
5
<PAGE>
Legal Proceedings............................................47
MANAGEMENT......................................................47
Executive Compensation.......................................47
Indemnification..............................................48
Certain Relationships and Related Transactions...............49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................................................49
LEGAL MATTERS...................................................50
EXPERTS.........................................................51
FINANCIAL STATEMENTS...........................................F-1
6
<PAGE>
SUMMARY OF SECURITIES TO BE RECEIVED IN CONNECTION WITH
THE REORGANIZATION
THE FOLLOWING IS A SUMMARY OF THE SECURITIES TO BE RECEIVED IN THE
REORGANIZATION BY HOLDERS OF PLAYSTAR DELAWARE COMMON STOCK. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED IN THIS
INFORMATION STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. UNLESS OTHERWISE
DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE RESPECTIVE
MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS INFORMATION STATEMENT/PROSPECTUS.
STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS INFORMATION STATEMENT/PROSPECTUS
AND THE ANNEXES HERETO IN THEIR ENTIRETY.
SECURITY RECEIVED IN EXCHANGE
FOR PLAYSTAR DELAWARE
COMMON STOCK IN THE
REORGANIZATION.................Each share of PlayStar Delaware
Common Stock will be automatically
converted into one Ordinary Share of
PlayStar Antigua.
TAX CONSEQUENCES...............The receipt of Ordinary Shares in
exchange for shares of PlayStar
Delaware Common Stock should not be a
taxable exchange for an exchanging
stockholder. However, an exchanging
stockholder who is a United States
person that directly, indirectly or
by attribution owns 10% or more of
the outstanding stock of PlayStar
Delaware at the Effective Time of the
Reorganization could be subject to
materially adverse United States
federal income tax consequences as a
result of the Reorganization. See
"Certain Tax Considerations."
ELECTION PROCEDURE.............As of the Effective Time of the Merger,
stockholders who do not exercise
their statutory dissenters' rights
will automatically become owners of
the Ordinary Shares without taking any
action.
DIVIDENDS......................Holders of Ordinary Shares will be
entitled to receive, at any time,
such dividends as declared by the
Board of Directors of PlayStar
Antigua.
REDEMPTION.....................The Ordinary Shares are not subject
to redemption.
VOTING RIGHTS..................One vote per Ordinary Share with
respect to matters submitted to the
stockholders of PlayStar Antigua.
STOCK LISTING .................OTC Bulletin Board.
7
<PAGE>
SUMMARY OF THE REORGANIZATION
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS INFORMATION
STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES. CERTAIN CAPITALIZED
TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS
INFORMATION STATEMENT/PROSPECTUS.
PLAYSTAR DELAWARE..............PlayStar Delaware is a holding
company, which, through its
wholly-owned subsidiaries, PlayStar
Limited and Antigua Casino, is
primarily engaged in an on-line
gaming business and the licensing of
property to such business. PlayStar
Delaware's principal offices are
located at c/o United Corporate
Services, Inc., 15 East North Street,
Dover, Delaware 19901. PlayStar
Delaware's telephone number is (441)
236-9621.
PLAYSTAR WYOMING/ANTIGUA.......PlayStar Wyoming is a newly formed
Wyoming company and a wholly-owned
subsidiary of PlayStar Delaware.
PlayStar Wyoming was formed for the
purpose of effectuating the reorga-
nization of PlayStar Delaware as an
Antigua corporation. At the effective
time of the Reorganization, PlayStar
Delaware will be merged with and into
PlayStar Wyoming, which, pursuant to
a statutory continuation procedure,
will become an Antigua corporation
and, through the Subsidiaries continue
to conduct the business in which
PlayStar is now engaged. PlayStar
Antigua's principal offices will be
located at 60 Nevis Street, St. John's,
Antigua BW1, West Indies.
THE REORGANIZATION
GENERAL........................The Board of Directors of PlayStar
Delaware has unanimously approved and
the holders of more than 66-2/3% of
the outstanding PlayStar Delaware
Common Stock (the "Consenting
Holders") have approved, a proposed
corporate reorganization (the
"Reorganization") pursuant to which
PlayStar Antigua, an Antigua company,
will succeed to the business of the
PlayStar companies. The
Reorganization will be effected
pursuant to the Merger Agreement and
the Application for Certificate of
Transfer, copies of which are
attached hereto as Annex I and Annex
II, respectively, and the terms of
which are incorporated herein by
reference. After the consummation of
the Reorganization, PlayStar Antigua
will, through the Subsidiaries,
continue to conduct the businesses in
which the PlayStar companies are now
engaged. The relative voting rights
of PlayStar Delaware stockholders as
stockholders of PlayStar Antigua will
not change as a result of the
Reorganization. See "The
Reorganization," "Description of
PlayStar Antigua Capital Stock --
Voting and Other Rights,"
"Comparison of Stockholder" and the
Pro Forma Financial information,
included elsewhere herein.
8
<PAGE>
REASONS FOR THE
REORGANIZATION.................The Board of Directors of PlayStar Delaware and
the Consenting Holders believe that the
continuation into Antigua will allow PlayStar
Delaware to organize its international business
activities to take maximum advantage of business,
tax and financing environments which are more
favorable than those available in the United
States. In particular, the Board of Directors of
PlayStar Delaware and the Consenting Holders have
approved the Reorganization for the following
reasons: (a) the creation of an Antigua parent
corporation will reduce corporate income taxes
because, unlike the United States tax system
which imposes corporate income tax on the
worldwide income of United States corporations,
Antigua imposes no corporate income taxes on the
income of an Antigua IBC. Income taxes will
therefore be reduced to the extent operations are
conducted after the Reorganization by PlayStar
Antigua or its foreign (i.e., non-United States)
subsidiaries; (b) the Reorganization may, in
certain circumstances, have a favorable effect on
PlayStar Antigua's ability to sell assets or
raise additional capital in the future; (c) the
corporate structure in the form proposed by the
Reorganization will provide greater management
flexibility and control, as well as a more
suitable corporate structure for expansion of its
current business and future acquisitions and
diversification opportunities; and (d) after the
Reorganization, the regulatory and legal
compliance costs, as well as the legal
restrictions on the business activities of
PlayStar will be reduced.
THE REORGANIZATION.............The Reorganization will be accomplished through
the merger of PlayStar Delaware with and into
PlayStar Wyoming, which will be the surviving
corporation in the Merger, at which time each
outstanding share of PlayStar Delaware Common
Stock (other than shares of PlayStar Delaware
Common Stock held by PlayStar Delaware in its
treasury) will, subject to the exercise of
statutory dissenters' rights, be automatically
converted into one outstanding share of PlayStar
Wyoming Common Stock. Immediately after the
Merger, PlayStar Wyoming will,through a statutory
continuation procedure, become PlayStar Antigua,
at which time each outstanding share of PlayStar
Wyoming Common Stock will be automatically
converted into one Ordinary Share subject to
dissenters' appraisal rights. See "The Merger
Agreement and Application for Certificate of
Transfer," and "Description of PlayStar Antigua
Capital Stock".
9
<PAGE>
EFFECTIVE TIME.................The Reorganization will become
effective (the "Effective Time") at
the close of business on the date
that a certificate of merger is filed
with the Delaware and Wyoming
Secretary of State as required by
Delaware and Wyoming law and at the
time the Certificate of Transfer is
issued by the Wyoming Secretary of
State and the Articles of Continuance
are obtained from the Director of
International Business Corporations,
Antigua. PlayStar Delaware
anticipates that the Reorganization
will become effective on or about May
___, 1998.
DIVIDENDS......................Holders of Ordinary Shares will be
entitled to receive, at any time,
such dividends as are declared by the
Board of Directors of PlayStar
Antigua. PlayStar Antigua currently
intends to retain earnings for use in
its respective capital requirements.
The payment of any future cash
dividends on the Ordinary Shares is
necessarily dependent upon the
earnings and financial needs of
PlayStar Antigua, respectively, along
with applicable legal and contractual
restrictions. See "Description of
PlayStar Antigua Capital Stock --
Dividend Rights."
LIQUIDATION....................In the event of the liquidation of
PlayStar Antigua, holders of Ordinary
Shares will participate in the assets
of PlayStar Antigua pari passu with
the holders of any other class of
ordinary shares outstanding.
VOTING RIGHTS..................Each Ordinary Share will be entitled
to one vote in the affairs of
PlayStar Antigua. See "Description
of PlayStar Antigua Capital Stock --
Voting and Other Rights".
COMPARISON OF RIGHTS OF
STOCKHOLDERS...................The principal attributes of the
PlayStar Delaware Common Stock and
the PlayStar Antigua Ordinary Shares
will be similar. However, there are
certain differences between the
rights of stockholders under Delaware
law and Antigua law. In addition,
there will be differences between
PlayStar Delaware's Certificate of
Incorporation and Bylaws and PlayStar
Antigua's Articles of Continuance and
By-Laws. See "Comparison of
Stockholder Rights".
TAX CONSIDERATIONS.............The following is a brief summary of
the United States federal income tax
consequences of the Reorganization
and is not intended to be, nor should
it be construed to be, advice to any
particular stockholder of PlayStar
Delaware. Stockholders of PlayStar
Delaware should consult their own tax
advisors with respect to their
particular circumstances. A more
detailed summary of certain tax
consequences of the Reorganization is
set out under "Certain Tax
Considerations" in the discussion
contained in this Information
Statement/Prospectus. There are no
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regulations, published rulings or
judicial decisions directly on point
with respect to certain aspects of
the Reorganization and the securities
to be issued pursuant thereto.
Accordingly, unqualified conclusions
on certain matters, as indicated
below, are not possible. PlayStar
Delaware does not intend to request a
ruling from the United States
Internal Revenue Service ("IRS") with
respect to the Reorganization.
Stockholders are urged to consult
their own tax advisors as to the
particular tax consequences to them
of the Reorganization.
The receipt of Ordinary Shares by
United States stockholders in exchange
for PlayStar Delaware Common Stock
should not be a taxable exchange
for an exchanging stockholder. However,
an exchanging stockholder who is a
United States person that directly,
indirectly or by attribution owns 10%
or more of the outstanding stock of
PlayStar Delaware at the Effective
Time of the Reorganization could be
subject to materially adverse
United States federal income tax
consequences as a result of the
Reorganization. In addition,
subsequent to the Reorganization, a
stockholder of PlayStar Antigua who
is a United States person could be
subject to potentially adverse United
States federal income tax
consequences if PlayStar Antigua
becomes a "passive foreign investment
company" as defined under United
States federal income tax law.
STOCKHOLDERS ARE ADVISED TO READ THE
MORE DETAILED SUMMARY OF THE TAX
CONSEQUENCES OF THE REORGANIZATION,
AS SET FORTH UNDER "CERTAIN TAX
CONSIDERATIONS".
RIGHTS OF DISSENTING
STOCKHOLDERS..................Under applicable Delaware law, the
holders of PlayStar Delaware Common
Stock are entitled to dissenters'
appraisal rights, subject to
compliance with the procedures set
forth in Section 262 of the Delaware
General Corporation Law (the "DGCL"),
in connection with the
Reorganization. See "The Merger
Agreement and Application for
Certificate of Transfer -- Rights of
Dissenting Stockholders".
RISK FACTORS...................See "Risk Factors" for a discussion
of certain risk factors to be
considered in connection with the
Reorganization and the ownership of
the Ordinary Shares of PlayStar
Antigua.
STOCK EXCHANGE LISTING.... ...There is currently no established
public trading market for the
Ordinary Shares. Immediately following
the Reorganization, the Ordinary
Shares will be listed on the OTCBB
under the symbol "PSCKF," a symbol
which is similar to that under which
the PlayStar Delaware Common Stock is
currently listed. See "The
Reorganization -- Stock Listing".
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EXCHANGE AGENT.................InterWest Transfer Company, Inc. will
act as Exchange Agent in connection
with the Reorganization.
PER SHARE MARKET VALUE OF PLAYSTAR ANTIGUA AND PLAYSTAR DELAWARE
Until the Effective Time of the Reorganization, there will be no market
for the PlayStar Antigua Ordinary Shares although it is anticipated that the
Ordinary Shares will be approved for trading on the Nasdaq OTC Bulletin Board.
On March 19, 1997 the Common Stock of PlayStar Delaware was approved for trading
on the OTCBB. The following table sets forth, for the periods indicated, the
range of the high and low bid quotations (as reported by NASDAQ). The bid
quotations set forth below, reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not reflect actual transactions:
High Low
Fiscal Year Ended June 30, 1997
Third Quarter (from March 19, 1997) $2.50 $0.25
Fourth Quarter.................. $2.50 $1.00
Fiscal Year Ended June 30, 1998
First Quarter................... $2.9375 $1.00
Second Quarter.................. $3.125 $0.38
Third Quarter .................. $1.01 $.42
Fourth Quarter (through April 15,
1998) $0.70 $.61
On April 1, 1998, the last reported sales price of the PlayStar Delaware
Common Stock, as reported by the OTCBB was $0.70. As of April __, 1998, there
were ___ holders of record of PlayStar Delaware's Common Stock. PlayStar has not
declared or paid any cash dividends on its Common Stock since its inception, and
PlayStar's Board of Directors currently intends to retain all earnings for use
in the business for the foreseeable future. Any future payment of dividends will
depend upon PlayStar's results of operations, financial condition, cash
requirements and other factors deemed relevant by PlayStar's Board of Directors.
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RISK FACTORS
The information contained in this report contains "forward looking
statements" within the meaning of Section 27A of the Securities Act, and Section
21E of the Exchange Act. Actual results may materially differ from those
projected in the forward looking statements as a result of certain risks and
uncertainties set forth in this report. Although management believes that the
assumptions made and expectations reflected in the forward looking statements
are reasonable, there is no assurance that the underlying assumptions will, in
fact, prove to be correct or that actual future results will not be different
from the expectations expressed in this report. An investment in the Common
Stock offered hereby is speculative in nature and involves a high degree of
risk. Accordingly, PlayStar Delaware stockholders should carefully read this
entire Information Statement/Prospectus and the following risk factors should be
considered carefully in evaluating the Reorganization, PlayStar Antigua and its
proposed businesses.
History of Losses and Company's Ability to Continue as a Going Concern
PlayStar is a development stage company and the operations of it and its
subsidiaries are subject to all of the risks inherent in light of the expenses,
difficulties, complications and delays frequently encountered in connection with
the formation of any new business. PlayStar has incurred net losses since its
inception and will continue to incur losses. From its inception on October 3,
1996 through December 31, 1997, PlayStar incurred a cumulative net loss of
$1,202,456, including a net loss of $386,528 for the three months ended December
31, 1997. PlayStar should be evaluated in light of the delays, expenses,
problems and uncertainties frequently encountered by companies developing
markets for new products and technologies. Due to a number of factors, the
ability to commercialize the products and technology of the Subsidiaries,
PlayStar does not believe that revenues generated by the Subsidiaries will be
sufficient to support its operations in fiscal 1998. Therefore, in the
foreseeable future, PlayStar believes that such expenses will increase its net
losses, and there can be no assurance that PlayStar will ever be profitable.
Government Regulation
PlayStar's Subsidiaries must adhere to the legal requirements of each
jurisdiction in which they operate or offer their services. In the United
States, the ownership and operation of land-based gaming facilities (other than
sports wagering) has traditionally been regulated on a state by state basis.
Although the vast majority of states have legalized some forms of gaming
activities, there can be no assurance that the activities of the Subsidiaries
will be sanctioned in any particular jurisdiction. PlayStar will confront
similar legal obstacles in each jurisdiction in which a user of the
Subsidiaries' Internet gaming services is located. On October 27, 1997, the
Senate Judiciary Committee approved a bill (S-474) introduced by Senator John
Kyl of Arizona, which would prohibit gaming on the Internet in the United States
(the "Bill"). If passed as law, the Bill would classify gaming over the Internet
as a federal offense. While the Bill allows for intrastate wagering via the
Internet, the Bill prohibits interstate bets. Individuals convicted of operating
an Internet gaming business in the United States could be punished by up to four
years in jail and a fine equal to the greater of $20,000 or the aggregate amount
of bets received by the operator. Under the Bill, Internet gaming would be a
federal crime even if the states in which bets are placed had legalized the
practice. The Bill also requires the Secretary of State and the Secretary of the
Treasury to seek an international agreement to enforce the law. On February 4,
1998, the House Crime Subcommittee held a hearing to discuss issues related to
Internet gaming and the House version of the Bill. The House version of the Bill
would permit Internet gaming if such activities are legal in the bettor's
jurisdiction and in the jurisdiction in which the server is located.
If the Bill becomes law, it could have a significant effect on PlayStar's
operations. The Subsidiaries might be forced to cease all marketing and
promotional activities in the United States to ensure that no solicitation of
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<PAGE>
United States citizens occurs. Since the Bill also prohibits United States
citizens from gaming on the Internet, the Subsidiaries may be expected to lose a
significant portion of their customer base if the Bill becomes law. Moreover,
if, as the Bill contemplates, an international agreement is reached to prohibit
Internet gaming, PlayStar would be forced to cease all operations.
Certain entities engaged in the Internet gaming business have been the
subject of criminal complaints at the state level. For example, in September
1997, the Minnesota Court of Appeals considered a consumer protection complaint
and concluded that an Internet gambling service with operations located outside
of Minnesota was subject to personal jurisdiction in Minnesota because the
company conducted commercial activities in the state over the Internet. See
Minnesota v. Granite Gate Resorts, Inc., 568 N.W.2d 715 (1997).
In the future, Antigua Casino may seek to offer wagering services on
sporting events. The use of the Internet for such services may violate the
United States federal wire statute. Due to the relatively recent existence of
wagering over the Internet, the laws dealing with this application are not well
developed. However, on March 4, 1998, the United States Attorney for the
Southern District of New York indicted 14 owners and managers of six Internet
sports betting companies headquartered in the Caribbean and Central America. All
of the individuals were charged with conspiracy to transmit bets and wagers on
sporting events via the Internet in violation of the Federal wire statute. The
indictments were made in spite of the fact that the companies operated by the
defendants were licensed to conduct gaming operations, including one which was
licensed by the Government of Antigua. Although management believes that the
Subsidiaries are in compliance with all applicable existing regulations in those
countries in which they intend to offer wagering services, there can be no
assurance that the United States authorities will not try to assert jurisdiction
against PlayStar if Antigua Casino seeks to offer such services. A determination
that the activities of offshore companies offering wagering services on sporting
events violates applicable United States law could expose the officers and
directors of PlayStar to criminal indictment in the United States and could
require the Subsidiaries to discontinue offering sports wagering services in the
United States. Such an occurrence may have a material adverse effect on the
operations of PlayStar.
Need for Additional Financing
After the consummation of the Reorganization, PlayStar will need
significant additional funds to satisfy the operating and capital requirements
of its Subsidiaries. PlayStar estimates that the total amount of capital
required to proceed with current operations and to bring the Subsidiaries'
products and services to market will be approximately $2,000,000. As of March
30, 1998, PlayStar had only $200,000 of cash. Accordingly, management will have
to raise additional capital through additional sales of unregistered shares of
its Common Stock conducted under exemptions provided by the Securities Act or by
the rules of the Commission. In addition, changes in PlayStar's business or
business plan or unexpected expenses could also affect PlayStar's capital
requirements in the future. PlayStar's future capital requirements will depend
on many factors, including, but not limited to, the cost of marketing
activities, whether it can successfully market its Subsidiaries' products and
services, the rate of market acceptance, the scope of research and development
programs, and competing technological and market developments. If additional
financing is needed, it might not be available on terms acceptable to PlayStar
or at the times required by the PlayStar, if at all, and such financing might
dilute the interests of existing stockholders. See "Management's Discussion and
Analysis of Financial Condition and Plan of Operation."
Certain Tax Consequences
PlayStar believes that the consummation of the Reorganization will be, in
part, a taxable transaction to PlayStar in which a portion of the gain realized
on the transaction will be potentially subject to United States federal income
tax. However, based on the current appraised fair market value of the assets of
PlayStar Delaware (which reflects an appraised fair market value of $0.37 per
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<PAGE>
share of PlayStar Delaware Common Stock), and the availability of deductions
for, and the net operating loss carry over to, the taxable year that will
include the Reorganization, PlayStar believes a reasonable position can be taken
that the United States federal income tax imposed on it as a result of the
consummation of the Reorganization will not be material. Nevertheless, there is
a risk that it may be ultimately determined that any gain realized by PlayStar
upon the consummation of the Reorganization would be taxable in full for United
States federal income tax purposes. Based on the current appraised value of the
assets, and the tax attributes, of PlayStar Delaware, the maximum United States
federal income tax cost arising from the Reorganization would be approximately
$1.9 Million. The appraisal of PlayStar Delaware's assets, although performed by
an independent appraiser, is not binding on the IRS or the courts. If the fair
market value of PlayStar Delaware's assets was ultimately determined to be in
excess of the appraised value, the United States federal income tax cost arising
from the Reorganization could be in excess of $1.9 million. In addition, the
consummation of the Reorganization may also result in potential adverse United
States federal income tax consequences to stockholders of PlayStar Delaware who
are United States persons that directly, indirectly or by attribution, own 10%
or more of the outstanding PlayStar Delaware Common Stock at the Effective Time
of the Reorganization. See "Certain Tax Considerations."
Absence of Prior Market
Currently, there is no established trading market for the PlayStar Antigua
Ordinary Shares. Although an application has been made to list the Ordinary
Shares for trading on the OTCBB, there can be no assurance that such shares will
be approved for listing or that an active public market for the Ordinary Shares
will develop or be sustained.
The Internet Gaming Industry Generally
In general, there can be no assurance that PlayStar will be able to realize
revenues and attain profitability in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
Most Internet markets, including the gaming segment, are relatively
accessible to a wide number of entities and individuals. PlayStar believes,
however, that there are substantial market barriers facing potential providers,
including technology, commerce, regulation, management and reputation. First,
providers must utilize sophisticated systems to manage casino operations,
process financial transactions, encrypt information and provide an attractive
user interface. Providers must also develop relationships with financial
institutions to process gaming transactions. Additionally, providers should
obtain a casino license from an established regulatory agency before offering
Internet gaming services to the public. Providers must also assemble a team of
software, hardware, telecommunications, marketing, management and gaming
specialists to develop the casino's operations. Finally, due to the sensitive
nature of the casino business, providers must develop and maintain an impeccable
reputation in order to attract and retain customers. PlayStar believes that
these market barriers will ultimately preclude the vast majority of prospective
providers from maintaining successful Internet gaming operations.
Technological Changes/Competition
The industry of offering gaming services and casino style games over the
Internet is characterized by rapid and significant technological change in the
computer, software and telephony services. Many entities are engaged in research
and development with respect to offering gaming services on the Internet. There
can be no assurance that PlayStar's competitors will not develop technologies
and products that are more effective and efficient than the PlayStar Limited's
technology and products or that PlayStar Limited's technology and products will
not be rendered obsolete by such developments. There can be no assurance that
other companies with greater financial and technological resources will not
develop gaming services over the Internet with better capabilities than
PlayStar's Subsidiaries.
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<PAGE>
A significant number of companies, organizations and individuals are
currently offering or purporting to offer casino gambling services on the
Internet similar to those developed by the PlayStar's Subsidiaries. PlayStar's
primary competition includes, but is not limited to, CryptoLogic Inc.,
Venturetech Inc., Internet Casinos Ltd., Interactive Gaming and Communications
Corp. (formerly Sports International - USA), Wager Net Inc., Casinos of the
South Pacific, World Wide Web Casinos and Virtual Vegas. PlayStar is aware of
several firms currently accepting wagers on various sporting events with
financial transactions being administered from off-shore accounts. Additionally,
several organizations currently offer lottery tickets for sale on the Internet
for international lotteries.
Risks of Foreign Operations
Antigua Casino and Playstar Limited will derive all of their revenues from
non-Antigua sources. Risks inherent in foreign operations include loss of
revenue, property and equipment from such hazards as expropriation,
nationalization, war, insurrection and other political risks, risks of increase
in taxes and governmental royalties, renegotiation of contracts with
governmental entities, as well as changes in laws and policies governing
operations of foreign based companies. Other risks inherent in foreign
operations are the possibility of realizing foreign currency exchange losses
when transactions are completed in currencies other than United States dollars
and the Subsidiaries' ability or lack of same to freely repatriate its earnings
under foreign exchange control laws.
Furthermore, Antigua Casino and PlayStar Limited may have to comply with
the local laws and regulations in those foreign jurisdictions in which they
elect or are deemed to elect to offer products and services. There can be no
assurance that the Subsidiaries will be able to comply with such laws and
regulations. See "Regulation". In the past, there have been significant
fluctuations in the exchange rates between the dollar and the currencies in many
of the countries in which PlayStar anticipates its subsidiaries doing business.
Further, foreign countries may impose limitations on the amount of currency that
may be withdrawn or repatriated from such countries. Such limitations, if
imposed, could adversely affect PlayStar's liquidity and business.
Dependence on Key Personnel
The future success of Antigua Casino and PlayStar Limited is dependent on
certain key management and technical personnel. The Subsidiaries primarily rely
upon consultants and advisors who are not employees of the Subsidiaries. The
loss of key personnel by the Subsidiaries could have an adverse effect on the
operations of PlayStar. PlayStar does not maintain key-man life insurance on any
such key personnel. The Subsidiaries also plan to hire additional key employees
in fiscal 1998. Competition for qualified employees is intense, and an inability
to attract, retain and motivate additional, highly-skilled personnel required
for the expansion of PlayStar's operations could adversely affect PlayStar's
business, financial condition and results of operations. The Subsidiaries'
ability to retain existing personnel and attract new personnel may be adversely
affected by its current financial situation. There can be no assurance that the
Subsidiaries will be able to retain its existing personnel or attract
additional, qualified persons when required and on acceptable terms.
Patents, Copyrights and Trade Secrets
As of the date hereof, PlayStar does not own or otherwise control any
registered patents, copyrights or trademarks. As the Subsidiaries' research and
development efforts progress, PlayStar will attempt to protect its Subsidiaries'
proprietary technology by relying on trade secret laws and non-disclosure and
confidentiality agreements with their employees and consultants who have access
to their proprietary technology. To date, PlayStar Limited has entered similar
types of agreements only with Dreamplay Research Corp. ("Dreamplay"). Despite
these anticipated protections, no assurance can be given that others will not
independently develop or obtain access to such technology or that PlayStar's
competitive position will not be adversely affected thereby.
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<PAGE>
The Subsidiaries businesses are based on technologies acquired or
otherwise licensed from third parties. There can be no assurance that those
entities licensing or developing the Subsidiaries' technology will have the
financial resources necessary to enforce any patent or copyright rights they may
hold. Although PlayStar is not aware of any infringement claim against its
Subsidiaries' technology, in the event that a future claim against the
technology developer and/or the Subsidiaries are successful, it may be necessary
for the Subsidiaries to obtain additional licenses to such patents or to other
patents or proprietary technology. There can be no assurance that the
Subsidiaries will be able to obtain any such licenses on commercially reasonable
terms. Any disclosure of such technology or development of substantially
equivalent technology could result in increased competition that could
materially and adversely affect the Subsidiaries' revenues and costs of sales.
Future Sales of Common Stock; Exercise of Options and Warrants
The number of shares of PlayStar's outstanding Common Stock held by
non-affiliates is large relative to the trading volume of the Common Stock. Any
substantial sale of Common Stock or even the possibility of such sales occurring
may have an adverse effect on the market price of the Common Stock.
As of April 16, 1998, PlayStar had outstanding options and warrants to
purchase an aggregate of 3,980,000 shares of Common Stock. PlayStar has also
reserved up to an additional 5,963,000 shares of Common Stock for issuance upon
exercise of options which have not yet been granted under PlayStar's stock
option plan. Holders of such warrants and options are likely to exercise them
when, in all likelihood, PlayStar could obtain additional capital on terms more
favorable than those provided by the options and warrants. Further, while its
warrants and options are outstanding, PlayStar's ability to obtain additional
financing on favorable terms may be adversely affected.
Possible Volatility of Stock Price
The market price of the PlayStar Antigua's Ordinary Shares may be highly
volatile. Quarterly operating results of PlayStar, changes in general conditions
in the economy, the financial markets, or the Internet gaming industry
generally, changes in financial estimates by securities analysts or failure by
PlayStar to meet such estimates, litigation involving PlayStar or its
Subsidiaries, actions by governmental agencies or other developments affecting
PlayStar or its competitors, could cause the market price of the PlayStar
Antigua's Ordinary Shares to fluctuate substantially. In particular, the stock
market may experience significant price and volume fluctuations which may affect
the market price of the Ordinary Shares for reasons that are unrelated to
PlayStar's operating performance and that are beyond PlayStar's control.
Potential Anti-Takeover Effect
PlayStar's Board of Directors has the authority, without further approval
of PlayStar's shareholders, to issue preference shares (the "Series Preference
Shares") having such rights, preferences and privileges as the Board of
Directors may determine. Any such issuance of Series Preference Shares could,
under certain circumstances, have the effect of delaying or preventing a change
in control of PlayStar and may adversely affect the rights of holders of
Ordinary Shares.
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REORGANIZATION
General
The Board of Directors of PlayStar Delaware has unanimously approved, and
the Consenting Holders have approved, a corporate reorganization (the
"Reorganization") pursuant to which PlayStar Delaware will become an Antigua
corporation. It is proposed that the Reorganization be effected pursuant to the
Merger Agreement and the Application for Certificate of Transfer. After the
consummation of the Reorganization, PlayStar Antigua will continue to conduct
the business in which PlayStar Delaware is now engaged. The relative voting
rights of PlayStar Antigua will not change as a result of the Reorganization.
See "Description of PlayStar Antigua Capital Stock --Voting and Other Rights"
and "Comparison of Rights of Stockholders".
Background and Reasons for the Reorganization
International activities of PlayStar Delaware's Subsidiaries will be a
significant part of PlayStar Delaware's business activities. PlayStar Delaware's
income is expected to be primarily derived from activities outside of the United
States.
The Board of Directors of PlayStar Delaware believes that the
establishment of an Antigua holding company for PlayStar and the Subsidiaries
will allow PlayStar to organize its international business activities to benefit
from more favorable business, tax and financing environments than would be
available to it if the parent corporation were a United States corporation.
Accordingly, the Board of Directors of PlayStar Delaware and the Consenting
Holders believe the Reorganization should have a favorable impact on the conduct
of PlayStar's future business operations. In particular, the Board of Directors
and the Consenting Holders have approved the Reorganization for the following
reasons:
(i) The Board and the Consenting Holders believe that the creation of
an Antigua parent corporation will reduce corporate income taxes because,
unlike the United States tax system which imposes corporate income tax on
the worldwide income of United States corporations, Antigua imposes no
corporate income taxes on the income of an Antigua IBC. Income taxes will
therefore be reduced to the extent operations are conducted after the
Reorganization by PlayStar Antigua or its Subsidiaries.
(ii) The Board and the Consenting Holders believe that the change of
domicile may have a favorable effect on PlayStar's ability to sell assets
or raise additional capital in the future. The United States Internal
Revenue Code (the "Code") currently provides for the payment of certain
estate taxes in respect of the value of shares in a United States
corporation owned by a non-United States investor. In addition, the
distributions with respect to stock in a United States corporation to
non-resident aliens could be subject to certain withholding taxes under
the Code. The Code currently does not generally provide for withholding
taxes on distributions to non-resident aliens in respect of stock of a
non-United States corporation.
(iii) The Board and the Consenting Holders believe that a holding
company structure in the form proposed by the Reorganization will provide
greater management flexibility and control, as well as a more suitable
corporate structure for expansion of PlayStar's current business and
future acquisitions and diversification opportunities. PlayStar currently
has no plans for specific acquisitions or to diversity its business from
the business it is currently conducting.
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(iv) The Board and the Consenting Holders believe that, as a result
of the proposed legislation in Congress which would subject Internet
gaming activities to United States Federal law and the existence of
different regulatory schemes of the various states which currently
regulate gaming activity in the United States, PlayStar faces legal
impediments to conducting its proposed activities within the United
States. An Antigua domiciled corporation provides a clearer, more
favorable, regulatory environment for PlayStar's business operations.
In determining to approve the Reorganization, the Board and the Consenting
Holders consulted with PlayStar Delaware's management and its financial and
legal advisors in considering the foregoing factors and other factors in
determining to approve the Reorganization.
THE BOARD OF DIRECTORS OF PLAYSTAR DELAWARE HAS UNANIMOUSLY APPROVED AND
THE CONSENTING HOLDERS HAVE APPROVED THE PROPOSED REORGANIZATION.
THE MERGER AGREEMENT AND APPLICATION FOR CERTIFICATE OF TRANSFER
General
It is proposed that the Reorganization be effected pursuant to the Merger
Agreement and the Application for Certificate of Transfer. Pursuant to the
Merger Agreement and the Application for Certificate of Transfer:
(i) PlayStar Delaware will be merged with and into PlayStar Wyoming,
with PlayStar Wyoming being the surviving corporation. PlayStar Wyoming
will then file the Application for Certificate of Transfer with the
Secretary of State of the State of Wyoming. A Certificate of Transfer will
be issued by the Secretary of State of the State of Wyoming, and the
Articles of Continuance and a Certificate of Continuance will be issued by
the Director of International Business Corporations, Antigua, which will
result in PlayStar Wyoming becoming an Antigua corporation pursuant to a
continuation procedure under Antigua and Wyoming law.
(ii) The outstanding shares of PlayStar Delaware Common Stock will be
automatically converted into a number of shares of common stock of
PlayStar Wyoming equal to the number of shares of PlayStar Delaware's
Common Stock outstanding immediately prior to the Effective Time of the
Merger.
(iii) Each outstanding share of common stock of PlayStar Wyoming will
be automatically converted into one Ordinary Share of PlayStar Antigua
upon the filing of the Articles of Continuance and the obtaining of a
Certificate of Continuance from the Director of International Business
Corporations, Antigua.
As a result of the foregoing, upon effectiveness of the Merger and the
Certificate of Continuance, PlayStar Delaware and PlayStar Wyoming will cease to
exist as such, and all the Ordinary Shares of PlayStar Antigua outstanding
immediately after the Reorganization will be owned share for share by former
holders of PlayStar Delaware Common Stock.
The certificate of incorporation of PlayStar Wyoming shall be the
Certificate of Incorporation of the surviving corporation of the Merger and will
read as set forth in the annex to the Merger Agreement and, upon the issuance of
the Certificate of Transfer by the Secretary of State of the State of Wyoming
and the obtaining of the Articles of Continuance and a Certificate of
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Continuance from the Director of International Business Corporations, Antigua,
the Articles of Incorporation of PlayStar Wyoming shall be the Articles of
Continuance of PlayStar Antigua.
Amendment/Termination
PlayStar Delaware and PlayStar Wyoming, by action of their respective
Boards of Directors, may amend, modify or supplement the Merger Agreement or the
Application for Certificate of Transfer at any time; provided that no amendment,
modification or supplement may be made or effected that by law requires further
approval by such stockholders without the further approval of such stockholders.
The Merger Agreement provides that it may be terminated, and the
Reorganization abandoned, at any time, by action of the Board of Directors of
PlayStar Delaware or PlayStar Wyoming.
Effective Time
If the Merger Agreement is not terminated, the Reorganization will become
effective (the "Effective Time") at the close of business on the date that an
appropriate certificate of merger is filed with the Delaware Secretary of State
and the Wyoming Secretary of State as required by Delaware and Wyoming law or at
such later time as is specified in such certificate of merger; and the date that
the Certificate of Transfer has been issued by the Secretary of State of the
State of Wyoming and the Articles of Continuance and the Certificate of
Continuance have been obtained from the Director of International Business
Corporations, Antigua, as required by Wyoming and Antigua law. PlayStar Delaware
anticipates that the Reorganization will become effective on or about [May __,
1998.]
Immediately following the Effective Time of the Reorganization, PlayStar
Antigua will have the same subsidiaries and affiliates and the same directors
and executive officers as PlayStar Delaware had immediately prior to such date.
Rights of Dissenting Stockholders
Pursuant to Section 262 of the DGCL, the holders of PlayStar Delaware
Common Stock will have "dissenters appraisal rights" under Section 262 of the
DGCL in connection with the Merger subject to compliance with the procedures set
forth in Section 262 of the DGCL in connection with the Merger.
Exchange of Share Certificates
Immediately following the Effective Time of the Reorganization, the
stockholders of PlayStar Delaware immediately prior to the Effective Time will
automatically become the owners of PlayStar Antigua's Ordinary Shares and, as of
the Effective Time, will cease to be owners of PlayStar Delaware Common Stock.
Stock certificates representing PlayStar Delaware Common Stock will, at the
Effective Time automatically represent Ordinary Shares. Holders of PlayStar
Delaware Common Stock will not be required to exchange their stock certificates
as a result of the Reorganization. Should a stockholder desire to sell some or
all of his Ordinary Shares after the Effective Time, delivery of the stock
certificate or certificates which previously represented shares of PlayStar
Delaware Common Stock will be sufficient.
Following the Reorganization, certificates bearing the name of PlayStar
Antigua will be issued in the normal course upon surrender for transfer or
exchange of outstanding certificates representing PlayStar Delaware Common
Stock. If any stockholder surrenders a certificate representing shares of
PlayStar Delaware Common Stock for exchange or transfer and the new certificate
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to be issued is to be issued in a name other than that appearing on the
surrendered certificate theretofore representing the PlayStar Delaware Common
Stock, it will be a condition to such exchange or transfer that the surrendered
certificate be properly endorsed and otherwise be in proper form for transfer.
Stock Option Plan
Pursuant to PlayStar Delaware's 1996 Stock Option Plan, such Plan will
become a stock option plan of PlayStar Wyoming upon the Merger, and of PlayStar
Antigua upon the continuance, and each stock option of PlayStar Delaware issued
prior to the Merger will become on stock option of PlayStar Wyoming upon the
Merger and of PlayStar Antigua upon the continuance.
The Consenting Holders' approval of the Reorganization also constitutes
stockholder approval of amendments to the stock option benefit plan providing
for future use of Ordinary Shares in lieu of PlayStar Delaware Common Stock
thereunder.
Stock Listing
There is currently no established public trading market for the Ordinary
Shares. Immediately following the Reorganization, management believes that the
Ordinary Shares will be listed on the OTCBB under the symbol "PSCKF", a symbol
which is substantially similar to that under which the PlayStar Delaware Common
Stock is currently listed.
Accounting Treatment of the Reorganization
The creation of PlayStar Antigua upon the continuation of PlayStar Wyoming
into Antigua in connection with the Reorganization will be accounted for as a
combination of entities under common control (as if it were a pooling of
interests).
CERTAIN TAX CONSIDERATIONS
United States Federal Income Tax Consequences
The following is a summary of certain United States federal income tax
consequences generally applicable to holders of PlayStar Delaware Common Stock
as a result of the Reorganization and of the ownership and disposition of
PlayStar Antigua Ordinary Shares, but it does not purport to be a comprehensive
description of all of the tax considerations that may be relevant to a decision
to participate in the Reorganization or to own or dispose of Ordinary Shares. In
particular, this summary of United States federal income tax matters deals only
with holders who will hold shares as capital assets and does not address the tax
treatment of the Reorganization or of the ownership and disposition of the
Ordinary Shares under applicable State or local tax laws or the laws of any
jurisdiction other than the United States. In addition, this summary does not
address special federal income tax situations, such as rules applicable to
holders who are securities dealers, financial institutions, insurance companies,
or tax exempt organizations; who are holding shares as part of a hedging or
larger integrated financial or conversion transaction; who are citizens or
residents of a possession or territory of the United States; who are United
States holders (as defined below) with a currency other than the U.S. dollar as
their functional currency; who are holding shares pursuant to certain retirement
plans; or who are holding shares pursuant to the exercise of an employee stock
option or otherwise as compensation.
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This summary is based upon the federal income tax laws of the United
States as in effect on the date hereof, including the United States Internal
Revenue Code of 1986, as amended (the "Code"), which are subject to change,
possibly with retroactive effect, and is based upon the opinion of Baker &
McKenzie, special United States tax counsel to PlayStar. In delivering its
opinion, special United States tax counsel has received and relied upon certain
representations from PlayStar, and certain other information, data,
documentation and other materials as special United States tax counsel deems
necessary. There are no regulations, published rulings or judicial decisions
directly on point with respect to certain aspects of the Reorganization and the
securities to be issued pursuant thereto, or to certain aspects of the
continuing business operations of PlayStar. Accordingly, special United States
tax counsel is unable to reach an unqualified conclusion on certain matters as
indicated below. An opinion of tax counsel is not binding upon either the United
States Internal Revenue Service (the "IRS") or the courts. Stockholders of
PlayStar should note that no rulings have been or are expected to be sought from
the IRS with respect to any of the United States federal income tax
considerations discussed below, and no assurance can be given that the IRS or
ultimately the courts will not take contrary positions.
Stockholders should consult their own tax advisers as to the United States
federal income tax consequences of the Reorganization, of the continuing
business operations of PlayStar and of the ownership and disposition of PlayStar
Antigua Ordinary Shares, in addition to the effect of any State or local tax
laws or the laws of any jurisdiction other than the United States. It is
particularly important for exchanging stockholders who are United States holders
(as defined below) who directly, indirectly or by attribution own 10% or more of
the outstanding stock of PlayStar Delaware at the Effective Time of the
Reorganization to consult their own tax advisors as to the United States federal
income tax consequences of the Reorganization. Moreover, all stockholders who
are United States holders should consult their own tax advisers as to the rules
summarized below with respect to passive foreign investment companies.
Definition of United States Holder
As used herein, a "United States holder" means a beneficial owner of
PlayStar Delaware Common Stock or PlayStar Antigua Ordinary Shares, as
applicable, who is a United States person. A "United States person," in turn,
means a citizen or resident of the United States, a corporation or partnership
created or organized in or under the laws of the United States or any State
thereof (unless, in the case of a partnership, future Treasury regulations
presently authorized under the Code otherwise provide), or an estate or trust,
the income of which is subject to United States federal income tax regardless of
its source. A "resident" of the United States includes an individual that (i) is
lawfully admitted for permanent residence in the United States, (ii) is present
in the United States for 183 days or more during a calendar year; or (iii)(a) is
present in the United States for 31 days or more during a calendar year, (b) is
present in the United States for an aggregate of 183 days or more, on a weighted
basis, over a 3-year period ending in such calendar year, and (c) does not have
a closer connection to a "tax home" that is located outside the United States.
The Reorganization of PlayStar
Prior to the Reorganization, PlayStar Delaware will own 100% of the
outstanding shares of PlayStar Limited, a Channel Islands company. PlayStar
Limited, in turn, will own 100% of the outstanding shares of Antigua Casino and
Sportsbook Limited, an Antigua company ("Antigua Casino"). (See "Business of
PlayStar Delaware and PlayStar Antigua - Description of Business of PlayStar"
below). For United States federal income tax purposes, each of PlayStar Limited
and Antigua Casino has elected to be treated as a pass-through entity for United
States federal income tax purposes. Thus, for all United States federal income
tax purposes, the existence of PlayStar Limited or Antigua Casino as a separate
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corporation will be disregarded. For United States federal income tax purposes,
PlayStar Delaware will be deemed to be the direct owner of the assets (including
the intangible assets) held by PlayStar Limited or Antigua Casino, and PlayStar
Delaware will be deemed to conduct the business operations conducted by PlayStar
Limited or Antigua Casino.
Receipt of Ordinary Shares
The merger of PlayStar Delaware into PlayStar Wyoming and the immediately
subsequent continuation of PlayStar Wyoming to Antigua, to become PlayStar
Antigua, should be characterized for United States federal income tax purposes
as one or two reorganizations described under Section 368(a)(1)(F) of the Code
(an "F" reorganization), i.e., a mere change in the place of organization of one
corporation, PlayStar. Generally, an "F" reorganization is a nontaxable
transaction to all persons. However, because PlayStar will change its place of
organization to a jurisdiction outside of the United States, the "F"
reorganization potentially could give rise to United States federal income tax
under Section 367 of the Code.
Pursuant to Section 367(a) of the Code, the temporary Treasury regulations
promulgated thereunder and IRS public pronouncements, the "F" reorganization of
PlayStar should be recharacterized as three separate transactions for purposes
of Section 367 of the Code, namely: (i) a transfer by PlayStar Delaware of all
of its assets (including the assets of PlayStar Delaware held through PlayStar
Limited and Antigua Casino) to PlayStar Antigua in exchange for Ordinary Shares
of PlayStar Antigua, (ii) a distribution of the PlayStar Antigua Ordinary Shares
by PlayStar Delaware, and (iii) an exchange by the stockholders of PlayStar
Delaware of their PlayStar Delaware Common Stock for the PlayStar Antigua
Ordinary Shares. In addition, upon the establishment of PlayStar Antigua,
PlayStar's taxable year for United States federal income tax purposes will
close, and a new taxable year will commence at the Effective Time of the
Reorganization.
In accordance with Sections 354 and 367 of the Code, for transaction (iii)
of the recharacterized "F" reorganization, both the United States and non-United
States stockholders of PlayStar should not recognize any gain or loss on the
exchange of their PlayStar Delaware Common Stock for PlayStar Antigua Ordinary
Shares. Consequently, for United States federal income tax purposes, the
exchanging stockholders' respective adjusted tax bases in, and holding periods
for, the Common Stock of PlayStar Delaware prior to the Reorganization should
carry over and become their respective adjusted tax bases in, and holding
periods for, the Ordinary Shares received in the Reorganization.
Notwithstanding the nontaxable nature of the exchange of PlayStar Delaware
Common Stock for PlayStar Antigua Ordinary Shares, exchanging stockholders who
are United States persons that directly, indirectly or by attribution own 10% or
more of the outstanding stock of PlayStar Delaware at the Effective Time of the
Reorganization (a "10%-or-greater U.S. stockholder") could be subject to
materially adverse United States federal income tax consequences as a result of
the Reorganization. In accordance with Section 367(d) of the Code and temporary
Treasury regulations thereunder, as a result of the deemed transfer of
intangible assets by PlayStar Delaware to PlayStar Antigua and PlayStar
Delaware's subsequent distribution of PlayStar Antigua Ordinary Shares as part
of transactions (i) and (ii) of the recharacterized "F" reorganization described
in the second preceding paragraph, a 10%-or-greater U.S. stockholder would be
required to recognize, subsequent to the Reorganization, deemed royalty income
from PlayStar Antigua. The amount of deemed royalty income to be taken into
account by a 10%-or-greater U.S. stockholder for a taxable year would be an
amount determined to be "commensurate" with the income derived by PlayStar
Antigua for that year from the use of the ratable portion of the transferred
intangible assets of PlayStar Delaware (including the transferred intangible
assets of PlayStar Delaware held through PlayStar Limited and Antigua Casino)
that was attributable to the 10%-or-greater U.S. stockholder's interest in
PlayStar Delaware immediately prior to the Reorganization. Such deemed royalty
income would be ordinary income, and would be taken into account annually over
the remaining useful life of the transferred intangible assets (not to exceed
twenty years). The source of such deemed royalty income (for United States
foreign tax credit limitation purposes) would be generally determined by where
the intangible assets were used by PlayStar Antigua. In accordance with (and
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subject to the rules of) the temporary Treasury regulations under Section
367(d), a 10%-or-greater U.S. stockholder could treat subsequent dividends
distributed on the PlayStar Antigua Ordinary Shares as nontaxable income to the
extent of the prior deemed royalty income taken into account by the stockholder.
However, because a 10%-or-greater U.S. stockholder would not receive any amount
with respect to the Ordinary Shares that would be proportionally in excess of
the amounts paid or distributed to the other stockholders of PlayStar Antigua,
and because the deemed royalty income would be required to be taken into account
for a taxable year by a 10%-or-greater U.S. stockholder regardless of the amount
actually distributed as a dividend by PlayStar Antigua for such year, a
10%-or-greater U.S. stockholder could be subject to United States federal income
tax on income before it was received in cash, or even on income that was never
received in cash by that stockholder, as a result of the Reorganization and the
10%-or-greater U.S. stockholder's retained ownership of the Ordinary Shares of
PlayStar Antigua.
Reporting Requirements
Pursuant to Sections 367(b) and 368 of the Code, and the Treasury
regulations thereunder, a United States holder will be required to file an
information return with such holder's United States federal income tax return
for the taxable year that includes the Reorganization. The information return
must contain a complete statement of all facts pertinent to the nonrecognition
of gain or loss upon the exchange, including:
(i) a statement of the cost or other basis of the PlayStar Delaware
Common Stock transferred in the exchange,
(ii) a statement of the fair market value of the PlayStar Antigua
Ordinary Shares received in the exchange, and
(iii) if the United States holder realized but did not recognize gain on
the exchange under the Reorganization, a statement that the exchange
is an exchange to which Section 367(b) of the Code potentially
applies.
PlayStar Delaware intends to provide information to each United States
holder so as to enable each such holder to timely file an information return as
indicated above.
The Continuing Business Operations of PlayStar
Taxation of PlayStar Antigua
PlayStar Antigua will be classified as a "corporation" for all United
States federal income tax purposes. The Ordinary Shares will be properly
characterized as equity interests in PlayStar Antigua, and PlayStar Antigua will
so characterize all such shares for all United States federal income tax
purposes. PlayStar Antigua's taxable year end for United States federal income
tax purposes will correspond to its fiscal year end of June 30th. PlayStar
Antigua intends to report as a U.S. dollar functional currency taxpayer to the
extent relevant for United States federal income tax purposes.
Subsequent to the Reorganization, PlayStar Antigua will be subject to
United States federal income tax only to the extent that it derives certain
United States source income or income effectively connected with the conduct of
a trade or business within the United States. PlayStar Antigua intends to
conduct its business operations in a manner so that it should not have any
United States source income or income effectively connected with the conduct of
a trade or business within the United States that would be subject to United
States federal income or withholding tax.
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Although not free from doubt, under current United States federal income
tax law, PlayStar Antigua's income derived from providing Internet gaming
services through business operations and activities conducted outside of the
United States should be characterized as non-United States source income, not
subject to United States federal income tax on a gross or net income basis
(provided PlayStar Antigua does not conduct its business within the United
States). However, the United States federal income tax rules applicable to
Internet service providers, such as PlayStar, are currently under review by the
IRS and the United States Congress. Pursuant to future IRS public pronouncements
and/or future United States legislation, to the extent attributable to users of
PlayStar Antigua's gaming services who are located in the United States, it is
possible that all or a portion of the income derived by PlayStar Antigua from
the conduct of its Internet business operations would be treated as United
States source income, and, therefore, potentially subject to United States
federal income tax on either a gross or net income basis. This result might be
possible even though PlayStar Antigua conducts its business operations entirely
outside of the United States.
Nevertheless, because PlayStar Delaware is currently subject to United
States federal income tax on all of its worldwide income, regardless of the
source of that income and regardless of where it conducts its business, it is
anticipated that the United States federal income tax imposed on PlayStar
Antigua's business income will be significantly lower subsequent to the
Reorganization, notwithstanding any future IRS public pronouncements and/or
future United States legislation.
Taxation of Stockholders - United States Holders
Taxation of Dividends
Subject to the discussion of the passive foreign investment company rules
below, a United States holder will be required to include in gross income as a
dividend when received (except as otherwise described above in the context of a
"10%-or-greater U.S. stockholder" - see "United States Federal Income Tax
Consequences The Reorganization of PlayStar - Receipt of Ordinary Shares" above)
the gross amount of any cash or the fair market value of any property
distributed by PlayStar Antigua to the extent of its current and accumulated
earnings and profits as determined under United States federal income tax
principles. Distributions paid in any currency other than the U.S. dollar will
be translated into U.S. dollars at the spot rate on the date the dividends are
received, regardless of whether the dividends are in fact converted to U.S.
dollars on that date.
A distribution by PlayStar Antigua with respect to the Ordinary Shares in
excess of its current and accumulated earnings and profits, as determined under
United States federal income tax principles, will be treated as a tax-free
return of basis in the Ordinary Shares to the extent of a United States holder's
adjusted tax basis in such Ordinary Shares, with the balance of the
distribution, if any, treated as a gain realized by the United States holder
from the sale or disposition of the Ordinary Shares that is includible in gross
income.
The dividends paid by PlayStar Antigua will not be eligible for the
dividends received deduction generally allowed to domestic corporations (such as
PlayStar Delaware prior to the Reorganization). For purposes of the United
States foreign tax credit limitation, dividends paid by PlayStar Antigua
generally will constitute foreign source "passive income" (or, in the case of a
holder who is a "financial services entity" as defined in regulations under the
Code, "financial services income"). All non-corporate United States holders, and
all United States holders that are corporations and which own less than 10% of
the voting stock of PlayStar Antigua, will not be entitled to claim a foreign
tax credit for any taxes paid by PlayStar Antigua or its subsidiaries.
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Taxation of Dispositions of Ordinary Shares
A gain or loss realized and recognized by a United States holder on the
sale or other disposition of an Ordinary Share will be subject to United States
federal income tax on an amount equal to the difference between such United
States holder's adjusted tax basis in the Ordinary Share and the amount realized
on its disposition. A United States holder's adjusted tax basis in an Ordinary
Share will generally be equal to the holder's adjusted tax basis in a share of
PlayStar Delaware Common Stock prior to the Reorganization reduced (but not
below zero) by the U.S. dollar value of any subsequent distribution by PlayStar
Antigua that is treated as a tax-free return of basis.
With the exception of gain, if any, subject to the passive foreign
investment company rules as discussed below, any gain or loss recognized upon
the sale or other disposition of an Ordinary Share will be either short-term
capital gain or loss or, if held for more than one year, long-term capital gain
or loss. As discussed above (see "United States Federal Income Tax Consequences
- - The Reorganization of PlayStar - Receipt of Ordinary Shares"), a United States
holder's holding period for an Ordinary Share will include the applicable
holding period for the share of PlayStar Delaware Common Stock exchanged by the
holder in the Reorganization. For non-corporate United States holders, the
United States income tax rate applicable to a net long-term capital gain
recognized for a year currently will not exceed (i) 20% provided the net
long-term capital gain arose on the disposition of an Ordinary Share held for
more than 18 months, and (ii) 28% for any other net long-term capital gain. For
corporate United States holders, a capital gain is currently taxed at the same
rate as ordinary income. The deductibility of a capital loss, however, is
subject to limitations for both non-corporate and corporate United States
holders.
For purposes of the United States foreign tax credit limitation, a
recognized gain arising on the disposition of an Ordinary Share will be United
States source income. There is a substantial risk, however, that a recognized
loss will be allocated against foreign source income by reference to the source
of income received or expected to be received under the Ordinary Share.
Passive Foreign Investment Company Rules
Special United States federal income tax rules apply to holders of equity
interests in a corporation classified as a "passive foreign investment company"
("PFIC") under the Code. A foreign corporation will constitute a PFIC for United
States federal income tax purposes if 75% or more of its gross income for a
taxable year were to consist of passive income (the "passive income" test), or
50% or more of its average assets held during a taxable year were to consist of
passive assets (the "passive asset" test). Passive assets are defined as assets
that give rise, or that reasonably could give rise during the reasonably
foreseeable future, to passive income. Passive income includes (i) rent and
royalty income, not including rent and royalty income derived from (a) persons
other than related persons from the active conduct of a trade or business and
(b) related persons provided such amounts are properly allocable to the
non-passive income of the related persons, (ii) interest, including interest on
loans extended to customers, (iii) dividends from shares of stock in a
corporation in which the foreign corporation directly or indirectly owns less
than 25% of the value of the stock in the corporation, (iv) income equivalent to
interest and (v) gains from the sale of any property that gives rise to passive
income.
Whether PlayStar Antigua constitutes a PFIC for its short taxable year
commencing at the Effective Time of the Reorganization and ending on June 30,
1998, likely will depend upon (i) whether its business operations commence
during the year and (ii) the classification of its income from rendering
Internet gaming services for United States federal income tax purposes. With
respect to the classification of PlayStar Antigua's business income, PlayStar
Antigua will maintain employees and an office outside the United States that
will (i) regularly perform active and substantial management and operational
functions with respect to its Internet gaming business, (ii) develop and utilize
sophisticated systems to manage casino operations, process financial
transactions, encrypt information and provide user interfaces, and (iii)
regularly market its products and services to unrelated persons. Such activity
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is expected to be substantial in relation to the amount of income derived from
its business operations. Thus, the business income of PlayStar Antigua should be
treated as income derived from the active conduct of a trade or business and,
therefore, such income should not constitute "passive income" for PFIC purposes.
However, it is possible that certain income derived from its Internet gaming
services might be viewed by the IRS as passive income.
The determination of whether or not PlayStar Antigua will be a PFIC will
be based upon the composition of the annual income and assets of PlayStar
Antigua. There is an argument that PlayStar Antigua would not be a PFIC for the
taxable year ending June 30, 1998 (i.e., the first taxable year it was a
"foreign corporation" for United States federal income tax purposes), regardless
of its income or asset composition for the taxable year, provided PlayStar
Antigua was not a PFIC for either of its next two succeeding taxable years.
There can be no assurance, however, that PlayStar Antigua will not be considered
a PFIC for any taxable year. If PlayStar Antigua were a PFIC for the taxable
year ending June 30, 1998, or became a PFIC for any subsequent taxable year,
PlayStar Antigua would continue to be a PFIC with respect to a United States
holder for all subsequent taxable years unless a "qualified electing fund"
("QEF") election (as defined below) were made by such United States holder for
the first taxable year in which the holder owned Ordinary Shares and for which
PlayStar Antigua was a PFIC, or unless other conditions were satisfied by the
United States holder. Thus, United States holders should be aware that adverse
tax consequences could result from PlayStar Antigua's classification as a PFIC
for any taxable year even though PlayStar Antigua might later no longer be
classified as a PFIC under the passive income and passive asset tests.
PlayStar Antigua undertakes to determine annually whether or not it is a
PFIC for any taxable year, and promptly to inform stockholders who are United
States persons in the event that PlayStar Antigua is determined to be a PFIC for
any such year. If PlayStar Antigua becomes a PFIC in any year, PlayStar Antigua
promptly will provide any information necessary for such a holder to make an
election to treat PlayStar Antigua as a QEF for United States federal income tax
purposes (as discussed below).
If PlayStar Antigua becomes a PFIC, a United States holder (whether
direct, indirect or by attribution) should be subject to materially adverse
United States tax treatment under the "excess distribution" rule in that the
holder would be subject to a deferred United States federal income tax charge to
the extent that excess distributions on the Ordinary Shares, if any, are
allocable to a prior taxable year in which both the United States holder
(whether direct, indirect or by attribution) held the Ordinary Shares and
PlayStar Antigua constituted a PFIC. In general, the deferred income tax charge
would be equivalent to an interest charge (at the applicable rate imposed on
underpayments of United States federal income tax) on the United States federal
income tax that was imposed on the portion of the excess distribution allocable
to a prior taxable year. For purposes of the PFIC rules, the term "excess
distribution" generally means that portion of the total annual distributions by
PlayStar Antigua that exceeds 125% of the average annual amount distributed
during the three preceding years (or such shorter period as the United States
holder may have held the Ordinary Shares). In addition, the full amount of any
gain recognized on a disposition or deemed disposition (including a liquidation,
a redemption that is treated as an exchange, a pledge, or a transaction that
fails to qualify for tax-free treatment because the foreign corporation is a
PFIC) of Ordinary Shares by the United States holder will be treated as an
excess distribution.
If PlayStar Antigua is or becomes a PFIC, because the Ordinary Shares
likely will be considered to be "marketable stock" (i.e., stock that is
regularly traded on either a United States national securities exchange that is
registered with the Commission or a non-United States exchange that is
subsequently designated by the IRS), in lieu of the above PFIC rules applicable
to "excess distributions," a United States holder (whether direct, indirect or
by attribution) could make an election to recognize income or loss on the
Ordinary Shares on an annual mark-to-market basis. Pursuant to such an election,
the United States holder would include in income each year an amount equal to
the excess, if any, of the fair market value of the Ordinary Shares as of the
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close of the taxable year over the United States holder's adjusted basis in such
Ordinary Shares. A deduction would be allowed for the excess, if any, of the
adjusted basis of the Ordinary Shares over their fair market value as of the
close of the taxable year, but only to the extent of any net mark-to-market
gains with respect to the Ordinary Shares included by the United States holder
for prior taxable years. Amounts included in income under the mark-to-market
election would be treated as United States source, ordinary income for a United
States holder. Any loss recognized under the election would be deductible as an
ordinary loss, but there is a substantial risk that such loss would be
classified as a foreign source loss for United States foreign tax credit
limitation purposes. This election would apply to the taxable year for which it
was made and to all subsequent taxable years, unless the Ordinary Shares cease
to be "marketable" or the IRS consents to the revocation of the election.
The potential adverse tax consequences of the above PFIC rules may be
mitigated if the United States holder can and does make an election to treat
PlayStar Antigua as a QEF for United States federal income tax purposes. If the
United States holder made such an election, and if PlayStar Antigua complied
with certain reporting requirements, the United States holder would be required
to include annually in gross income its pro rata share of PlayStar Antigua's
ordinary earnings (after deduction for all ordinary and necessary business
expenses) and net realized capital gains, whether or not such amounts were
actually distributed to the United States holder. Such deemed net income
inclusions would be required only for those taxable years in which PlayStar
Antigua was a PFIC under either the passive income or the passive asset test
described above. In the event a QEF election were made, and any undistributed
amounts previously taken into income by an electing holder were subsequently
distributed, such subsequent distribution would generally not be taken into
income in such subsequent year and would not be subject to a deferred United
States federal income tax charge.
In the event that PlayStar Antigua becomes a PFIC, PlayStar Antigua
undertakes that it will comply with all accounting, record keeping and reporting
requirements necessary for a United States holder to make an election to treat
PlayStar Antigua as a QEF, and to provide promptly to each stockholder who is a
United States person information reasonably requested by such person to comply
with United States federal income tax reporting requirements.
There can be no assurance that PlayStar Antigua will distribute an amount
for a year equal to a United States holder's annual inclusion amount if PlayStar
Antigua becomes a PFIC and a QEF election with respect to PlayStar Antigua is
made by the holder. However, because PlayStar Antigua would likely be a PFIC
under the passive income or passive asset test only for those taxable years
prior to the commencement of its business operations (i.e., PlayStar Antigua's
ongoing operating income from the conduct of an Internet gaming services
business should be treated as non-passive income for United States federal
income tax purposes), and because PlayStar Antigua would likely have an overall
net operating loss for each of those taxable years, it is possible that a QEF
election by a United States holder with respect to PlayStar Antigua would not
result in material incremental United States federal income tax to the holder.
For purposes of the PFIC rules, under certain circumstances, Ordinary
Shares held by a stockholder other than a United States person may be attributed
to a United States person owning an interest, directly or indirectly, in that
non-United States stockholder. In such event, dividends and other transactions
in respect of the Ordinary Shares held by the non-United States stockholder
would be attributed to such United States person for purposes of applying the
above PFIC rules. Under certain circumstances, Ordinary Shares held by a United
States holder may also be attributed to another United States person owning an
interest, directly or indirectly, in such United States holder.
A United States holder must file IRS Form 8621 regarding distributions
received with respect to Ordinary Shares and any gain realized on the
disposition or deemed disposition of Ordinary Shares for each taxable year in
which the United States holder owns Ordinary Shares and for which PlayStar
Antigua is a PFIC.
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If PlayStar Antigua becomes a PFIC, ownership of Ordinary Shares by a
United States holder could subject the holder to substantial, adverse United
States federal income tax consequences. United States holders should consult
their own tax advisers regarding whether PlayStar Antigua may become a PFIC and
the potential application of the PFIC rules.
Foreign Personal Holding Company Rules
Special United States federal income tax rules also apply to holders of
equity interests in a "foreign personal holding company" ("FPHC"). A foreign
corporation will constitute a FPHC for United States federal income tax purposes
if (i) five or fewer individuals who are United States persons directly,
indirectly or by attribution own more than 50% of the voting power or the value
of the share capital of the foreign corporation (the "FPHC stockholder test")
and (ii) 50% or more (or 60% or more, in certain years) of its gross income, as
specially adjusted, consists of foreign personal holding company income (defined
generally to include dividends, interest, royalties, stock and securities gains,
rents and certain other passive income) (the "FHPC income test").
If the Ordinary Shares represent stock in a FPHC for any year, a United
States holder generally must include in its gross income for the year its
distributive share of the undistributed foreign personal holding company income
of PlayStar Antigua for the year.
Based on PlayStar Antigua's existing and anticipated future operations,
PlayStar Antigua likely would trigger the FPHC income test for any taxable year
prior to the commencement of its business operations. Once PlayStar Antigua
commences its business operations and derives income from users of its Internet
gaming services for an appreciable period of time during a taxable year,
however, PlayStar Antigua expects that it will not meet the FPHC income test.
Moreover, based on the current ownership of PlayStar Delaware Common Stock and
the anticipated ownership of Ordinary Shares after the Reorganization, PlayStar
Antigua does not expect to meet the FHPC stockholder test for any taxable year.
Thus, PlayStar Antigua believes that after the Reorganization that it will not
be a FPHC.
If PlayStar Antigua becomes a FPHC, PlayStar Antigua intends promptly to
notify each United States holder and to furnish to each United States holder the
information that the holder would need in order to determine its share of
PlayStar Antigua's undistributed foreign personal holding company income for a
taxable year. Failure of a United States holder to report and pay tax on the
undistributed foreign personal holding company income of PlayStar Antigua, if it
becomes a FPHC, could subject the holder to substantial penalties and interest
under the Code.
Personal Holding Company Rules
Special United States federal income tax rules also apply to holders of
equity interests in a corporation classified as a "personal holding company"
("PHC") under the Code. A corporation will constitute a PHC for United States
federal income tax purposes if (i) at least 60% of its adjusted ordinary gross
income consists of enumerated categories of passive income, including dividends,
interest, rents and royalties, but not including active business computer
software royalties (the "PHC income test"), and (ii) at any time during the last
half of the corporation's taxable year five or fewer individuals (regardless of
whether those persons are United States persons or non-United States persons)
directly, indirectly or by attribution own more than 50% of value of the
outstanding stock of the corporation (the "PHC stockholder test"). However, a
foreign corporation will not be a PHC for any taxable year for which it is a
PFIC or FPHC (as defined above).
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PlayStar Antigua likely would trigger the PHC stockholder test because
five or fewer individuals would own more than 50% of the value of the PlayStar
Delaware Common Stock before the Reorganization and more than 50% of the value
of the Ordinary Shares after the Reorganization. Based on PlayStar Antigua's
existing and anticipated future operations, PlayStar Antigua also expects to
trigger the PHC income test for any taxable year prior to the commencement of
its business operations. Once PlayStar Antigua commences its business operations
and derives income from users of its Internet gaming services, however, PlayStar
Antigua expects that it would not meet the PHC income test.
If PlayStar Antigua becomes a PHC for a year, PlayStar Antigua (and not
the stockholders of PlayStar Antigua) will be subject to a special United States
federal income tax of 39.6% on its undistributed personal holding company income
derived from United States sources for such year. Because PlayStar Antigua
anticipates that it will not earn any United States source income, PlayStar
Antigua should not have any undistributed personal holding company income. Even
if future IRS public pronouncements and/or future United States legislation
characterizes a portion of its Internet services income as United States source
income, such income should not be personal holding company income, and PlayStar
Antigua should not be a PHC for a taxable year in which it actively conducts its
Internet gaming services business.
Controlled Foreign Corporation Rules
Special United States federal income tax rules also apply to certain
United States holders of equity interests in a corporation classified as a
"controlled foreign corporation" ("CFC") under the Code. Under Section 951(a) of
the Code, each "United States shareholder" of a CFC must include in its gross
income for United States federal income tax purposes (i) its pro rata share of
the CFC's subpart F income for such taxable year, even if the subpart F income
is not distributed, and (ii) its pro rata share of the CFC's increase in
earnings invested in United States property for such year. In addition, gain on
the sale of stock in a CFC recognized by a United States shareholder is treated
as ordinary income to the extent of the CFC's accumulated undistributed earnings
and profits.
Section 951(b) of the Code defines a United States shareholder as any
United States person who directly, indirectly or by attribution owns 10% or more
of the total combined voting power of all classes of stock of a foreign
corporation. In general, a foreign corporation is treated as a CFC only if such
United States shareholders collectively own, directly, indirectly or by
attribution, more than 50% of the total combined voting power or total value of
the corporation's stock.
Based on the current ownership of PlayStar Delaware Common Stock and the
anticipated ownership of Ordinary Shares after the Reorganization, PlayStar
Antigua does not expect that "United States shareholders" will directly,
indirectly or by attribution own more than 50% of the Ordinary Shares for any
taxable year. Thus, PlayStar Antigua believes that after the Reorganization that
it will not be a CFC.
Taxation of Stockholders - Non-United States Holders
Subject to the discussion of United States backup withholding tax below, a
stockholder of Ordinary Shares other than a United States holder (a "non-United
States holder") will not be subject to United States federal income or
withholding tax on income derived by PlayStar Antigua, dividends paid to a
stockholder by PlayStar Antigua or gains realized on the sale of Ordinary
Shares, provided that (i) such income items are not effectively connected with
the conduct by the non-United States holder of a trade or business within the
United States, (ii) the non-United States holder is not or was not present in,
or does not have or did not have a permanent establishment in, the United
States, (iii) there has not been a present or former connection between the
non-United States holder and the United States, including, without limitation,
such non-United States holder's status as a citizen or former citizen thereof or
resident or former resident thereof, and (iv) in the case of a gain from the
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sale or disposition of Ordinary Shares by an individual, the non-United States
holder is not present in the United States for 183 days or more during the
taxable year of the sale or certain other conditions are met.
United States Backup Withholding Tax and Information Reporting
Generally, a 31% "backup" withholding tax and information reporting
requirements apply to dividends paid on shares of stock, and to proceeds from
the sale of shares, to a noncorporate United States holder, if such a holder
fails to provide a correct taxpayer identification number and other information
or fails to comply with certain other requirements.
Currently, dividends paid on Ordinary Shares by PlayStar Antigua will not
be subject to United States backup withholding tax or information reporting.
However, after December 31, 1999, dividends paid on Ordinary Shares to a United
States holder or a non-United States holder through a United States or United
States-related person (i.e., a person other than a "non-U.S. payor" or "non-U.S.
middleman" as defined in Treasury regulations under the Code) will be subject to
United States backup withholding tax and information reporting, unless the
holder has provided the required certification of its non-United States status
or has otherwise established an exemption. In addition, under currently
effective Treasury regulations, the proceeds from the sale of Ordinary Shares by
a United States holder or a non-United States holder through a United States or
United States-related person will be subject to United States backup withholding
tax and information reporting, unless the holder has provided the required
certification of its non-United States status or has otherwise established an
exemption.
A United States holder can establish an exemption from the imposition of
backup withholding tax by providing a duly completed IRS Form W-9 to the
holder's broker or paying agent, reporting the holder's taxpayer identification
number (which for an individual will be his or her social security number), or
by otherwise establishing its corporate or exempt status. A non-United States
holder can establish an exemption from the imposition of backup withholding tax
and information reporting by providing a duly completed IRS Form W-8 to the
holder's broker or paying agent or by otherwise establishing the holder's
non-United States status.
Any amounts withheld under the backup withholding tax rules from a payment
to a holder will be allowed as a refund or a credit against such holder's United
States federal income tax, provided that the required information is furnished
to the IRS.
Antigua Tax Consequences
According to Antigua counsel, Roberts & Company, St. John's, Antigua, at
the present time there is no Antigua income or profits tax, withholding tax,
capital gains tax, capital transfer tax, estate duty, stamp duty or inheritance
tax payable by an Antigua IBC or its shareholders. Moreover, PlayStar Antigua
and its indirect wholly-owned Antigua incorporated subsidiary, Antigua Casino,
are entitled to rely on the provisions of Section 276 of the Antigua
International Business Corporations Act (the "Antigua IBCA"), which provides
that exemption from Antigua tax "shall continue in effect for a period of fifty
(50) years from the date of incorporation".
Canadian Tax Consequences
The following is a summary of certain Canadian federal income tax
consequences under the Income Tax Act (Canada) (the "ITA") that are generally
applicable as a result of the Reorganization to holders of shares of Playstar
Delaware ("Holders"). This summary does not purport to be a comprehensive
description of all of the Canadian tax considerations that may be relevant to a
decision to participate in the Reorganization. In particular, this summary of
Canadian federal income tax matters does not deal with the liability to taxation
in Canada of any corporation in the Playstar group. This summary deals only with
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Holders who are resident in Canada, deal at arm's length with Playstar Delaware
and hold their shares of Playstar Delaware as capital property, all for the
purposes of the ITA, and who are not subject to special rules in the ITA, such
as the "mark-to-market" rules or the "foreign affiliate" rules.
This summary is based on the provisions of the ITA in effect as of the
date hereof, the regulations thereunder in force as of the date hereof, all
specific proposals to amend the ITA and the regulations publicly announced by
the Minister of Finance (Canada) prior to the date hereof, as well as counsel's
understanding of the current administrative practices of the Minister of
National Revenue (Canada) ("Revenue Canada"). Except for the foregoing, this
summary does not take into account or anticipate any future changes in law,
whether by legislative, governmental or judicial action. This summary is of a
general nature only and does not take into account the tax laws of any province
or territory or of any jurisdiction outside Canada. It is not intended to be,
nor should it be construed to be, legal or tax advice to any Holder.
Accordingly, Holders are urged to consult with their tax advisors for advice
with respect to their particular circumstances. This summary reflects the
opinion of Baker & McKenzie, special Canadian tax counsel to Playstar. In
delivering its opinion, special Canadian tax counsel will receive and rely upon
certain representations from Playstar, and certain other information, data,
documentation and other materials as special Canadian tax counsel deems
necessary. An opinion of tax counsel is not binding upon either Revenue Canada
or the courts. Holders should note that no rulings have been or are expected to
be sought from Revenue Canada with respect to any of the Canadian federal income
tax considerations discussed below, and no assurance can be given that Revenue
Canada or ultimately the courts will take contrary positions.
The merger of Playstar Delaware into Playstar Wyoming will be a nontaxable
transaction to a Holder provided that the conditions in subsections 87(8.1), (8)
and (4) of the ITA are met. It is understood that Playstar Delaware and Playstar
Wyoming were incorporated and continue to be organized under the laws of the
United States and all of the assets and liabilities of Playstar Delaware and
Playstar Wyoming, except their intercompany shareholdings and receivables, will
become assets and liabilities of Playstar Wyoming by virtue of the merger. It is
also understood that all of the shares of Playstar Delaware will become shares
of Playstar Wyoming by virtue of the merger, subject to the rights of dissenting
shareholders of Playstar Delaware. On this basis, and assuming that a Canadian
Holder only receives Playstar Wyoming shares in exchange for the Holder's
Playstar Delaware shares, the conditions in subsections 87(8.1), (8) and (4)
will be substantially met, and the merger will be a nontaxable event to a Holder
provided that the condition discussed immediately below is also met, or is
considered by Revenue Canada to be met.
Paragraph 87(8.1)(c) of the ITA requires that all or substantially all the
shares of the capital stock of Playstar Delaware be exchanged for or become
shares of the capital stock of Playstar Wyoming by virtue of the merger. It is
understood that issued shares owned by a dissenting shareholder of Playstar
Delaware who receives cash after the merger as a result of exercising
dissenter's rights will not become issued shares of Playstar Wyoming. Revenue
Canada has publicly stated that "substantially all" generally means 90%, but the
courts have held that it may mean less than 90%, depending on the circumstances.
Where, as a result of shareholders exercising dissenting rights, substantially
all of the issued shares of Playstar Delaware do not become issued shares of
Playstar Wyoming, the condition in paragraph 87(8.1)(c) may not be met. Revenue
Canada has publicly stated that where domestic Canadian corporations amalgamate,
the amalgamation will not be disqualified as a section 87 nontaxable
amalgamation by reason only of some shareholders of an amalgamating corporation
exercising their dissenting rights and receiving cash instead of shares of the
amalgamated corporation. Revenue Canada has not publicly stated that it will
extend this administrative concession to mergers of United States corporations
that otherwise qualify as section 87 nontaxable foreign mergers. However,
Revenue Canada has indicated in an informal opinion that it will extend this
administrative concession to such mergers. Revenue Canada's informal opinion is
not binding on Revenue Canada or the courts and there are no assurances that
Revenue Canada will not withdraw its administrative concession.
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Where the conditions of subsections 87(8.1), (8) and (4) are met, a Holder
will generally be deemed to have disposed of the shares of Playstar Delaware on
the merger for proceeds of disposition equal to the Holder's adjusted cost base
of the shares of Playstar Delaware, resulting in no gain for Canadian tax
purposes, and will be deemed to have acquired the shares of Playstar Wyoming for
the same amount.
Antigen counsel to Playstar Antigua has indicated that the continuation of
Playstar Wyoming to Antigua to become Playstar Antigua will not result in a new
company being formed. Wyoming counsel to Playstar Wyoming has indicated that
under Wyoming law Playstar Wyoming will be transferred to Antigua as if it had
been incorporated under the laws of Antigua. On this basis the continuation
should be a nontaxable event to a Holder for Canadian tax purposes.
DESCRIPTION OF PLAYSTAR ANTIGUA CAPITAL STOCK
The following statements with respect to PlayStar Antigua's capital stock
are subject to the detailed provisions of PlayStar Antigua's Articles of
Continuance (the "Articles of Continuance"), which will become effective
immediately upon the Effective Time. These statements do not purport to be
complete and, while PlayStar believes the descriptions of the material
provisions of the Articles of Continuance, contained in this Information
Statement/Prospectus will be accurate statements with respect to such material
provisions, such statements are subject to the detailed provisions in the
Articles of Continuance to which reference is hereby made for a full description
of such provisions.
Capitalization
The Articles of Continuance will provide that the authorized share capital
of PlayStar Antigua will be divided into 50,000,000 Ordinary Shares, par value
U.S. $.0001 per share, and 1,000,000 shares of Series Preference Stock, par
value U.S. $.0001 per share.
Voting and Other Rights
Under the Articles of Continuance, the holders of Ordinary Shares will be
entitled to one vote for each share held on all matters submitted to
stockholders' meetings, including the election and removal of directors, and
will vote together as a single class with any voting preference shares unless
the terms of any voting preference shares otherwise provide. The By-Laws of
PlayStar Antigua will provide that the quorum required for a general meeting of
the stockholders is a majority of the outstanding Ordinary Shares entitled to
vote at such meeting. All matters voted upon at any duly held stockholders'
meeting shall be carried by a majority of the votes cast at the meeting by
stockholders represented in person or by proxy, except (i) approval of a merger
or a similar arrangement, which, pursuant to Antigua law, requires the approval
by way of Special Resolution, as defined in the Antigua IBCA, namely a
resolution that is submitted to a special meeting of the shareholders duly
called for the purposes of considering the same, and passed with or without
amendment at the meeting by at least two-thirds of the votes cast (a "Special
Resolution"). See "Comparison of Stockholder Rights -- Stockholder Approval of
Business Combinations." A change of corporate name, the voluntary dissolution,
liquidation or winding-up of the affairs of PlayStar Antigua, a reduction of
paid-up share capital, and any amendment to PlayStar Antigua's Articles of
Continuance require approval by a Special Resolution. The Board of Directors or
the President may at any time proceed to convene a special meeting of PlayStar
Antigua. PlayStar Antigua will have to provide at least twenty- one (21) days'
notice of a special meeting.
Because holders are not entitled to cumulate their votes, stockholders
holding a majority of the outstanding Ordinary Shares, voting together as a
class with the holders of any voting preference shares which may be issued, will
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be able to elect all members of the board of directors of PlayStar Antigua. In
accordance with the By-Laws of PlayStar Antigua, holders of Ordinary Shares have
no preemptive rights.
There are no limitations on the right of nonresident stockholders to hold
or vote their Ordinary Shares imposed by Antigua law or PlayStar Antigua's
Articles of Continuance.
Dividend Rights
The holders of Ordinary Shares will be entitled at any time to receive
such dividends as are declared by the Board of Directors. PlayStar Antigua
currently intends to retain earnings for use in PlayStar Antigua's business and
the financing of its capital requirements. The payment of any future cash
dividends is necessarily dependent upon the earnings and financial needs of
PlayStar, along with applicable legal and contractual restrictions.
Changes in Capitalization
PlayStar Antigua will be able by Special Resolution, to (i) increase its
share capital by new shares of such amounts as the resolution prescribes; (ii)
consolidate all or any of its share capital into shares of larger amount than
its existing shares (similar to a stock combination); (iii) subject to the
provisions of the Antigua IBCA subdivide its shares or any of them, into shares
of smaller amount than is fixed by its Articles of Continuance; and (iv) cancel
shares which, at the date of the passing of the resolution, have not been taken
or agreed to be taken by any person and diminish the amount of its share capital
by the amount of the shares so canceled.
Reduction of Capital and Purchase of Shares
Subject to the provisions of the Antigua IBCA, PlayStar Antigua will be
able by Special Resolution to reduce its share capital in any way. Subject to
the provisions of PlayStar's Articles of Continuance and to the Antigua IBCA,
PlayStar Antigua may purchase or otherwise acquire any of its issued Ordinary
Shares, in such circumstances and on such terms as shall be agreed by PlayStar
Antigua and the holder thereof. PlayStar Antigua will be able to purchase all or
part of the Ordinary Shares of any holder upon the agreement of such holder
whether or not it has made a similar offer to all or any other holders.
Transfer of Shares
Upon surrender to PlayStar Antigua or the transfer agent of PlayStar
Antigua of a certificate for Ordinary Shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, and
otherwise meeting all legal requirements for transfer, PlayStar Antigua or its
duly authorized registrar and transfer agent shall issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction on its books.
Preference Shares
Under the Articles of Continuance, PlayStar Antigua will have the
authority to issue 1,000,000 shares of Series Preferred Stock (the "Series
Preference Stock"). There are currently no Series Preference Stock outstanding
nor does the Board of Directors have any present intention to issue any such
shares. Under the Articles of Continuance of PlayStar Antigua, the Board of
Directors of PlayStar Antigua will be able to establish one or more additional
classes or series of Series Preference Stock having the number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences, and limitations that the Board of Directors fixes without
any stockholder approval. Such provisions could hinder an attempt to acquire
control of PlayStar Antigua.
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COMPARISON OF STOCKHOLDER RIGHTS
The rights of stockholders of PlayStar Delaware are governed by Delaware
law and PlayStar Delaware's Certificate of Incorporation and By-Laws. After the
Reorganization, the stockholders of PlayStar Delaware will become stockholders
of PlayStar Antigua and their rights will be governed by the Antigua IBCA and
PlayStar Antigua's Articles of Continuance and By-Laws.
The principal attributes of the PlayStar Delaware Common Stock and the
PlayStar Antigua Ordinary Shares will be similar; however, there will be certain
differences between the rights of stockholders under Delaware law and Antigua
law. In addition, there are certain differences between PlayStar Delaware's
Certificate of Incorporation and By-Laws, and PlayStar Antigua's Articles of
Continuance and By-Laws. The following discussion is a summary of certain
changes in the rights of stockholders resulting from the Reorganization
described in this Information Statement/Prospectus. This summary does not
purport to be complete or to cover all of the respects in which Antigua law may
differ from laws generally applicable to Delaware corporations and their
stockholders and, while PlayStar Delaware and PlayStar Antigua believe that this
summary is accurate, this summary is subject to the complete text of the
relevant provisions of the Antigua IBCA, the Delaware General Corporation Law
("DGCL"), PlayStar Delaware's Certificate of Incorporation and By-Laws and
PlayStar Antigua's Articles of Continuance and By-Laws.
Stockholder Approval of Business Combinations
Under the DGCL, there is no statutory restriction on a Delaware
corporation's ability to acquire the business of another corporation. However, a
merger or consolidation, sale, lease, exchange or other disposition of all or
substantially all of the property of the corporation (a "Disposition") not in
the usual and regular course of the corporation's business, or a dissolution of
the corporation, is required under the DGCL to be approved by the holders of a
majority of the shares entitled to vote thereon unless the certificate of
incorporation provides otherwise. In addition, under the DGCL, class voting
rights exist with respect to amendments to the certificate of incorporation that
adversely affect the terms of the shares of a class. See "Amendment of Charter"
below. Such class voting rights do not exist as to other extraordinary matters,
unless the certificate of incorporation provides otherwise; the Certificate of
Incorporation of PlayStar Delaware does not provide otherwise.
The Antigua IBCA requires the approval of the holders of at least
two-thirds (2/3) of the votes cast at a Special Meeting called for such purpose
for PlayStar Antigua to (i) merge, consolidate or amalgamate with another
company or (ii) reorganize or reconstruct itself pursuant to a plan sanctioned
by the Antigua courts.
Absence of Required Vote for Certain Mergers
Under the DGCL, no vote of the stockholders of a corporation surviving a
merger is required to approve a merger if (i) the agreement of merger does not
amend the certificate of incorporation of such corporation, (ii) each share of
stock of such corporation outstanding immediately before the merger is to be an
identical outstanding or treasury share of the surviving corporation thereafter
and (iii) the number of shares of common stock of such corporation to be issued
in the merger, if any, does not exceed 20% of the number of shares outstanding
immediately before the merger.
There is no equivalent provision in the Antigua IBCA and therefore the
stockholders of the surviving company in such a situation would be entitled to
vote on the merger as described above. See "Stockholder Approval of Business
Combinations" above.
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Appraisal Rights
Under the DGCL, a stockholder of a corporation does not have appraisal
rights in connection with a merger or consolidation or, in the case of a
Disposition, if (i) the shares of such corporation are listed on a national
securities exchange or held of record by more than 2,000 stockholders, as is
presently not the case with PlayStar Delaware, or (ii) such corporation will be
the surviving corporation of the merger and no vote of the stockholders of the
surviving corporation is required to approve such merger; provided, however,
that a stockholder is entitled to appraisal rights in the case of a merger or
consolidation if such stockholder is required by the terms of an agreement of
merger or consolidation to accept in exchange for the shares of such stockholder
anything other than (i) shares of stock of the corporation surviving or
resulting from such merger or consolidation, (ii) shares of any other
corporation that on the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of record by more than
2,000 stockholders, (iii) cash in lieu of fractional shares of the corporation
described in the foregoing clauses (i) and (ii), or (iv) any combination of the
foregoing.
The Antigua IBCA does not provide for appraisal rights. However, in the
case of a court sanctioned reorganization of an Antigua company as described in
"Stockholder Approval of Business Combinations" above, a dissenting stockholder
has the right to express to the court such stockholder's view that the
transaction sought to be approved would not provide the stockholders with the
fair value of their shares.
Special Meetings of Stockholders
Under the DGCL, a special meeting of stockholders may be called only by
the board of directors or by persons authorized in the certificate of
incorporation or the Bylaws. The By-Laws of PlayStar Delaware provide for the
call of a special meeting of stockholders only by the President or Secretary, or
by resolution of the Board of Directors of PlayStar Delaware.
Under the Antigua IBCA, a Special Meeting will be able to be called by the
Board of Directors of PlayStar Antigua or by the holders of not less than five
percent (5%) of the issued shares of a corporation that carry the right to vote
at the meeting sought to be held.
Distributions and Dividends; Repurchases and Redemptions
Under the DGCL, a corporation may pay dividends out of surplus and, if
there is no surplus, out of net profits for the current and/or the preceding
fiscal year, unless the net assets of the corporation are less than the capital
represented by issued and outstanding stock having a preference on asset
distributions. Surplus is defined in the DGCL as the excess of the net assets
over capital, as such capital may be adjusted by the board. A Delaware
corporation may purchase or redeem shares of any class except when its capital
is impaired or would be impaired by such purchase or redemption. A corporation
may, however, purchase or redeem out of capital shares that are entitled upon
any distribution of its assets to a preference over another class or series of
its stock if such shares are to be retired and the capital reduced.
Under the Antigua IBCA, the directors may pay to the stockholders such
dividends as appear to the directors to be justified by the profits of PlayStar
Antigua unless the corporation is unable or would, after the payment, be unable
to pay its liabilities as they become due, or the realizable value of the
corporation's assets would thereby be less than the aggregate of its liabilities
and stated capital of all classes.
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Vacancies on Board of Directors
Under the DGCL, a vacancy and a newly created directorship may be filled
by a majority of the remaining directors, although less than a quorum, unless
otherwise provided in the certificate of incorporation or Bylaws. Neither the
Certificate of Incorporation nor the By-Laws of PlayStar Delaware otherwise so
provides.
The Antigua IBCA and the By-Laws of PlayStar Antigua will provide that a
vacancy and a newly created directorship may be filled by a majority of the
remaining directors, so long as a quorum of directors continues to exist at all
times.
Removal of Directors
Under the DGCL, except in the case of a corporation with a classified
board, any director or the entire board may be removed, with or without cause,
by the holders of a majority of the shares entitled to vote at an election of
directors.
The Antigua IBCA provides that directors may be removed by the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote.
Inspection of Books and Records
Under the DGCL, any stockholder may inspect the corporation's books and
records for a proper purpose.
Shareholders of an Antigua company may inspect or obtain copies of the
list of shareholders, corporate records or financial statements pertaining
thereto.
Amendment of Certificate of Incorporation
Under the DGCL, the certificate of incorporation may be amended if (i) the
board of directors sets forth the proposed amendment in a resolution, declares
the advisability of the amendment and directs that it be submitted to a vote at
the meeting of stockholders and (ii) the holders of at least a majority of
shares of stock entitled to vote thereon approve the amendment, unless the
certificate of incorporation requires the vote of a greater number of shares. If
the holders of the outstanding shares of a class are entitled to vote as a class
upon a proposed amendment, the holders of a majority of the outstanding shares
of such class must also vote in favor of the amendment.
Under the Antigua IBCA, the Articles of Continuance may only be amended by
a Special Resolution.
Amendment of By-Laws
Under the DGCL, the board of directors may amend Bylaws if so authorized
in the certificate of incorporation. The stockholders of a Delaware corporation
also have the power to amend Bylaws. The Certificate of Incorporation of
PlayStar Delaware authorizes the Board of Directors to alter, amend, repeal or
adopt its By-Laws.
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Under the Antigua IBCA, the By-Laws of PlayStar Antigua may only be
amended by a Special Resolution.
Indemnification of Directors and Officers
The Antigua IBCA and the DGCL have different provisions and limitations
regarding indemnification by a corporation of its officers, directors, employees
and agents. If the Reorganization is approved, the Antigua IBCA indemnification
provisions will not apply to any act or omission that occurs before the
Effective Time. The following is a summary comparison of the Antigua IBCA and
DGCL indemnification provisions:
Under the DGCL, indemnification rights are expressly non-exclusive. A
corporation is permitted to provide indemnification or advancement of expenses,
by by-law provisions, agreement or otherwise, against judgments, fines, expenses
and amounts paid in settlement actually and reasonably incurred by the person in
connection with such proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. The Certificate of Incorporation and the By-Laws of PlayStar
Delaware make indemnification mandatory on the part of the PlayStar Delaware to
the fullest extent permitted by law.
Antigua law does not limit the extent to which a company's Articles of
Incorporation and/or By-Laws may provide for the indemnification of officers and
directors, except to the extent that such provision may be held by the Antigua
courts to be contrary to public policy (for instance, for purporting to provide
indemnification against the consequences of committing a crime). In addition, an
officer or director may not be indemnified for his own dishonesty or willful
neglect or default.
The Articles of Continuance of PlayStar Antigua will contain provisions
providing for the indemnity by PlayStar Antigua of an officer, director,
employee or agent of PlayStar Antigua to the same extent as permitted under the
Certificate of Incorporation of PlayStar Delaware.
Limited Liability of Directors
Section 102(b)(7) ("Section 102") of the DGCL permits the adoption of a
certificate of incorporation provision limiting or eliminating the monetary
liability of a director to a corporation or its stockholders by reason of a
director's breach of the fiduciary duty of care. Section 102 does not permit any
limitation of the liability of a director for (i) breaching the duty of loyalty
to the corporation or its stockholders, (ii) failing to act in good faith, (iii)
engaging in intentional misconduct or a known violation of law, (iv) obtaining
an improper personal benefit from the corporation or (v) paying a dividend or
approving a stock repurchase that was illegal under the DGCL. The Certificate of
Incorporation of PlayStar Delaware eliminates the monetary liability of a
director to the fullest extent permitted by the DGCL.
There is no equivalent provision under the Antigua IBCA.
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PRO FORMA FINANCIAL INFORMATION
PLAYSTAR ANTIGUA AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet and Statement of
Operations
(Unaudited)
The following unaudited pro-forma consolidated balance sheet at December
31, 1997 and statements of loss for the period October 3, 1996 (date of
inception) to June 30, 1997 and for the six months ended December 31, 1997 are
presented for PlayStar Delaware and PlayStar Antigua. The statements give effect
to the Merger of PlayStar Delaware into PlayStar Antigua, as if the transaction
had occurred on October 3, 1996. These pro-forma statements may not be
indicative of the results of operations that actually would have occurred if the
merger had been in effect on the date indicated or which may be obtained in the
future. The pro-forma financial statements should be read in conjunction with
the historical financial statements and notes of PlayStar Delaware, which are
included elsewhere this Joint Prospectus/Proxy Statement.
CONSOLIDATED PRO FORMA BALANCE SHEETS
AS AT DECEMBER 31, 1997
(U.S.$)
Playstar Playstar Pro Forma
Delaware Antigua Combined
-------- -------- ---------
ASSETS
CURRENT
Cash and cash equivalents $363,446 $ - $363,446
75,000 - 75,000
--------- ------- --------
$438,446 $ - $438,446
========= ======= =========
LIABILITIES
CURRENT
Accounts payable and accrued $ 15,326 $ $ 15,326
liabilities --------- -------- ---------
SHAREHOLDERS' EQUITY
CAPITAL STOCK
Authorized
30,000,000 common shares at par
value $.0001 per share;
(50,000,000 common shares at
par value $.0001 per share
pro forma)
Issued and outstanding
17,781,744 common shares 1,778 - 1,778
--------
ADDITIONAL PAID-IN CAPITAL 1,623,797 - 1,623,797
--------
DEFICIT, accumulated during the 1,202,455 - (1,202,455)
development stage --------- -------- -----------
423,120 - 423,120
--------- -------- -----------
$ 438,446 $ $ 438,446
---------- -------- -----------
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CONSOLIDATED PRO FORMA STATEMENTS OF LOSS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996, TO JUNE 30, 1997
Playstar Playstar Pro Forma
Delaware Antigua Combined
-------- -------- ---------
REVENUE
Interest income $3,022 $ - $3,002
--------
EXPENSES
Development costs $754,527 $754,527
General and administrative 13,856 13,856
Professional fees 14,415 14,415
Incorporation costs 3,456 3,456
--------- ---------
$786,254 - $ 786,254
--------- --------- ---------
NET LOSS $(783,232) $ - $(783.232)
========== ========= ==========
LOSS PER SHARE $(.05) $ (.05)
======== ===========
WEIGHTED AVERAGE NUMBER 17,781.744 17,781,744
OF SHARES OUTSTANDING
CONSOLIDATED PRO FORMA STATEMENT OF LOSS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(U.S.$)
Playstar Playstar Pro Forma
Delaware Antigua Combined
-------- -------- ----------
REVENUE
Interest income $ 523 $ - $ 523
-------- ---------- ---------
EXPENSES
Development costs 386,043 386,043
General and administrative 8,037 8,037
Professional fees 25,666 $ 25,666
--------- ---------- ---------
$419,746 $ - $ 419,746
--------- ---------- ---------
NET LOSS $(419,223) $ - $(419,223)
========= ========== =========
LOSS PER SHARE (.03) $ (.03)
----- ------------
WEIGHTED AVERAGE NUMBER 16,140,707 16,140,707
OF SHARES OUTSTANDING
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following Management's Discussion and Analysis of Financial Condition
and Plan of Operations includes forward-looking statements with respect to
PlayStar's future financial performance. These forward-looking statements are
subject to various risks and uncertainties, including the factors described
under "Risk Factors" and elsewhere in this Prospectus, that could cause actual
results to differ materially from historical results or those currently
anticipated.
PlayStar Delaware/PlayStar Antigua
PlayStar Delaware is a holding company which, through its subsidiaries,
PlayStar Limited and Antigua Casino, intends to operate, promote and
commercialize an on-line gaming service which will offer interactive,
software-based games of chance. Antigua Casino will conduct PlayStar's Internet
gaming business, and PlayStar Limited will license gaming technology to Antigua
Casino's Internet gaming business.
PlayStar Delaware was incorporated in the State of Delaware on October 3,
1996. During the succeeding months, PlayStar raised an aggregate of $1,000,000
in capital through three private placements completed pursuant to Rule 504
promulgated under the Securities Act. PlayStar Delaware recently raised an
additional $1,004,637 through two additional private placements completed
pursuant to Section 4(2) of the Securities Act and Regulations D and S
promulgated thereunder. This financing has been sufficient to satisfy PlayStar's
cash requirements through the date hereof. From these proceeds, the Subsidiaries
paid approximately $785,000 for products provided by Dreamplay Research Corp.
("Dreamplay") and approximately $375,000 for legal, accounting, public relations
and administrative services. PlayStar estimates, however, that the total amount
of capital required to proceed with current operations and to bring the
Subsidiaries' products and services to market will be approximately $2,000,000,
including approximately $175,000 for research and development, approximately
$850,000 for advertising, marketing and promotional efforts, and approximately
$975,000 for working capital. As PlayStar had only $200,000 on hand as of March
30, 1998, management intends to raise additional capital through additional
sales of unregistered shares of its Common Stock conducted under exemptions
provided by the Securities Act or by the rules of the Commission in order to
meet PlayStar's capital requirements.
PlayStar Limited
PlayStar Limited's initial efforts for its first twelve months centered on
the purchase of on-line gaming and financial transaction processing software.
During this period, PlayStar Limited developed its software games and system
test site. PlayStar Limited's casino management system recently entered the
final stages of development, and PlayStar Limited has begun beta testing of the
system. PlayStar Limited intends to license its gaming technology to Antigua
Casino which will then operate the electronic casino.
Antigua Casino
In December 1997, PlayStar Limited, on behalf of Antigua Casino, applied
to the government of Antigua for an electronic casino gaming license. On January
28, 1998, the Antigua government granted approval for the issuance of the
license to Antigua Casino. Antigua Casino intends to establish its operations
base and begin operation of its on-line casino during the first six months of
1998.
The launch of the on-line casino will be a critical factor for Antigua
Casino's success. Accordingly, PlayStar's management plans to announce the
opening of the casino through selected world media, press conferences and an
advertising campaign. Management is currently negotiating with an established
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marketing communications firm and media buying company to oversee Antigua
Casino's promotional efforts and advertising needs.
During the next twelve months, Antigua Casino intends to acquire and lease
computer and telecommunications equipment to facilitate its computer operations
center. The estimated cost of this equipment will be approximately $1,200,000.
Dreamplay has bought approximately $300,000 worth of hardware/software, which it
will provide to Antigua Casino and install into the casino as part of its
agreement with PlayStar Limited.
Finally, since Antigua Casino's revenues depend on customer gaming
activities, PlayStar's management will endeavor to develop a loyal customer
base. Antigua Casino marketing will be directed to establish PlayStar and its
PlayStar-brand products as the mark of integrity, quality and innovation in both
the Internet gaming and interactive entertainment markets. Ultimately,
PlayStar's management foresees that such efforts will establish the "PlayStar"
name as a premier brand in on-line gaming.
Year 2000 Compliance
PlayStar believes that it is year 2000 compliant, and does not currently
anticipate any disruption in its operations as the result of any failure by
PlayStar to be in compliance. PlayStar does not currently have any information
concerning the year 2000 compliance status of its suppliers and customers.
New Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to all entities with publicly-held common
shares or potential common shares. This Statement replaces the presentation of
primary EPS and fully-diluted EPS with a presentation of basic EPS and diluted
EPS, respectively. Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average number of
common shares outstanding for the period. Similar to fully diluted EPS, diluted
EPS reflects the potential dilution of securities that could share in the
earnings. This Statement is not expected to have a material effect on PlayStar's
reported EPS amounts. The Statement is effective for PlayStar's financial
statements for the quarter ending December 31, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
This Statement establishes standards for reporting and display of comprehensive
income and its components in financial statements. The Statement is effective
for PlayStar's financial statements for the year ending June 30, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for the
way a public business enterprise reports certain information about operating
segments, and discloses enterprise-wide information about PlayStar's products
and services, activities in different geographic areas, and PlayStar's reliance
on major customers. The statement is effective for PlayStar's financial
statements for the year ending June 30, 1999.
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BUSINESS OF PLAYSTAR
Introduction
Following the Effective Time of the Reorganization, PlayStar Antigua will
conduct the business previously carried on by PlayStar Delaware. Except for
PlayStar Antigua's domicile, the activities of PlayStar Antigua will be
identical to that of PlayStar Delaware prior to the Effective Time. Accordingly,
references in the discussion of the business of PlayStar include the operations
of PlayStar Delaware and PlayStar Antigua.
Description of Business of PlayStar
PlayStar
PlayStar Delaware, through the Subsidiaries, PlayStar Limited and Antigua
Casino, intends to operate, promote and commercialize interactive,
software-based games of chance which will be offered as an on-line service
accessible world-wide on the Internet. PlayStar Delaware was incorporated in the
State of Delaware on October 3, 1996 under the name Global Games Corporation. On
October 9, 1996, PlayStar Delaware acquired all of the issued and outstanding
shares of common stock of PlayStar Limited, incorporated on October 9, 1996.
PlayStar Limited and Antigua Casino
PlayStar Limited has purchased and intends to license, promote and
commercialize an on-line casino system, "gaming software" offering casino
operators interactive, software-based games of chance accessible world-wide
through the Internet. These products are being tested at www.antigua.org.
Antigua Casino's Articles of Incorporation enable it to operate a
Internet-based casino. Using the technology developed by PlayStar Limited and
licensed to it, Antigua Casino's casino service will allow patrons to play
interactive games in real time either in "free" mode or in "live" mode. In
"live" mode, patrons will wager with real money in various forms, including
electronic money or "e-cash," credit cards, wire-transfers, money-orders and
personal account debits. Antigua Casino will initially offer a selection of
casino-style games, including, but not limited to, blackjack, draw poker,
baccarat, roulette and three different slot machines.
In December 1997, PlayStar Limited, on behalf of Antigua Casino, applied
to the government of Antigua for an electronic casino gaming license. On January
28, 1998, the Antigua government granted approval for the issuance of the
license to Antigua Casino. Antigua Casino intends to establish its operations
base and begin operation of its on-line casino during the first six months of
1998.
PlayStar Limited's games are designed to be entertaining and captivating.
Moreover, the games have been adapted to the idiosyncrasies of the Internet. For
example, at times, due to "noise" on telephone lines or other unpredictable
technical glitches, connections between computers may terminate. To respond to
such problems, PlayStar Limited's software keeps track of the precise status of
the game. If a game is interrupted, the patron needs only to return to the
casino website and the game will be restored to the moment the disconnection
occurred.
PlayStar Limited began testing its games on March 31, 1997. PlayStar
Limited's client/server systems have performed as expected during this testing,
and PlayStar Limited believes that its systems require only minor improvements.
The number of visitors to the casino site and the total amount "wagered" during
the testing period, however, has greatly exceeded PlayStar's expectations.
Moreover, these visitors have provided PlayStar Limited with valuable comments
and feedback, which have been incorporated by PlayStar Limited to improve its
products.
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Antigua Casino does not plan to require patrons to maintain a minimum
account balance or place any restrictions on amounts accumulated through
winnings. Antigua Casino does plan, however, to establish a maximum bet limit
for new customers. Antigua Casino may, at its discretion, grant custom wagering
and account options to its regular customers based upon their established
profiles. At the present time, Antigua Casino does not intend to extend credit
services to its patrons.
Antigua Casino intends to attract patrons to its service by providing
quality content through innovative use of animation and graphic design. The
Antigua Casino website has been designed with simplicity and effectiveness in
mind. Patrons are able to browse the website and try any game in "free" mode.
When a patron decides to open an account, the relevant financial information
will be processed. Once an account is open, patrons may elect to play any of
Antigua Casino games in "live" mode and wager against the patrons' accounts.
Antigua Casino will also allow patrons to review their accounts and cash-out at
any time.
Antigua Casino intends to accept several forms of payment to process
customer financial transactions, including e-cash, credit cards, wire-transfers,
money-orders and personal account debits. Antigua Casino will license certain
software which will permit Antigua Casino to authenticate and process credit
card and other financial transactions which occur over the Internet. Antigua
Casino intends to work closely with international banking institutions that have
experience providing electronic and Internet payment clearing services. Antigua
Casino is also currently negotiating with several banks to establish check, wire
transfer and third-party funds transfer services.
Customers and Marketing
Antigua Casino's target market is individuals located throughout the world
who are current on-line users and at least 18 years of age. According to the
Internet Society, there are currently 60 to 80 million such people world-wide
who regularly access the Internet. Moreover, Internet use is expected to grow by
as much as 80% each year.
Antigua Casino plans to protect all customer data and information with
high-level security systems and password encryption software. Patrons will be
issued both an account identification number and a PIN number. Any wagering or
patron functions, such as an account review or a cash-out, will require the
correct identification numbers. Antigua Casino will not require identification
numbers to browse its website or play games in "free" mode.
In order to create an awareness of Antigua Casino's existence among
individuals in the target market, Antigua Casino intends to focus its marketing
efforts primarily on traditional media advertising, public relations programs,
on-line promotions, business development, third-party relationships and social
programs. While Antigua Casino is not currently conducting any marketing
programs, Antigua Casino is preparing a detailed marketing and advertising plan
which will commence upon the launch of the on-line casino. To ensure the
creation of an effective advertising program, Antigua Casino is currently
negotiating with an established marketing communications firm and a media buying
company to oversee Antigua Casino's promotional efforts and advertising needs.
Antigua Casino does not currently intend to limit its marketing and
advertising program to particular jurisdictions. However, Antigua Casino may
exclude the United States or any other jurisdiction from its promotional efforts
if such efforts or activities are determined to be prohibited by applicable law.
See "Regulation."
Research and Development
Since PlayStar Delaware's inception in October 1996, the Subsidiaries have
expended approximately $785,000 on research and development activities.
Effective April 1, 1998, PlayStar Limited and Dreamplay entered into an
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agreement (the "Dreamplay Agreement") pursuant to which PlayStar Limited
retained Dreamplay to provide PlayStar Limited's gaming software. Pursuant to
the terms of the Dreamplay Agreement, Dreamplay has assigned to PlayStar Limited
all right, title and interest in the software designed and developed for
PlayStar Limited. To date, PlayStar Limited has paid Dreamplay approximately
$785,000 for the provision and installation of gaming software.
PlayStar Limited intends to continue the development of additional casino
games, including, but not limited to, Caribbean poker, pai gow, sic bo, craps
and two-up. Additionally, PlayStar Limited believes that other games, more
interactive in nature, will become highly popular in the gaming community in the
future.
Employees
PlayStar currently has two full-time employees who serve as PlayStar
Delaware's President and its Chairman, Chief Executive Officer, Treasurer and
Secretary, respectively. From time to time, PlayStar also retains consultants
and consulting firms which provide PlayStar Delaware with certain expertise in
financing, developing, marketing and software and telecommunications
technologies.
Properties
Neither PlayStar nor its subsidiaries presently own or lease any property
or real estate.
Competition
A significant number of companies, organizations and individuals are
currently offering or purporting to offer casino gambling services on the
Internet similar to those of Antigua Casino. PlayStar's primary competition
includes, but is not limited to, CryptoLogic Inc., Venturetech Inc., Internet
Casinos Ltd., Interactive Gaming and Communications Corp. (formerly Sports
International - USA), Wager Net Inc., Casinos of the South Pacific, World Wide
Web Casinos and Virtual Vegas. PlayStar is aware of several firms currently
accepting wagers on various sporting events with financial transactions being
administered from off-shore accounts. Additionally, several organizations
currently offer lottery tickets for sale on the Internet for international
lotteries.
Most Internet markets, including the gaming segment, are relatively
accessible to a wide number of entities and individuals. PlayStar believes,
however, that there are substantial market barriers facing potential providers,
including technology, commerce, regulation, management and reputation. First,
providers must utilize sophisticated systems to manage casino operations,
process financial transactions, encrypt information and provide an attractive
user interface. Providers must also develop relationships with financial
institutions to process gaming transactions. Additionally, providers should
obtain a casino license from an established regulatory agency before offering
Internet gaming services to the public. Providers must also assemble a team of
software, hardware, telecommunications, marketing, management and gaming
specialists to develop the casino's operations. Finally, due to the sensitive
nature of the casino business, providers must develop and maintain an impeccable
reputation in order to attract and retain customers. PlayStar believes that
these market barriers will ultimately preclude the vast majority of prospective
providers from maintaining successful Internet operations. Management believes
that the Subsidiaries have largely overcome these barriers, and that, as a
result, Antigua Casino will have a competitive advantage over other prospective
providers.
Patents, Copyrights and Trade Secrets
As of the date hereof, neither PlayStar nor either of its Subsidiaries
owns or otherwise controls any registered patents, copyrights or trademarks.
PlayStar and the Subsidiaries will attempt to protect their proprietary
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technology by relying on trade secret laws and non-disclosure and
confidentiality agreements with their employees and consultants who have access
to their proprietary technology.
Regulation
Antigua Casino must adhere to the legal requirements of each jurisdiction
in which it operates or offers its services or is deemed to operate or offer its
services. Antigua Casino is one of the few Internet-based casinos to be licensed
by an established, first-world casino regulatory agency. While many
jurisdictions have no Internet casino licensing requirements, in January 1998,
Antigua Casino was granted a license to operate its Internet casino by the
Antigua government, under the "Virtual Casino Wagering and Sports Book Wagering
Regulations" promulgated under Section 27 of the Antigua Free Trade and
Processing Zone Act, 1994.
In the United States, the ownership and operation of land-based gaming
facilities has traditionally been regulated on a state by state basis, although
the vast majority of states have legalized some form of gaming activities. It
should also be noted that certain of Antigua Casino's competitors have been the
subject of criminal complaints at the state level. For example, in September
1997, the Minnesota Court of Appeals considered a consumer protection complaint
and concluded that an Internet gambling service with operations located outside
of Minnesota was subject to personal jurisdiction in Minnesota because the
company conducted commercial activities in the state over the Internet. See
Minnesota v. Granite Gate Resorts, Inc., 568 N.W.2d 715 (1997).
On October 27, 1997, the Senate Judiciary Committee approved a bill
(S-474) introduced by Senator John Kyl of Arizona, which would prohibit gaming
on the Internet in the United States (the "Bill"). If passed as law, the Bill
would classify gaming over the Internet as a federal offense. While the Bill
would allow intrastate wagering via the Internet, the Bill would prohibits
interstate bets. Individuals convicted of operating an Internet gaming business
in the United States could be punished by up to four years in jail and a fine
equal to the greater of $20,000 or the aggregate amount of bets received by the
operator. Under the Bill, Internet gaming would be a federal crime even if the
states in which bets are placed had legalized the practice. The Bill also would
require the Secretary of State and the Secretary of the Treasury to seek an
international agreement to enforce the law. On February 4, 1998, the House Crime
Subcommittee held a hearing to discuss issues related to Internet gaming and the
House version of the Bill. The House version of the Bill would permit Internet
gaming if such activities are legal in the bettor's jurisdiction and in the
jurisdiction in which the server is located. If the Bill becomes law, it could
have a significant effect on the Antigua Casino's operations. Antigua Casino
might be forced to cease all marketing and promotional activities in the United
States to ensure that no solicitation of United States citizens occurs. Since
the Bill also would prohibit United States citizens from gaming on the Internet,
Antigua Casino may be expected to lose a significant portion of its customer
base if the Bill becomes law.
In the future, Antigua Casino may seek to offer wagering services on the
Internet. The use of the Internet for such services may violate the United
States federal wire statute, and the use of the Internet for gaming services may
violate applicable state statutes. Due to the relatively recent existence of
wagering over the Internet, the laws dealing with this application are not well
developed. However, on March 4, 1998, the United States Attorney for the
Southern District of New York indicted 14 owners and managers of six Internet
sports betting companies headquartered in the Caribbean and Central America. All
of the individuals were charged with conspiracy to transmit bets and wagers on
sporting events via the Internet in violation of the Federal wire statute. The
indictments were made in spite of the fact that the companies operated by the
defendants were licensed to conduct gaming operations, including one which was
licensed by the Government of Antigua. Although management believes that Antigua
Casino is in compliance with all applicable existing regulations in those
countries in which Antigua Casino intends to offer wagering services, there can
be no assurance that the United States federal or state authorities will not try
to assert jurisdiction against PlayStar if Antigua Casino seeks to offer such
services in the United States.
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Legal Proceedings
Neither PlayStar nor the Subsidiaries are parties to any pending legal
proceedings.
MANAGEMENT
The following table sets forth information regarding the directors and
executive officers of PlayStar Delaware as of April 17, 1998, which directors
and executive officers will hold the same positions, respectively, with PlayStar
Antigua after the Effective Time.
Name Age Position
- ----- --- --------
William F.E. Tucker 65 Chairman, Chief Executive
Officer, Secretary and
Treasurer
Julius Patta 31 President
- --------------------
Julius Patta has served as President of PlayStar Delaware since its
inception. From inception until April 1, 1998, he also served as Chief Executive
Officer, Chief Financial Officer and Treasurer of PlayStar Delaware. Mr. Patta
has fourteen years of international business, finance, games software and
telecommunications technology experience. From April 1996 until September 1996,
Mr. Patta was Vice President of Netron Interactive, a division of Netron, Inc.
("Netron"), a Canadian software company. While with Netron Interactive, Mr.
Patta managed corporate sales, third-party relationships, staff, production
development and key projects. From June 1994 until March 1996, Mr. Patta was
Vice President, Research and Development of Netron where he managed product
planning, product development, staff, public relations and strategic customer
sales. From January 1992 until May 1994, Mr. Patta was Vice President,
Consulting Services of Netron where he managed business development and sales,
third-party partnering, contract negotiations and key projects. Prior to joining
Netron, Mr. Patta was the owner and principal consultant of CASE Consulting
Services, which provided high-end information systems services.
William F.E. Tucker has served as Chairman and Chief Executive Officer,
Treasurer and Secretary of PlayStar since April 1, 1998. Since 1992, Mr. Tucker
has been a private investor. From 1974 to 1992, Mr. Tucker was a principal of
Malabar Ltd., the largest Canadian supplier of manufacturing and rental services
to the North American theater industry.
Executive Compensation.
The following table discloses the executive compensation paid to Julius
Patta, the President of PlayStar Delaware from its inception (October 9, 1996)
through June 30, 1997. Mr. Patta's compensation with PlayStar Antigua after the
Reorganization will be the same as set forth below. No other executive officer's
compensation exceeded $100,000 during the periods covered below.
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Summary Compensation Table
- -------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
Awards
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Other Securities
Name and fiscal Annual Underlying All
Principal Year Salary Bonus Compensation Options Other
Position Compensation
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Julius Patta 1998 -0- -0- -0- -0- -0-
President 1997 -0- -0- -0- 1,250,000 -0-
- -------------------------------------------------------------------------
The following table contains information concerning the grant of stock
options to PlayStar Delaware's executive officer named in the Summary
Compensation Table during the fiscal year ended June 30, 1997. Such person's
options will become identical options of PlayStar Antigua after the consummation
of the Reorganization.
----------------------------------------------------------
Number of Percent of
Securities Total
Underlying Options
Options Granted to Exercise or Expiration
Name Granted Employees Base Price Date
in per Share
Fiscal Year
----------------------------------------------------------
----------------------------------------------------------
Julius Patta - 1,250,000 100% $0.05 October
President 9, 2001
----------------------------------------------------------
----------------------------------------------------------
Total........ 1,250,000 100% $0.05 October
9, 2001
----------------------------------------------------------
No stock options have been exercised by Mr. Patta to date.
Directors of PlayStar do not receive any stated salary for their services
as directors or members of committees of the Board of Directors, but by
resolution of the Board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Directors of PlayStar may also serve PlayStar in
other capacities as an officer, agent or otherwise, and may receive compensation
for their services in such other capacity.
PlayStar is not a party to any employment or consulting agreements between
PlayStar Delaware and any executive officer.
Indemnification
PlayStar Antigua will indemnify a director or officer of PlayStar Antigua
against all costs, charges and expenses (including an amount paid to settle an
action or satisfy a judgment) reasonably incurred by him in respect of any
civil, criminal or administrative action or proceeding to which he is made a
party by reason of being or having been a director or officer of PlayStar
Antigua provided he acted honestly and in good faith with a view to the best
interests of PlayStar Antigua and in the case of a criminal or administrative
action or proceeding that is enforced by a monetary penalty, had reasonable
grounds for believing that his conduct was lawful.
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Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling PlayStar pursuant to the foregoing provisions, PlayStar has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act of 1933, as amended, and is
therefore unenforceable.
Certain Relationships and Related Transactions.
On October 9, 1996, PlayStar Delaware issued 12,000,000 unregistered
shares of Common Stock to the stockholders of PlayStar Limited, in exchange for
all of the issued and outstanding shares of PlayStar Limited. Certain of the
beneficial owners of PlayStar Delaware were stockholders of PlayStar Limited,
and therefore received shares of Common Stock of PlayStar Delaware in this
transaction. These beneficial owners include Julius Patta who received 3,000,000
shares through his beneficial ownership of Hemery Nominees Limited, Trust f/b/o
Allan Bramson, Evan Bramson and Joanne Bramson which received 3,000,000 shares
through its beneficial ownership of Hemery Trustees Limited, William F.E. Tucker
who received 3,000,000 shares through his beneficial ownership of Powerstock
Consultants Limited and Trust f/b/o Irving Litvack, Michael Leonard Litvack,
Lori Lee Litvack, Kari Lynn Freesman, Jeffrey Eliot Litvack, Andrew David
Litvack and Dora Litvack which received 3,000,000 shares through its beneficial
ownership of Powerstock Limited in the transaction.
PlayStar Limited was a party to a certain Agreement dated April 16, 1997
with Dreamplay Research Corp. (the "Original Dreamplay Agreement"), an entity
which is 100% owned by Mr. Patta, the Company's President, and is a party to an
Agreement with Dreamplay dated April 1, 1998 which superseded the Original
Dreamplay Agreement. The Agreements with Dreamplay were approved by Dreamplay's
disinterested directors and were made in the ordinary course of business.
Dreamplay's Management believes that the Agreements contained or contain
substantially the same terms as those prevailing at the time for comparable
agreements and transactions with other technology development companies. From
inception through December 31, 1997, Playstar Limited has paid Dreamplay an
aggregate of $785,000 under the Agreements with Dreamplay.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of PlayStar Delaware's Common Stock as of April 15, 1998 by (i) each
director of PlayStar Delaware, (ii) each executive officer of PlayStar Delaware
and each executive officer named in the Compensation Table below, (iii) all
directors and officers of PlayStar Delaware as a group and (iv) each person
known by PlayStar Delaware to be the beneficial owner of more than five percent
of the Common Stock of PlayStar Delaware. Each of such individuals will own the
same number and percentage of PlayStar Antigua Ordinary Shares following the
Reorganization.
- ---------------------------------------------------------------------
Beneficial Current Percent
Ownership of of Class(1)
Name and Address Common Stock
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Julius Patta, President 4,330,500 (2) 23.89%
P.O. Box W 612
Woods Centre
Antigua BW1
West Indies
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
49
<PAGE>
William F.E. Tucker -- Chairman and 3,362,500 (3) 18.55%
Chief Executive Officer, Treasurer
and Secretary
West Dunes
44 South Road
Paget PG 04
Bermuda
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Trust f/b/o Allan Bramson, Evan 3,694,500 (4) 20.38%
Bramson and
Joanne Bramson
c/o Hemery Trustees Limited
31 Broad Street
St. Helier
Jersey Channel Islands JE4 8XN
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Trust f/b/o Irving Litvack, Michael 3,353,100 (5) 18.50%
Leonard Litvack, Lori Lee Litvack,
Kari Lynn Freesman, Jeffrey Eliot
Litvack, Andrew David Litvack and
Dora Litvack
c/o Powerstock Limited
31 Broad Street
St. Helier
Jersey, Channel Islands JE4 8XN
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
All directors and executive 7,693,000 (6) 42.44%
officers as a group
- ---------------------------------------------------------------------
(1)Based upon 128,744 issued and outstanding shares of PlayStar Delaware's
Common Stock and, with respect to those persons holding warrants or options
to purchase Common Stock excercisable within sixty (60) days, the number of
shares of Common Stock that are issuable upon the exercise thereof.
(2)Includes options to purchase 1,250,000 shares of PlayStar Delaware Common
Stock exercisable within 60 days.
(3)Includes options to purchase 250,000 shares of PlayStar Delaware Common
Stock exercisable within 60 days.
(4)Includes options to purchase 700,000 shares of PlayStar Delaware Common
Stock exercisable within 60 days.
(5)Includes options to purchase 250,000 shares of PlayStar Delaware Common
Stock exercisable within 60 days.
(6)Includes options to purchase 1,500,000 shares of PlayStar Delaware Common
Stock exercisable within 60 days.
LEGAL MATTERS
Certain legal matters in connection with shares of Common Stock of
PlayStar Wyoming to be issued in the Reorganization have been passed upon for
PlayStar by Holland & Hart, Cheyenne, Wyoming. Certain legal matters in
connection with Ordinary Shares to be issued in the Reorganization have been
passed upon for PlayStar Antigua by Roberts & Company, St. John's, Antigua.
Roberts & Company has also rendered an opinion regarding the Antigua tax
consequences of the Reorganization referred to in "Certain Tax Considerations."
The discussion of certain United States federal income tax consequences of the
Reorganization and of the ownership and disposition of PlayStar Antigua Ordinary
Shares under the heading "Certain Tax Considerations" was based upon an opinion
rendered by Baker & McKenzie, Washington, D.C. The discussion of certain
Canadian federal income tax consequences of the Reorganization was based on an
opinion rendered by Baker & McKenzie, Toronto, Canada.
50
<PAGE>
EXPERTS
The financial statements of PlayStar Delaware as of June 30, 1997 and for
the period October 3, 1996 (date of inception) to June 30, 1997 included in this
Information Statement/Prospectus have been audited by Fruitman Kates,
independent public accountants, as indicated in their report with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in auditing and accounting in giving said report.
51
<PAGE>
- -
PLAYSTAR CORPORATION
(A development stage company)
INDEX TO FINANCIAL STATEMENTS
Page
Audited Consolidated Financial Statements as of June 30, F-2
1997
Independent Auditors' Report. F-3
Consolidated Balance Sheet as of June 30, 1997. F-4
Consolidated Statement of Loss for the Period from F-5
Inception, October 3, 1996 to June 30, 1997.
Consolidated Statement of Accumulated Deficit for F-6
the Period from Inception, October 3, 1993 to
June 31, 1997.
Consolidated Statement of Shareholders' Equity for F-7
the Period from Inception, October 3, 1993 to June
31, 1997.
Consolidated Statement of Cash Flows for the Period F-8
from Inception, October 3, 1993 to June 31, 1997.
Notes to Consolidated Financial Statements for the F-9
Period from Inception, October 3, 1993 to June 31,
1997.
Unaudited Consolidated Financial Statements as of December F-12
31, 1997.
Consolidated Balance Sheet at December 31, 1997. F-13
Consolidated Statement of Loss for the Three Months F-14
and Six Months Ending December 31, 1997 and
Cumulative from Inception.
Consolidated Statement of Accumulated Deficit for F-15
the Three Months and Six Months Ending December
31, 1997 and Cumulative from Inception.
Consolidated Statement of Cash Flows for the Three F-16
Months and Six Months Ending December 31, 1997
and Cumulative from Inception.
Notes to Consolidated Financial Statements F-18
F-1
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of PLAYSTAR CORPORATION
We have audited the consolidated balance sheet of PLAYSTAR CORPORATION and
subsidiary (a Development Stage Company), as at June 30, 1997 and the
related consolidated statements of income, accumulated deficit,
shareholders' equity and cash flows for the period from inception October 3,
1996 to June 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated 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 our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of PLAYSTAR CORPORATION and
subsidiary, as at June 30, 1997 and the results of their operations and
their cash flows for the period from inception October 3, 1996 to June 30,
1997, in conformity with generally accepted accounting principles in the
United States.
The previous report, dated September 1, 1997, has been amended and the notes
to the financial statements have been revised to comply with the Securities
Exchange Commission requirements.
Toronto, Canada FRUITMAN KATES
September 1, 1997 CHARTERED ACCOUNTANTS
March 18, 1998
Page 1
F-3
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1997
(U.S.$)
ASSETS
CURRENT
Cash and cash equivalents $109,138
Accounts receivable 166
Prepaid expenses 1,694 $110,998
------- --------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $56,045
SHAREHOLDERS' EQUITY
CAPITAL STOCK
Authorized
30,000,000 common shares at stated value
$.0001 per share
Issued and outstanding
15,812,500 common shares $ 1,581
ADDITIONAL PAID-IN CAPITAL 836,604
DEFICIT, accumulated during the development (783,232) 54,953
stage -------- --------
$110,998
The accompanying notes to financial statements are an integral part
of these statements
F-4
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF LOSS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996, TO JUNE 30, 1997
(U.S.$)
REVENUE
Interest income $ 3,022
EXPENSES
Development costs $754,527
General and administrative 13,856
Professional fees 14,415
Incorporation costs 3,456 786,254
------ -------
NET LOSS $(783,232)
---------
LOSS PER SHARE $ (0.05)
---------
WEIGHTED AVERAGE NUMBER OF SHARES 15,812,500
----------
The accompanying notes to financial statements are an integral part
of these statements
F-5
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996, TO JUNE 30, 1997
(U.S.$)
RETAINED EARNINGS, beginning of period $ NIL
NET LOSS 783,232
--------
ACCUMULATED DEFICIT, end of period $783,232
--------
The accompanying notes to financial statements are an integral part
of these statements
F-6
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996, TO JUNE 30, 1997
(U.S.$)
Additional
Common paid-in Accumulated
stock shares Amount capital
deficit
October 3, 1996 - $ - $ - $ -
Common stock issued in
exchange for all of the
issued and outstanding
shares of PlayStar Limited
in October, 1996 12,000,000 1,200 - -
Issuance of stock for
$175,000 U.S. in October,
1996 and January 1997
in connection with a private
placement offering;
$175,000 for services
rendered (net of issue costs
of $74,825) 1,750,000 175 100,000 -
F-7
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996, TO JUNE 30, 1997
(U.S.$)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(783,232)
Adjustments to reconcile net loss to net
cash provided by operating activities -
Development costs paid through issuance of stock 175,000
Changes in operating assets and liabilities
- accounts receivable (166)
- prepaid expenses (1,694)
- accounts payable 56,045
-------
Net cash used in operating activities (554,047)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares
(net of issue costs) 663,185
Net cash provided from financing activities 663,185
-------
NET INCREASE IN CASH AND CASH EQUIVALENTS 109,138
CASH AND CASH EQUIVALENTS, beginning of period -
-------
CASH AND CASH EQUIVALENTS, end of period $109,138
--------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company paid for development costs in the amount of $175,000 through the
issuance of common shares.
For the purposes of presentation in the statement of cash flows, cash and
marketable securities with original maturities of less than three months, have
been classified as cash and cash equivalents. The carrying value of these items
approximates fair value.
The accompanying notes to financial statements are an integral part
of these statements
F-8
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996, TO JUNE 30, 1997
(U.S.$)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
a) NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PlayStar
Corporation ("the Company") and its wholly owned subsidiary, PlayStar
Limited. All intercompany accounts and transactions have been eliminated
on consolidation.
The Company's wholly-owned subsidiary has been in the development stage
since it was acquired on October 9, 1996.
The Company, through its subsidiary, designs, develops and intends to
operate, promote and commercialize an on-line gaming service operating
interactive, software-based games of chance, accessible world-wide through
the Internet.
The Company's fiscal year end is June 30th.
b) DEVELOPMENT COSTS
Development costs associated with the design, development, operation,
promotion and commercialization are changed to expense in the period
incurred.
c) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
d) CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities
of three months or less to be cash equivalents.
F-9
<PAGE>
e) EARNINGS PER SHARE
Based on the weighted average number of shares, stock options have not
been included, as they would be considered anti-dilutive.
2. BUSINESS ACQUISITIONS
PLAYSTAR LIMITED
On October 9, 1996, the Company acquired 100% of the issued and
outstanding common shares of PlayStar Limited, in exchange for 12,000,000 common
shares of the Company.
The business combination has been accounted for as an "as if pooling of
interests", since both, the Company and PlayStar Limited, are entities under
common control. Accordingly, the assets and liabilities of the combining
companies are recorded at their historical cost and results of operations
include both entities from inception.
3. STOCK OPTION PLANS
On October 9, 1996, the Company adopted a stock option plan authorizing
the granting of options to purchase an additional 10,000,000 common shares.
A total of 4,100,000 options have been granted during the period. Two of
the Company's executive officers were granted stock options totaling 1,570,000
shares, exercisable at $0.05/share until October 9, 2001. No stock options have
been exercised to-date.
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". The pronouncement requires entities to recognize as compensation
expense over the vesting period the fair value of stock-based awards on the date
of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB No. 25 and provide pro forma net income and pro forma income
(loss) per share disclosures for employee stock option grants made from 1995
forward as if the fair-valued-based method, defined in SFAS No.
123, had been applied.
The Company has elected to adopt the disclosure-only provisions of SFAS No.
123, and as described above, will continue to apply APB No. 25 to account for
stock options. Had compensation expense been determined as provided in SFAS No.
123, the pro forma effect would have been:
Net loss - as reported $(783,232)
Net loss - pro forma $(861,732)
Loss per share - as reported $(0.05)
Loss per share - pro forma $(0.05)
F-10
<PAGE>
4. INCOME TAXES
Deferred tax liabilities and assets are determined based on the difference
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which differences are expected to
reverse.
The Company has net operating loss carry-forwards of approximately
$783,000, which expire through the year 2012. The future tax benefit has been
fully reserved by the use of valuation allowances.
F-11
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Unaudited)
F-12
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1997
(U.S.$)
ASSETS
DEC 31,1997 JUNE 30,1997
----------- --------------
(Unaudited) (Audited)
CURRENT
Cash and cash equivalents $363,446 $109,138
Accounts receivable - 166
Prepaid expenses 75,000 1,694
---------- -----------
$438,446 $110,998
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $15,326 $56,045
SHAREHOLDERS' EQUITY
CAPITAL STOCK
Authorized
30,000,000 common shares at stated value
$.0001 per share
Issued and outstanding
17,781,744 common shares 1,778 1,581
ADDITIONAL PAID-IN CAPITAL 1,623,797 836,604
DEFICIT, accumulated during the development
stage (1,202,455) (783,232)
423,120 54,953
$438,446 $110,998
The accompanying notes to financial statements are an integral part
of these statements
F-13
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF LOSS
(U.S.$)
THREE MONTHS ENDING SIX MONTHS ENDING CUMULATIVE
------------------- ------------------- ----------
(NOTE 6)
DEC 31,1997 DEC 31,1996 DEC 31,1997 DEC 31,1996 DEC 31,1997
----------- ----------- ----------- ----------- -----------
REVENUE (Unaudited)(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income $ 253 $ - $ 523 $ - $ 3,545
------ ------ ------ ------ -----------
EXPENSES
Development
costs 377,203 709,202 386,043 709,202 1,140,570
Professional fees 7,932 1,041 25,666 1,041 40,081
Promotion - - 4,500 - 4,500
General and
administrative 1,646 2,157 3,537 2,157 17,393
Incorporation
costs - - - - 3,456
---- ----- ---- ------ ---------
386,781 712,400 419,746 712,400 1,206,000
------- ------- ------- ------- ---------
NET LOSS $(386,528 $(712,400) $(419,223) $712,400) $(1,202,455)
---------- ---------- --------- -------- -----------
LOSS PER SHARE $ (.02) $ (.04) $ (.03) $ (.04) $ (.07)
--------- ------- -------- ----------- ---------
WEIGHTED AVERAGE
NUMBER OF
SHARES 16,468,914 15,812,500 16,140,707 15,812,500 15,943,781
---------- ---------- ---------- ---------- ----------
The accompanying notes to financial statements are an integral part
of these statements
F-14
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
(U.S.$)
THREE MONTHS ENDING SIX MONTHS ENDING CUMULATIVE
------------------- ------------------- ----------
(Note 6)
DEC 31,1997 DEC 31,1996 DEC 31,1997 DEC 31,1996 DEC 31,1997
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
ACCUMULATED DEFICIT
beginning of
period $815,927 $ NIL $ 783,232 $ NIL $ NIL
NET LOSS 386,528 712,400 419,223 712,400 1,202,455
------- ------- ------- ------- ---------
ACCUMULATED DEFICIT
end of
period $1,202,455 $712,400 $1,202,455 $712,400 $ 1,202,455
---------- -------- ---------- -------- -----------
The accompanying notes to financial statements are an integral part
of these statements
F-15
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDING DECEMBER 31, 1997
(U.S.$)
Cumulative
DEC 31,1997 DEC 31,1996 DEC 31,1997
----------- ----------- --------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(419,223) $(712,400) $ (1,202,455)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Development costs paid
through issuance of stock - 175,000 175,000
Changes in operating assets
and liabilities
- accounts receivable 166 - -
- prepaid expenses (73,306) - (75,000)
- accounts payable (40,719) 12,259 15,326
-------- ------- --------
Net cash used in operating
activities (533,082) (525,141) (1,087,129)
--------- -------- -----------
CASH FLOW FROM INVESTING
ACTIVITIES
Incorporation costs - (2,655) -
------- ------- -------
Net cash used in investing
activities - (2,655) -
---- ---------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of
common shares (net of issue
costs) 787,390 721,180 1,450,575
-------- -------- ---------
Net cash provided from
financing activities 787,390 721,180 1,450,575
-------- -------- ---------
NET INCREASE IN CASH & CASH
EQUIVALENTS 254,308 193,384 363,446
CASH AND CASH EQUIVALENTS,
beginning of period 109,138 -
-------- ----------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 363,446 $ 193,384 $363,446
--------- ----------- --------
F-16
<PAGE>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company paid for development costs in the amount of $175,000 through the
issuance of common shares.
For the purposes of presentation in the statement of cash flows, cash and
marketable securities with original maturities of less than three months, have
been classified as cash and cash equivalents.
The carrying value of these items approximates fair value.
The accompanying notes to financial statements are an integral part
of these statements
F-17
<PAGE>
PLAYSTAR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDING DECEMBER 31, 1997
(Unaudited)
(U.S.$)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
a) BASIS OF PRESENTATION
The unaudited consolidated balance sheet as of December 31, 1997, audited
balance sheet as of June 30, 1997 and unaudited consolidated statements of
loss, accumulated deficit and cash flows for the three and six months then
ended, together with cumulative unaudited financial information since
inception, October 3, 1996, have been prepared in accordance with
generally accepted accounting principles and include all adjustments,
which in the opinion of management, are necessary to present fairly the
results of operations for the periods then ended. All such adjustments are
of a normal recurring nature. These financial statements should be read in
conjunction with the audited financial statements for the period from
inception, October 3, 1996 to June 30, 1997, and the notes thereto
included in the Company's Form 10-K filed with the Securities and Exchange
Commission.
b) NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PlayStar
Corporation ("the Company") and its wholly owned subsidiary PlayStar
Limited. All intercompany accounts and transactions have been eliminated
on consolidation.
The Company has been in the development stage since its incorporation on
October 3, 1996.
The Company, through its subsidiary, designs, develops and intends to
operate, promote and commercialize an on-line gaming service operating
interactive, software-based games of chance, accessible world-wide through
the Internet.
F-18
<PAGE>
c) DEVELOPMENT COSTS
Development costs associated with the design, development, operation,
promotion and commercialization are changed to expense in the period
incurred.
d) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
e) EARNINGS PER SHARE
Based on the weighted average number of shares, stock options have not
been included, as they would be considered anti-dilutive.
f) CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities
of three months or less to be cash equivalents.
BUSINESS ACQUISITIONS
PLAYSTAR LIMITED
On October 9, 1996, the Company acquired 100% of the issued and
outstanding common shares of PlayStar Limited, in exchange for 12,000,000 common
shares of the Company.
The business combination has been accounted for as an "as if pooling of
interests", since both, the Company and PlayStar Limited, are entities under
common control. Accordingly, the assets and liabilities of the combining
companies are recorded at their historical cost and results of operations
include both entities from inception.
3. SUBSEQUENT EVENTS
In addition to the 1,969,274 shares issued during the period, a further
290,000 shares were issued at $0.50 in January 1998.
F-19
<PAGE>
4. STOCK OPTION PLANS
On October 9, 1996, the Company adopted a stock option plan authorizing
the granting of options to purchase an additional 10,000,000 common shares.
A total of 4,100,000 options have been granted during the period. Two of
the Company's executive officers were granted stock options totaling 1,570,000
shares, exercisable at $0.05/share until October 9, 2001. No stock options have
been exercised to-date.
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". The pronouncement requires entities to recognize as compensation
expense over the vesting period the fair value of stock-based awards on the date
of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB No. 25 and provide pro forma net income and pro forma income
(loss) per share disclosures for employee stock option grants made from 1995
forward as if the fair-valued-based method, defined in SFAS No.
123, had been applied.
The Company has elected to adopt the disclosure-only provisions of SFAS No.
123, and as described above, will continue to apply APB No. 25 to account for
stock options. Had compensation expense been determined as provided in SFAS No.
123, the pro forma effect would have been:
Three months Six months Cumulative
------------ ---------- ----------
Net loss - as reported $(386,528) $ (419,223) $ (1,202,455)
Net loss - pro forma (386,528) (419,223) (1,280,955)
Loss per share - as reported (0.02) (0.03) (0.07)
Loss per share - pro forma (0.02) (0.03) (0.08)
5. INCOME TAXES
Deferred tax liabilities and assets are determined based on the difference
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which differences are expected to
reverse.
The Company has net operating loss carry-forwards of approximately
$1,202,000, which expire through the year 2012. The future tax benefit has been
fully reserved by the use of valuation allowances.
6. COMPARABLE FIGURES
Information reported as of December 31, 1996 represents the period from
inception, October 3, 1996 to December 31, 1996.
F-20
<PAGE>
ANNEX I
PLAN AND AGREEMENT OF MERGER
OF
PLAYSTAR CORPORATION ("PlayStar-DE")
(a Delaware corporation)
AND
PLAYSTAR WYOMING HOLDING CORP. ("PlayStar-WY")
(a Wyoming corporation)
PLAN AND AGREEMENT OF MERGER entered into on ____________, 1998 by
PlayStar-DE, a business corporation of the State of Delaware, and approved by
resolution adopted by its Board of Directors on said date, and entered into on
____________, 1998 by PlayStar-WY, a business corporation of the State of
Wyoming, and approved by resolution adopted by its Board of Directors on said
date.
WHEREAS, PlayStar-DE is a business corporation of the State of
Delaware with its registered office therein located at c/o United Corporate
Services, Inc., 15 East North Street, Dover, DE 19901; and
WHEREAS, the total number of shares of stock which PlayStar-DE has
authority to issue is 30,000,000, all of which are of one class and with a par
value of $.0001 per share (each, a "PlayStar-DE" Share); and
WHEREAS, PlayStar-WY is a business corporation of the State of
Wyoming with its registered office therein located at c/o CT Corporation, 1720
Carey Avenue, Suite 200, Cheyenne, WY 82001; and
WHEREAS, the total number of shares of stock which PlayStar-WY has
authority to issue is 50,000,000 shares of common stock, each with a par value
of $0.0001 (each, a "PlayStar-WY Share"), and 1,000,000 shares of series
preferred stock, each with a par value of $0.0001; and
WHEREAS, the General Corporation Law of the State of Delaware permits
a merger of a business corporation of the State of Delaware with and into a
business corporation of another jurisdiction; and
WHEREAS, the Wyoming Business Corporation Act permits the merger of a
business corporation of another jurisdiction with and into a business
corporation of the State of Wyoming; and
WHEREAS, PlayStar-DE and PlayStar-WY and the respective Boards of
Directors thereof deem it advisable and to the advantage, welfare, and best
interests of said corporations and their respective stockholders to merge
PlayStar-DE with and into PlayStar-WY pursuant to the provisions of the General
Corporation Law of the State of Delaware and pursuant to the provisions of the
Wyoming Business Corporation Act upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly entered into by
PlayStar-DE and approved by a resolution adopted by its Board of Directors and
further approved by its shareholders and being thereunto duly entered into by
PlayStar-WY and approved by a resolution adopted by its Board of Directors and
1
<PAGE>
further approved by its shareholders, the Plan and Agreement of Merger and the
terms and conditions thereof and the mode of carrying the same into effect,
together with any provisions required or permitted to be set forth therein, are
hereby determined and agreed upon as hereinafter in this Plan and Agreement set
forth.
1. PlayStar-DE and PlayStar-WY shall, pursuant to the provisions of the General
Corporation Law of the State of Delaware and the provisions of the Wyoming
Business Corporation Act, be merged with and into a single corporation, to wit,
PlayStar-WY, which shall be the surviving corporation from and after the
effective time of the merger, and which is sometimes hereinafter referred to as
the "surviving corporation", and which shall continue to exist as said surviving
corporation under its present name pursuant to the provisions of the Wyoming
Business Corporation Act. The separate existence of PlayStar-DE, which is
sometimes hereinafter referred to as the "terminating corporation", shall cease
at said effective time in accordance with the provisions of the General
Corporation Law of the State of Delaware.
2. Annexed hereto and made a part hereof is a copy of the Articles of
Incorporation, as amended, of the surviving corporation as the same shall be in
force and effect at the effective time in the State of Wyoming of the merger
herein provided for; and said Articles of Incorporation shall continue to be the
Articles of Incorporation of said surviving corporation until amended and
changed pursuant to the provisions of the Wyoming Business Corporation Act.
3. The present by-laws of the surviving corporation will be the by-laws of said
surviving corporation and will continue in full force and effect until changed,
altered or amended as therein provided and in the manner prescribed by the
provisions of the Wyoming Business Corporation Act.
4. The directors and officers in office of the surviving corporation at the
effective time of the merger shall be the members of the first Board of
Directors and the first officers of the surviving corporation, all of whom shall
hold their directorships and offices until the election and qualification of
their respective successors or until their tenure is otherwise terminated in
accordance with the by-laws of the surviving corporation.
5. Each issued share of the terminating corporation shall, at the effective
time of the merger, be converted into one share of the surviving corporation.
The issued shares of the surviving corporation prior to the merger shall not be
converted or exchanged in any manner, but each said share which is issued as of
the effective date of the merger shall cease to be outstanding.
6. (a) At the effective time of the merger, each outstanding option to purchase
PlayStar-DE Shares (a "Stock Option"), whether vested or unvested, shall be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under such Stock Option, the same number of PlayStar-WY Shares
as the holder of such Stock Option would have been entitled to receive pursuant
to the merger had such holder exercised such option in full immediately prior to
the effective time of the merger (not taking into account whether or not such
option was in fact exercisable). In the case of any Stock Option to which
Section 421 of the Internal Revenue Code of 1986 (the "Code") applies by reason
of its qualification under any of Sections 422-423 of the Code ("qualified stock
options"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall comply with
Section 424(a) of the Code.
(b) As soon as practicable after the effective time of the merger,
PlayStar-WY shall deliver to each holder of an outstanding Stock Option, an
appropriate notice setting forth such holder's rights pursuant thereto and such
Stock Option shall continue in effect on the same terms and conditions.
PlayStar-WY shall comply with the terms of all such Stock Options and ensure, to
the extent required by, and subject to the provisions of, any such PlayStar-DE
Stock Option Plan that Stock Options which qualified as qualified stock options
prior to the effective time of the merger continue to qualify as qualified stock
options after the effective time of the merger. PlayStar-WY shall take all
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corporate action necessary to reserve for issuance a sufficient number of
PlayStar-WY Shares for delivery pursuant to the terms set forth in this Section
6.
7. If appraisal rights are available under the Delaware General Corporation Law
("DGCL") to holders of PlayStar-DE Shares in connection with the merger, any
issued and outstanding PlayStar-DE Shares which have not been voted for approval
of this Agreement and the transactions contemplated hereby and with respect to
which appraisal shall have been properly demanded in accordance with Section 262
of the DGCL ("Dissenting Shares") shall not be converted into the right to
receive consideration for the merger and the holders thereof shall have only
such rights as are provided in such Section 262 of the DGCL unless and until the
holder of any such PlayStar-DE Shares withdraws his demand for such appraisal in
accordance with Section 262(k) of the DGCL or otherwise loses his right to such
appraisal. If a holder of Dissenting Shares shall properly withdraw his demand
for appraisal or shall otherwise lose his right to such appraisal, then as of
the effective time of the merger or the occurrence of such event, whichever last
occurs, such holder's Dissenting Shares shall cease to be Dissenting Shares and
shall be converted into and represent the right to receive consideration for the
merger. Prior to the effective time of the merger, PlayStar-DE shall give
PlayStar-WY prompt notice of any written demand for appraisal or withdrawals of
demands for appraisal received by PlayStar-DE and, except with the prior written
consent of PlayStar-WY, shall not settle or offer to settle any such demands.
8. In the event that this Plan and Agreement of Merger shall have been fully
approved and adopted upon behalf of the terminating corporation in accordance
with the provisions of the General Corporation Law of the State of Delaware and
upon behalf of the surviving corporation in accordance with the provisions of
the Wyoming Business Corporation Act, the said corporations agree that they will
cause to be executed and filed and recorded any document or documents prescribed
by the laws of the State of Delaware and by the laws of the State of Wyoming,
and that they will cause to be performed all necessary acts within the State of
Delaware and the State of Wyoming and elsewhere to effectuate the merger herein
provided for.
9. The Board of Directors and the proper officers of the terminating corporation
and of the surviving corporation are hereby authorized, empowered, and directed
to do any and all acts and things, and to make, execute, deliver, file, and
record any and all instruments, papers, and documents which shall be or become
necessary, proper, or convenient to carry out or put into effect any of the
provisions of this Plan and Agreement of Merger or of the merger herein provided
for.
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IN WITNESS WHEREOF, this Plan and Agreement of Merger is hereby
executed upon behalf of each of the constituent corporations parties thereto.
Executed ___________, 1998.
PLAYSTAR CORPORATION
(a Delaware corporation)
By:_________________________
Julius Patta
President
PLAYSTAR WYOMING HOLDING
CORP. (a Wyoming corporation)
By:_________________________
William F.E. Tucker
Chairman and Chief
Executive Officer
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ARTICLES OF INCORPORATION
OF
PLAYSTAR WYOMING HOLDING CORP.
The undersigned person, acting as incorporator of a corporation under the
Wyoming Business Corporation Act (the "Act"), adopts the following Articles of
Incorporation for PlayStar Wyoming Holding Corp. (the "Corporation"):
ARTICLE I
Name
The name of the Corporation is: PLAYSTAR WYOMING HOLDING CORP.
ARTICLE II
Purpose
The Corporation is organized for the purpose of engaging in any lawful act
or activity for which corporations may be organized under the Act.
ARTICLE III
Powers
The Corporation shall have the power to do all things necessary or
convenient to carry out its business and affairs.
ARTICLE IV
Shares
Number of Shares. The Corporation shall have authority to issue 30,000,000
shares of common stock, each with a par value of $0.0001 ("Common Stock"), and
1,000,000 shares of Series Preferred Stock, $.0001 par value ("Series Preference
Stock").
Stock Class and Series Distinctions. A statement of the designations and
the powers, preferences and rights of such classes of stock and the
qualifications, limitations or restrictions thereof, the fixing of which by the
Articles of Incorporation is desired, and the authority of the Board of
Directors to fix, by resolution or resolutions, the designations and the powers,
preferences and rights of such classes of stock or the qualifications,
limitations or restrictions thereof, which are not fixed hereby, are as follows:
Part I. Provisions Applicable to All Series of Series
Preference Stock.
(a) Shares of Series Preference Stock may be issued from time to
time in one or more series. The preferences and relative participating,
optional and other special rights of each series and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any
and all other series already outstanding; the terms of each series shall
be as specified in this Part I and in the resolution or resolutions
hereinafter referred to; and the Board of Directors of the Corporation is
hereby expressly granted authority to fix, by resolution or resolutions
adopted prior to the issuance of any shares of a particular series of
Series Preference Stock, the designations, preferences and relative
participating, optional and other special rights, or the qualifications,
limitations or restrictions thereof, of such series, including, but
without limiting the generality of the foregoing, the following:
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(i) The rate and times at which, and the terms and conditions on
which, dividends on the Series Preference Stock of such series shall
be paid;
(ii) The right, if any, of holders of Series Preference Stock of
such series to convert the same into, or exchange the same for, other
classes of stock of the Corporation and the terms and conditions of
such conversion or exchange;
(iii)The redemption price or prices and the time at which, and
the terms and conditions on which, Series Preference Stock of such
series may be redeemed;
(iv) The rights of the holders of Series Preference Stock of
such series upon the voluntary or involuntary liquidation,
distribution or sale of assets, dissolution or winding up of the
Corporation;
(v) The voting power, if any, of the Series Preference
Stock of such series; and
(vi) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Series Preference Stock of
such series.
(b) All shares of each series shall be identical in all respects to
the other shares of such series. The rights of the Common Stock of the
Corporation shall be subject to the preferences and relative
participating, optional and other special rights of the Series Preference
Stock of each series as fixed herein and from time to time by the Board of
Directors as aforesaid.
Part II. Provisions Applicable to Common Stock.
(a) After the requirements with respect to preferential dividends
upon the Series Preference Stock of all classes and series thereof shall
have been met and after the Corporation shall have complied with all
requirements, if any, with respect to the setting aside of sums as a
sinking fund or redemption or purchase account for the benefit of any
class or series thereof, then, and not otherwise, the holders of Common
Stock shall be entitled to receive such dividends as may be declared from
time to time by the Board of Directors.
(b) After distribution in full of the preferential amounts to be
distributed to the holders of all classes and series thereof of Series
Preference Stock then outstanding in the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of the Common Stock shall be entitled to receive all the remaining
assets of the Corporation available for distribution to its stockholders
ratably in proportion to the number of shares of Common Stock held by them
respectively.
(c) Each holder of Common Stock shall have one vote in respect of
each share of such stock held by him.
ARTICLE V
Indemnification
Except as may be prohibited under the Act, in addition to the other powers
now or hereafter conferred upon the Corporation by these Articles of
Incorporation, the Act or otherwise, the Corporation shall possess and may
exercise all powers to indemnify directors, officers, employees, fiduciaries and
other persons and all powers whatsoever incidental thereto (including, without
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<PAGE>
limitation, the power to advance expenses and the power to purchase and maintain
insurance with respect thereto), without regard to whether such powers are
expressly provided for by the Act. The board of directors is hereby authorized
on behalf of the Corporation and without shareholder action to exercise all of
the Corporation's powers of indemnification, whether by provision in the By-Laws
or otherwise.
ARTICLE VI
Elimination of Certain Liabilities of Directors
There shall be no personal liability, either direct or indirect, of any
director of the Corporation to the Corporation or its shareholders for monetary
damages for any breach or breaches of fiduciary duty as a director; provided,
however, that this provision shall not eliminate or limit the liability of a
director to the Corporation or its shareholders for monetary damages for any
breach, act, omission, or transaction as to which the Act (as in effect from
time to time) expressly prohibits the elimination of liability. This provision
shall not limit the rights of directors of the Corporation for indemnification
or other assistance from the Corporation. Any repeal or modification of the
foregoing provisions of this Article by the shareholders of the Corporation or
any repeal or modification of the provisions of the Act that permits the
elimination of liability of directors by this Article shall not affect adversely
any elimination of liability, right or protection of a director of the
Corporation with respect to any breach, act, omission, or transaction of such
director occurring prior to the time of such repeal or modification.
ARTICLE VII
Board of Directors
The number of Directors of the Corporation shall be such as from time to
time shall be fixed by, or in the manner provided in, the By-Laws.
ARTICLE VIII
Transfer of Corporation
Upon due authorization by the Corporation's directors and shareholders as
required by the Act, the Corporation may apply to the proper officer of a
jurisdiction outside Wyoming for a certificate of registration, and to the
Wyoming Secretary of State for a certificate of transfer, the effect of which is
that, after entry of all certificates as required by the Act and the laws of
such other jurisdiction, the Corporation will be continued as if it had been
incorporated under the laws of such other jurisdiction.
ARTICLE IX
Registered Office and Agent
The address of the initial registered office of the Corporation is 1720
Carey Avenue, Suite 200, Cheyenne, Wyoming 82001. The name of the Corporation's
initial registered agent at
such address is CT Corporation.
ARTICLE X
Incorporator
The name and address of the incorporator is:
James R. Belcher, P.C.
Holland & Hart
2020 Carey Avenue, Suite 500
Cheyenne, WY 82001
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed these Articles of Incorporation
on April 1, 1998.
-----------------------------------------
James R. Belcher, P.C., as Incorporator
4
<PAGE>
SECRETARY OF STATE
STATE OF WYOMING
THE CAPITOL
CHEYENNE, WY 82002-0020
ARTICLES OF AMENDMENT
PLAYSTAR WYOMING HOLDING CORP.
Pursuant to Sections 17-16-1005 AND 1006 of the Wyoming Business
Corporation Act, James R. Belcher, P.C. as incorporator of PlayStar Wyoming
Holding Corp., a Wyoming corporation (the "Corporation"), hereby adopts these
Articles of Amendment on behalf of the Corporation. The Corporation's Articles
of Incorporation were filed with the Wyoming Secretary of State on April 2,
1998.
A. The name of the Corporation is PlayStar Wyoming Holding
Corp.
B. Effective as of the date of filing of these Articles of Amendment with
the Wyoming Secretary of State, the first paragraph of Article IV of the
Articles of Incorporation is hereby amended to read as follows:
ARTICLE IV
Shares
Number of Shares. The Corporation shall have authority to issue
50,000,000 shares of common stock, each with a par value of $0.0001
("Common Stock"), and 1,000,000 shares of Series Preferred Stock, $.0001
par value ("Series Preference
Stock").
C. The foregoing amendment was adopted by the incorporator of
the Corporation on April 13, 1998.
D. These Articles of Amendment, made on behalf of the
Corporation by the incorporator, are effective without shareholder
action because the Corporation has not yet issued shares.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment of the Corporation this 13th day of April, 1998.
By: /s/ James R. Belcher, P.C.
James R. Belcher, P.C.
5
<PAGE>
ANNEX II
APPLICATION FOR CERTIFICATE OF TRANSFER
Pursuant to W.S. 17-16-1720, the undersigned corporation hereby applies for a
Certificate of Transfer from the State of Wyoming, and for that purpose submits
the following statements:
1. The Name of the corporation is: Playstar Wyoming Holding Corp.
2. It hereby requests a Certificate of Transfer from the State of Wyoming,
and wishes to become incorporated under the laws of the state or nation of:
Antigua
3. The address of the principal place of business in the jurisdiction to
which the corporation is transferring is: 60 Nevis Street, 2nd Floor, St.
John's, Antigua BVI, West Indies.
4. This transfer was authorized by resolution duly adopted by a vote of
two-thirds (2/3) of the holders of the issued shares of each class of stock of
the corporation on April __, 1998.
5. The corporation will maintain within the State of Wyoming an agent for
service of process for at least one (1) year after the transfer is effected. The
address of such registered office in Wyoming, and the name of the registered
agent at that address is: CT Corporation, 1720 Carey Avenue, Suite 200,
Cheyenne, WY 82001.
6. No legal actions have been instituted by or against the company or are
pending.
7. The net actual value of assets, wherever located, is $_____________. (A
copy of the most current audited financial report of the corporation is
attached.) (See instructions.)
8. The SPECIAL TOLL CHARGE based on net value of assets for the Certificate
of Transfer is $_________. (See instructions to determine toll charge.)
Date: May , 1998
By: _________________________
-------------------------
(Title)
6
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Under Section 97 of the Antigua IBCA, directors and officers of an Antigua
corporation may be entitled to indemnification by the corporation against
judgments, expenses, fines and amounts paid by the director or officer in
settlement of claims brought against them by third persons or by or in the right
of the corporation if those directors and officers acted in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the corporation or its stockholders.
PlayStar Wyoming is obligated under its Articles of Organization and
Articles of Continuance to indemnify a present or former director or executive
officer of the registrant, and may indemnify any other person, to the fullest
extent now or hereafter permitted by law in connection with any actual or
threatened civil, criminal, administrative or investigative action, suit or
proceeding arising out of their past or future service to the registrant or a
subsidiary, or to another organization at the request of the registrant or a
subsidiary.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
See Exhibit Index immediately preceding the exhibits.
(b) Financial Statement Schedules
Schedule Page
Item 22. Undertakings
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(a)(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3)
of the Securities Act;
II-1
<PAGE>
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424)b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee: table in the effective registration
statement
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) It will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(f)(2) For the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes contained in documents filed subsequent to
the effective date of the registration statement. through the date of responding
to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in St. Johns, Antigua, on April 21,
1998.
PLAYSTAR WYOMING HOLDING CORP.
By: /s/ Julius Patta
Julius Patta
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
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Signature Title Date
Chairman and Chief Executive,
Secretary and Treasurer April 21, 1998
/s/ Willian F.E. Tucker (Principal Executive and Principal
William F.E. Tucker Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Description
3.1 Articles of Incorporation of PlayStar Wyoming
3.2 Articles of Continuance of PlayStar Antigua*
3.3 By-Laws of PlayStar Wyoming
5.1 Opinion of Holland & Hart concerning the legality of the
securities being offered*
5.2 Opinion of Robert & Company concerning the legality of the
securities being offered*
10.1 PlayStar Corporation Stock Option Plan
10.2 Agreement dated April 1, 1998 by and between PlayStar Limited and
DreamPlay Research Corp.
21. Subsidiaries
23.2 Consent of Fruitman Kates
23.2 Consent of Holland & Hart (included in the opinion filed as Exhibit 5.1 to
this registration statement).*
23.3 Consent of Roberts & Company (included in the opinion filed as Exhibit 5.1
to this registration statement).*
27.1 Financial Data Schedule (filed electronically herewith).
____________
*To be filed by amendment.
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PLAYSTAR WYOMING HOLDING CORP.
The undersigned person, acting as incorporator of a corporation under the
Wyoming Business Corporation Act (the "Act"), adopts the following Articles of
Incorporation for PlayStar Wyoming Holding Corp. (the "Corporation"):
ARTICLE I
Name
The name of the Corporation is: PLAYSTAR WYOMING HOLDING CORP.
ARTICLE II
Purpose
The Corporation is organized for the purpose of engaging in any lawful act
or activity for which corporations may be organized under the Act.
ARTICLE III
Powers
The Corporation shall have the power to do all things necessary or
convenient to carry out its business and affairs.
ARTICLE IV
Shares
Number of Shares. The Corporation shall have authority to issue 30,000,000
shares of common stock, each with a par value of $0.0001 ("Common Stock"), and
1,000,000 shares of Series Preferred Stock, $.0001 par value ("Series Preference
Stock").
Stock Class and Series Distinctions. A statement of the designations and
the powers, preferences and rights of such classes of stock and the
qualifications, limitations or restrictions thereof, the fixing of which by the
Articles of Incorporation is desired, and the authority of the Board of
Directors to fix, by resolution or resolutions, the designations and the powers,
preferences and rights of such classes of stock or the qualifications,
limitations or restrictions thereof, which are not fixed hereby, are as follows:
Part I. Provisions Applicable to All Series of Series
Preference Stock.
(a) Shares of Series Preference Stock may be issued from time to
time in one or more series. The preferences and relative participating,
optional and other special rights of each series and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any
and all other series already outstanding; the terms of each series shall
be as specified in this Part I and in the resolution or resolutions
hereinafter referred to; and the Board of Directors of the Corporation is
hereby expressly granted authority to fix, by resolution or resolutions
adopted prior to the issuance of any shares of a particular series of
Series Preference Stock, the designations, preferences and relative
participating, optional and other special rights, or the qualifications,
limitations or restrictions thereof, of such series, including, but
without limiting the generality of the foregoing, the following:
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(i) The rate and times at which, and the terms and conditions on which,
dividends on the Series Preference Stock of such series shall be paid;
(ii) The right, if any, of holders of Series Preference Stock of such series to
convert the same into, or exchange the same for, other classes of stock of the
Corporation and the terms and conditions of such conversion or exchange;
(iii) The redemption price or prices and the time at which, and the terms and
conditions on which, Series Preference Stock of such series may be redeemed;
(iv) The rights of the holders of Series Preference Stock of such series upon
the voluntary or involuntary liquidation, distribution or sale of assets,
dissolution or winding up of the Corporation;
(v) The voting power, if any, of the Series Preference Stock of
such series; and
(vi) The terms of the sinking fund or redemption or purchase account, if any, to
be provided for the Series Preference Stock of such series.
(b) All shares of each series shall be identical in all respects to
the other shares of such series. The rights of the Common Stock of the
Corporation shall be subject to the preferences and relative
participating, optional and other special rights of the Series Preference
Stock of each series as fixed herein and from time to time by the Board of
Directors as aforesaid.
Part II. Provisions Applicable to Common Stock.
(a) After the requirements with respect to preferential dividends
upon the Series Preference Stock of all classes and series thereof shall
have been met and after the Corporation shall have complied with all
requirements, if any, with respect to the setting aside of sums as a
sinking fund or redemption or purchase account for the benefit of any
class or series thereof, then, and not otherwise, the holders of Common
Stock shall be entitled to receive such dividends as may be declared from
time to time by the Board of Directors.
(b) After distribution in full of the preferential amounts to be
distributed to the holders of all classes and series thereof of Series
Preference Stock then outstanding in the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of the Common Stock shall be entitled to receive all the remaining
assets of the Corporation available for distribution to its stockholders
ratably in proportion to the number of shares of Common Stock held by them
respectively.
(c) Each holder of Common Stock shall have one vote in respect of
each share of such stock held by him.
ARTICLE V
Indemnification
Except as may be prohibited under the Act, in addition to the other powers
now or hereafter conferred upon the Corporation by these Articles of
Incorporation, the Act or otherwise, the Corporation shall possess and may
exercise all powers to indemnify directors, officers, employees, fiduciaries and
other persons and all powers whatsoever incidental thereto (including, without
limitation, the power to advance expenses and the power to purchase and maintain
insurance with respect thereto), without regard to whether such powers are
expressly provided for by the Act. The board of directors is hereby authorized
on behalf of the Corporation and without shareholder action to exercise all of
the Corporation's powers of indemnification, whether by provision in the By-Laws
or otherwise.
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ARTICLE VI
Elimination of Certain Liabilities of Directors
There shall be no personal liability, either direct or indirect, of any
director of the Corporation to the Corporation or its shareholders for monetary
damages for any breach or breaches of fiduciary duty as a director; provided,
however, that this provision shall not eliminate or limit the liability of a
director to the Corporation or its shareholders for monetary damages for any
breach, act, omission, or transaction as to which the Act (as in effect from
time to time) expressly prohibits the elimination of liability. This provision
shall not limit the rights of directors of the Corporation for indemnification
or other assistance from the Corporation. Any repeal or modification of the
foregoing provisions of this Article by the shareholders of the Corporation or
any repeal or modification of the provisions of the Act that permits the
elimination of liability of directors by this Article shall not affect adversely
any elimination of liability, right or protection of a director of the
Corporation with respect to any breach, act, omission, or transaction of such
director occurring prior to the time of such repeal or modification.
ARTICLE VII
Board of Directors
The number of Directors of the Corporation shall be such as from time to
time shall be fixed by, or in the manner provided in, the By-Laws.
ARTICLE VIII
Transfer of Corporation
Upon due authorization by the Corporation's directors and shareholders as
required by the Act, the Corporation may apply to the proper officer of a
jurisdiction outside Wyoming for a certificate of registration, and to the
Wyoming Secretary of State for a certificate of transfer, the effect of which is
that, after entry of all certificates as required by the Act and the laws of
such other jurisdiction, the Corporation will be continued as if it had been
incorporated under the laws of such other jurisdiction.
ARTICLE IX
Registered Office and Agent
The address of the initial registered office of the Corporation is 1720
Carey Avenue, Suite 200, Cheyenne, Wyoming 82001. The name of the Corporation's
initial registered agent at
such address is CT Corporation.
ARTICLE X
Incorporator
The name and address of the incorporator is:
James R. Belcher, P.C.
Holland & Hart
2020 Carey Avenue, Suite 500
Cheyenne, WY 82001
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation on April 1, 1998.
/s/ James R. Belcher, P.C.
James R. Belcher, P.C., as Incorporator
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SECRETARY OF STATE
STATE OF WYOMING
THE CAPITOL
CHEYENNE, WY 82002-0020
ARTICLES OF AMENDMENT
PLAYSTAR WYOMING HOLDING CORP.
Pursuant to Sections 17-16-1005 AND 1006 of the Wyoming Business
Corporation Act, James R. Belcher, P.C. as incorporator of PlayStar Wyoming
Holding Corp., a Wyoming corporation (the "Corporation"), hereby adopts these
Articles of Amendment on behalf of the Corporation. The Corporation's Articles
of Incorporation were filed with the Wyoming Secretary of State on April 2,
1998.
A. The name of the Corporation is PlayStar Wyoming Holding
Corp.
B. Effective as of the date of filing of these Articles of Amendment with
the Wyoming Secretary of State, the first paragraph of Article IV of the
Articles of Incorporation is hereby amended to read as follows:
ARTICLE IV
Shares
Number of Shares. The Corporation shall have authority to issue
50,000,000 shares of common stock, each with a par value of $0.0001
("Common Stock"), and 1,000,000 shares of Series Preferred Stock, $.0001
par value ("Series Preference
Stock").
C. The foregoing amendment was adopted by the incorporator of
the Corporation on April 13, 1998.
D. These Articles of Amendment, made on behalf of the
Corporation by the incorporator, are effective without shareholder
action because the Corporation has not yet issued shares.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment of the Corporation this 13th day of April, 1998.
By: /s/ James R. Belcher, P.C.
James R. Belcher, P.C.
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EXHIBIT 3.3
By-Laws
of
Playstar Wyoming Holding Corp.
SECTION 1.REGISTERED OFFICE - The registered office shall be established
and maintained at c/o CT Corporation, 1720 Carey Avenue, Suite 200, Cheyenne,
Wyoming 82001 and CT Corporation shall be the registered agent of this
corporation in charge thereof.
SECTION 2.OTHER OFFICES. - The corporation may have other offices, either
within or without the State of Wyoming, at such place or places as the Board of
Directors may from time to time appoint or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1.ANNUAL MEETINGS. - Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Wyoming, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2.OTHER MEETINGS. - Meetings of stockholders for any purpose other
than the election of directors may be held at such time and place, within or
without the State of Wyoming, as shall be stated in the notice of the meeting.
SECTION 3.VOTING. - Each stockholder entitled to vote in accordance with
the terms of the Articles of Incorporation and in accordance with the provisions
of these By-Laws shall be entitled to one vote, in person or by proxy, for each
share of stock entitled to vote held by such stockholder, but no proxy shall be
voted after eleven months from its date unless such proxy provides for a longer
period. Upon the demand of any stockholder, the vote for directors and the vote
upon any question before the meeting, shall be by ballot. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Articles of
Incorporation or the laws of the State of Wyoming.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of. any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4.QUORUM. Except as otherwise required by law, by the Articles of
Incorporation or by these By-Laws, the presence, in person or by proxy, of
stockholders holding a majority of the stock of the corporation entitled to vote
shall constitute a quorum at all meetings of the stockholders. In case a quorum
shall not be present at any meeting, a majority of the stockholders entitled to
vote thereat, present in person or by proxy, shall have power to adjourn the
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meeting from time to time, without notice other than announcement at the
meeting, until the requisite amount of stock entitled to vote shall be present.
At any such adjourned meeting at which the requisite amount of stock entitled to
vote shall be represented, any business may be transacted which might have been
transacted at the meeting as originally noticed; but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to vote
at any adjournment or adjournments thereof. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote the meeting.
SECTION 5.SPECIAL MEETINGS. - Special meetings of the stockholders for any
purpose or purposes may be called by the President or Secretary, by resolution
of the directors, or by holders of at least ten percent (10%) of all votes
entitled to be cast on any issue proposed to be considered for the purpose of a
special meeting, upon written demand being made by such holders for a special
meeting.
SECTION 6.NOTICE OF MEETINGS. - Written notice, stating the place, date
and time of the meeting and the general nature of the business to be considered,
shall be given to each stockholder entitled to vote thereat at his address as it
appears on the records of the corporation, not less than ten nor more than sixty
days before the date of the meeting. No business other than that stated in the
notice shall be transacted at any meeting without the unanimous consent of all
the stockholders entitled to vote thereat.
SECTION 7.ACTION WITHOUT MEETING. - Unless otherwise provided by the
Articles of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of all outstanding stock entitled to vote on such
action.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. - The number of directors shall be one (1). The
directors shall be elected at the annual meeting of the stockholders and each
director shall be elected to serve until his successor shall be elected and
shall qualify. A director need not be a stockholder.
SECTION 2. RESIGNATIONS. - Any director, member of a committee or officer
may resign at any time. Such resignation shall be made in writing, and shall
take effect at the time specified therein, and if no time be specified, at the
time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. - If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. - Any director or directors may be removed either for
or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose and the vacancies
thus created may be filled, at the meeting held for the purpose of removal, by
the affirmative vote of a majority of the stockholders entitled to vote.
SECTION 5. INCREASE OF NUMBER. - The number of directors may be increased
by amendment of these By-Laws by the affirmative vote of a majority of the
directors, though less than a quorum, or, by the affirmative vote of a majority
of the stockholders, at the annual meeting or at a special meeting called for
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that purpose, and by like vote the additional directors may be chosen at such
meeting to hold office until the next annual election and until their successors
are elected and qualify.
SECTION 6. POWERS. - The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Articles of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. - The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any such
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it, but no such committee shall have the
power or authority in reference to amending the Articles of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution or amending the
By-Laws of the corporation; and unless the resolution, these By-Laws, or the
Articles of Incorporation expressly so provide, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
SECTION 8. MEETINGS. - The newly elected Board of Directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent, in
writing, of all the directors.
Unless restricted by the Articles of Incorporation or elsewhere in these
By-laws, members of the Board of Directors or any committee designated by such
Board may participate in a meeting of such Board or committee by means of
conference, telephone or similar communications equipment, allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at such meeting.
Regular meetings of the Board of Directors may be scheduled by a
resolution adopted by the Board. The Chairman of the Board or the President or
Secretary may call, and if requested by any two directors, must call a special
meeting of the Board and give five days notice by mail, or two days notice
personally or by telegraph or cable to each director. The Board of Directors may
hold an annual meeting, without notice, immediately after the annual meeting of
shareholders.
SECTION 9. QUORUM. - A majority of the directors shall constitute a quorum
for the transaction of business. If, at any meeting of the board, there shall be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time until a quorum is obtained, and no further notice thereof need
be given other than by announcement at the meeting which shall be so adjourned.
SECTION 10. COMPENSATION. - Directors shall not receive any stated salary
for their services as directors or as members of committees, but by resolution
of the board a fixed fee and expenses of attendance may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
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preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefore.
SECTION 11. - ACTION WITHOUT MEETING. 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, prior to such action, a written consent
thereto is signed by all members of the board, or of such committee, as the case
may be, and such written consent is filed with the minutes of the proceedings of
the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. - The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors may appoint
such other officers and agents as it may deem advisable, 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.
SECTION 3. CHAIRMAN. - The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. - The President shall be the chief executive officer
of the corporation and shall have the general powers and duties of supervision
and management usually vested in the office of president of a corporation. He
shall preside at all meetings of the stockholders if present thereat, and in the
absence or non-election of the Chairman of the Board of Directors, at all
meetings of the Board of Directors, and shall have general supervision,
direction and control of the business of the corporation. Except as the Board of
Directors shall authorize the execution thereof in some other manner, the
President shall execute bonds, mortgages and other contracts on behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed, the seal shall be attested by the signature of the
Secretary or the Treasurer or Assistant Secretary or Assistant Treasurer.
SECTION 5. VICE-PRESIDENT.- Each Vice-President shall have such powers and
shall perform such duties, as shall be assigned to him, by the directors.
SECTION 6. TREASURER. - The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the corporation. He shall deposit all moneys
and other valuables in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
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SECTION 7. SECRETARY. - The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by the law or by these By-Laws, and in case of his absence or refusal
or neglect so to do, any such notice may be given by any person thereunto
directed by the President, or by the directors, or stockholders, upon whose
requisition the meeting is called as provided in these By-Laws. He shall record
all the proceedings of the meetings of the corporation and of the directors in a
book to be kept for that purpose, and shall perform such other duties as may be
assigned to him by the directors or the President. He shall have the custody of
the seal of the corporation and shall affix the same to all instruments
requiring it, when authorized by the directors or the President, and attest the
same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK - A certificate of stock, signed by the
Chairman or Vice-Chairman of the Board of Directors, if they be elected,
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or Assistant Secretary, shall be issued to each stockholder certifying
the number of shares owned by him in the corporation. When such certificates are
countersigned (l) by a transfer agent other than the corporation or its
employee, or, (2) by a registrar other than the corporation or its employee, the
signatures of such officers may be facsimiles in form and shall contain the name
of the corporation, the year of its creation and the words "Corporate Seal,
Wyoming, 1998". Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. Fiscal year of the corporation shall be determined
by resolution of the Board of Directors.
SECTION 8. CHECKS. - All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. - Whenever any notice is required
by these By-Laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage, prepaid, addressed to
the person entitled thereto at his address as it appears on the records of the
corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by Statute.
Whenever any notice whatever required to be given under the provisions of
any law, or under the provisions of the Articles of Incorporation of the
corporation or these By-Laws, 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 VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal of the Bylaw or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
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majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal of By-Law or By-Laws
to be made, be contained in the notice of such special meeting, except that any
By-Law that fixes a greater quorum or voting requirement for shareholders may
not be adopted, amended or repealed by the Board of Directors, and any By-Law
that fixes a greater quorum or voting requirement for the Board of Directors may
be amended or repealed only as provided by applicable law.
ARTICLE VII
INDEMNIFICATION
No director shall be liable to the corporation or any of its stockholders
for monetary damages for breach of fiduciary duty as a director, except with
respect to (1) a breach of the director's duty of loyalty to the corporation or
its stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) liability which may be
specifically defined by law, or (4) a transaction from which the director
derived an improper personal benefit, it being the intention of the foregoing
provision to eliminate the liability of the corporation's directors to the
corporation or its stockholders to the fullest extent permitted by law. The
corporation shall indemnify to the fullest extent permitted by law each person
that such law grants the corporation the power to indemnify, and the corporation
shall have the power to advance funds to pay the costs and expenses of all
indemnitees as provided by applicable law.
CERTIFICATE
I hereby certify that the foregoing Bylaws consisting of 8 pages,
including this page, constitute the Bylaws of Playstar Wyoming Holding Corp.,
adopted by the Board of Directors of the Corporation effective as of
______________, 1998.
/s/ William F. E. Tucker
Secretary
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EXHIBIT 10.1
PLAYSTAR CORPORATION
a Delaware Corporation
(the "Company")
1996 STOCK OPTION PLAN
(As adopted by the Board and Shareholders on the
9th day of October, 1996)
1. Purposes
The Company's 1996 Stock Option Plan (the "Plan") is intended to attract
and retain the best available personnel for positions of substantial
responsibility with the Company and its subsidiaries, if any, and to provide
additional incentive to such persons to exert their maximum efforts toward the
success of the Company. The Plan is also intended to provide and encourage stock
ownership by officers, employee Board and employees of, and consultants to, the
Company and to afford such persons the right to increase their proprietary
interest in the Company. The above aims will be effectuated through the granting
of certain options ("Options") to purchase shares of the Company's common stock,
par value $.0001 per share (the "Common Stock"). Under the Plan, the Company may
grant "incentive stock options" ("ISOs") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or Options which are
not intended to be ISOs ("Non-Qualified Options"). The Company makes no warranty
as to the qualification of any Options as ISOs.
2. Administration of the Plan.
The Plan shall be administered by the Board of the Company (the "Board").
Within the limits of the express provisions of the Plan, the Board shall have
the authority, in its discretion, to take the following actions under the Plan:
(a) to determine the individuals to whom, and the time or times at which,
Options shall be granted, the number of shares of Common Stock to be subject to
each of the Options and whether such Options shall be ISOs or Non-Qualified
Options;
(b) to interpret the Plan;
(c) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(d) to determine the terms and provisions of the respective stock option
agreements granting Options, including the date or dates upon which Options
shall become exercisable, which terms need not be identical;
(e) to accelerate the vesting of any outstanding Options; and
(f) to make all other determinations and take all other actions necessary
or advisable for the administration of the Plan.
In making such determinations, the Board may take into account the nature
of the services rendered by such individuals, and such other factors as the
Board, in its discretion, shall deem relevant. An individual to whom an Option
has been granted under the Plan is referred to herein as an "Optionee". The
Board's determinations on the matters referred to in this Section 2 shall be
conclusive.
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3. Shares Subject to the Plan.
(a) The total number of shares of Common Stock for which Options may be
granted under the Plan shall be 10,000,000.
(b) The Company shall at all times while the Plan is in force reserve such
number of shares of Common Stock as will be sufficient to satisfy the
requirements of outstanding Options. The shares of Common Stock to be issued
upon exercise of Options shall be authorized and unissued or reacquired shares
of Common Stock.
(c) The shares of Common Stock relating to the unexercised portion of any
expired, terminated or canceled Option shall thereafter be available for the
grant of new Options under the Plan.
4. Eligibility.
(a) Options may be granted under the Plan only to officers and employees
of, and consultants to, the Company or any "subsidiary corporation" of the
Company within the meaning of Section 424 (f) of the Code (a "Subsidiary"). The
term "Company" when used in the context of an Optionee's employment, shall be
deemed to include the Company and its Subsidiaries.
(b) Nothing contained in the Plan shall be construed to limit the right of
the Company to grant stock options otherwise than under the Plan for proper
corporate purposes.
5. Terms of Options.
The terms of each Option granted under the Plan shall be determined by the
Board consistent with the provisions of the Plan, including the following:
(a) The purchase price of the shares of Common Stock subject to each
Option shall be fixed by the Board, in its discretion, at the time such Option
is granted; provided, however, that in no event shall such purchase price be
less than the Fair Market Value (as defined in paragraph (g) of this Section 5)
of the shares of Common Stock as of the date such Option is granted.
(b) The dates on which each Option (or portion thereof) shall be
exercisable shall be fixed by the Board, in its discretion, at the time such
Option is granted.
(c) The expiration of each Option shall be fixed by the Board, in its
discretion, at the time such Option is granted; provided, however, that no
Option shall be exercisable after the expiration of five (5) years from the date
of its grant and each Option shall be subject to earlier termination as
determined by the Board, in its discretion, at the time such Option is granted.
(d) Options shall be exercised by the delivery, to the Company at its
principal office or at such other address as may be established by the Board
(Attention: Corporate Secretary), of written notice of the number of shares of
Common Stock with respect to which the Option is being exercised accompanied by
payment in full of the purchase price of such shares. Unless otherwise
determined by the Board at the time of grant, payment for such shares may be
made (i) in cash, (ii) by certified check or bank cashier's check payable to the
order of the Company, (iii) at the discretion of the Board, by simultaneously
exercising Options and selling the shares of Common Stock acquired thereby,
pursuant to a brokerage or similar arrangement approved by the Board, and using
the proceeds as payment of such purchase price, or (iv) by any combination of
the methods of payment described in (i) through (iii) above. The Common Stock
purchased shall thereupon be promptly delivered; provided, however, that the
Company may, in its discretion, require that an Optionee pay to the Company or
any Subsidiary, at the time of exercise, such amount as the Company deems
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necessary to satisfy any obligation to withhold federal, state or local income
or other taxes incurred by reason of the exercise or transfer of shares
thereupon.
(e) An Optionee shall not have any of the rights of a holder of the Common
Stock with respect to the shares of Common Stock subject to an Option until such
shares are issued to such Optionee upon the exercise of such Option.
(f) An option shall not be transferable, except by will or the laws of
descent and distribution, and during the lifetime of an Optionee, may be
exercised only by the Optionee. No Option granted under the Plan shall be
subject to execution, attachment or other process.
(g) For the purposes of the Plan, the Fair Market Value of the Common
Stock as of any date shall be as determined in good faith by the Board and such
determination shall be binding upon the Company and upon the Optionee. The Board
may make such determination (i) if the Common Stock is not then listed and
traded upon a recognized securities exchange, upon the basis of the mean between
the lowest bid and highest asked quotations on the relevant date (as reported by
a recognized stock quotation service) or, if there are no such bid and asked
quotations on the relevant date, then upon the basis of the mean between the
lowest bid and highest asked quotations on the date nearest the relevant date or
(ii) in case the Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System National Market System
("NASDAQ-NMS") or listed on one or more national securities exchanges, the Fair
Market Value of the Common Stock as of any date shall be deemed to be the mean
between the highest and lowest sale prices of the Common Stock reported on the
NASDAQ-NMS or the principal national securities exchange on which the Common
Stock is listed and traded on the immediately preceding date, or, if there is no
such sale on that date, then on the last preceding date, on which such a sale
was reported.
6. Special Provisions Applicable to ISOs.
The following special provisions shall be applicable to ISOs granted under
the Plan.
(a) No ISOs shall be granted under the Plan after ten (10) years from the
earlier of (i) the date the Plan is adopted, or (ii) the date the Plan is
approved by the Company's shareholders as provided in Section 9 hereof.
(b) If an ISO is granted to a person who owns, directly or indirectly
(within the meaning of Section 424(d) of the Code), stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
(i) the purchase price of the shares subject to the Option shall not be less
than 110% of the Fair Market Value of such shares as of the date such Option is
granted and (ii) such Option cannot be exercised more than five (5) years after
the date it is granted.
(c) If the aggregate Fair Market Value of the Common Stock with respect to
which ISOs are exercisable for the first time by any Optionee during a calendar
year exceeds $100,000, such ISOs shall be treated, to the extent of such excess,
as Non-Qualified Options. For purposes of the preceding sentence, the Fair
Market Value of the Common Stock shall be determined at the time the ISOs
covering such shares were granted.
7. Adjustment upon Changes in Capitalization.
(a) In the event that the outstanding shares of Common Stock are changed
by reason of reorganization, reclassification, stock split, combination or
exchange of shares and the like, or dividends payable in shares of Common Stock,
an appropriate adjustment shall be made by the Board in the aggregate number of
shares of Common Stock available under the Plan and in the number of shares of
Common Stock and price per share of Common Stock subject to outstanding Options.
If the Company shall be sold, reorganized, consolidated, taken private, or
merged with another corporation, or if all or substantially all of the assets of
the Company shall be sold or exchanged (a "Corporate Event"), an Optionee shall
at the time of issuance of the stock under such Corporate Event be entitled to
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receive upon the exercise of his Option the same number and kind of shares of
stock or the same amount of property, cash or securities as he would have been
entitled to receive upon the occurrence of any such Corporate Event as if he had
been, immediately prior to such event, the holder of the number of shares of
Common Stock covered by his Option, provided, however, that the Board may, in
its discretion, (i) accelerate the exercisabilility of outstanding Options, and
shorten the term thereof, to any date prior to the occurrence of such Corporate
Event, or (ii) provide for the cancellation of outstanding Options in exchange
for cash equal to the aggregate in-the-money value of such Options at the time
of such Corporate Event, as determined in its discretion.
(b) Any adjustment under this Section 7 in the number of shares of Common
Stock subject to Options shall apply proportionately to only the unexercised
portion of any Option granted hereunder. If fractions of a share would result
from any such adjustment, the adjustment shall be revised to the next lower
whole number of shares.
8. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the date of its adoption by the Board, and no
Option shall be granted after termination of the Plan.
(b) The Plan may at any time be terminated or, from time to time, be
modified or amended by the Board; provided, however, that the Board shall not,
without approval by the affirmative vote of the holders of a majority of the
shares of the capital stock of the Company present in person or by proxy and
entitled to vote at a meeting duly held in accordance with Delaware law, (i)
increase (except as provided by Section 7) the maximum number of shares of
Common Stock as to which Options may be granted under the Plan, (ii) reduce the
minimum purchase price at which Options may be granted under the Plan, or (iii)
change the class of persons eligible to receive Options under the Plan.
(c) No termination, modification or amendment of the Plan shall adversely
affect the rights conferred by any outstanding Options without the consent of
the affected Optionee.
9. Effectiveness of the Plan.
The Plan shall become effective upon adoption by the Board of the Company,
subject to the approval by the shareholders of the Company. Options may be
granted under the Plan prior to receipt of such approval, provided that, in the
event such approval is not obtained, the Plan and all Options granted under the
Plan shall be null and void and of no force and effect.
10. Not a Contract of Employment.
Nothing contained in this Plan or in any stock option agreement executed
pursuant hereto shall be deemed to confer upon any Optionee any right to remain
in the employ of the Company or any Subsidiary.
11. Governing Law.
The Plan shall be governed by the laws of the State of Delaware without
reference to principles of conflict of laws thereof.
12. Withholding.
As a condition to the exercise of any Option, the Board may require that
an Optionee satisfy, through withholding from other compensation or otherwise,
the full amount of federal, state and local income taxes required to be withheld
in connection with such exercise.
5
<PAGE>
13. No Obligation to Exercise Option.
Granting of an Option shall impose no obligation on the Optionee to
exercise such Option.
14. Use of Proceeds.
The proceeds received from sale of Common Stock pursuant to the Plan shall
be used for general corporate purposes.
15. Compliance with Law.
Appropriate legends may be placed on the stock certificates evidencing
shares issued upon exercise of Options to reflect such transfer restrictions.
6
<PAGE>
EXHIBIT 10.2
THIS AGREEMENT made as of the 1st day of April, 1998,
B E T W E E N :
DREAMPLAY RESEARCH CORP.
an Ontario corporation;
(hereinafter called "Dreamplay")
OF THE FIRST PART
- and -
PLAYSTAR LIMITED
a Jersey, Channel Islands corporation;
(hereinafter called the "Company")
OF THE SECOND PART
WITNESSES THAT:
WHEREAS Dreamplay is engaged, among other things, in the business of
developing and selling computer software;
AND WHEREAS pursuant to an Agreement dated April 16, 1997 (the "April 1997
Agreement"), Dreamplay had previously developed computer software for the
Company, which software was the sole and
exclusive property of the Company;
AND WHEREAS Dreamplay and the Company have agreed that as of and from the
date hereof, software created by Dreamplay related to internet gaming shall be
the sole and exclusive property of Dreamplay;
AND WHEREAS the Company desires to acquire from Dreamplay all rights in
and to such software created by Dreamplay for the Company, subject to the terms
and conditions hereinafter set forth;
AND WHEREAS Dreamplay is desirous of conveying such software
to the Company;
NOW THEREFORE, in consideration of the promises and the mutual conditions,
covenants and agreements hereinafter set forth, the parties hereby covenant and
agree as follows:
ARTICLE ONE
1.01 Exclusive Purchase
In reliance on Dreamplay's representations and warranties contained in
paragraph 2.01 below, the Company agrees to purchase Internet Gaming
Software (as defined in paragraph 2.01). from Dreamplay and Dreamplay
agrees to create Internet Gaming Software in consultation with the
Company. The Company agrees that it shall not purchase Internet Gaming
Software from any other person or company.
1
<PAGE>
ARTICLE TWO
2.01 Representations and Warranties
Dreamplay represents and warrants that it has the technical ability and
expertise and that it is qualified and able to create software having
internet gaming application, and related or ancillary products
(collectively, "Internet Gaming Software"), including but not limited to
the following:
(a) Web Site hosting and Internet access; (b) Web Site design and
development; (c) Online Casino Games Development; (d) Electronic Casino
Management System; (e) Operations Consulting; and (f) Game Client Logic
and Design.
Dreamplay acknowledges that the Company is relying on Dreamplay for its
expertise in the design of Internet Gaming Software, and its technical
ability to create Internet Gaming Software. Dreamplay agrees to dedicate
such resources as are reasonably necessary to create Internet Gaming
Software in consultation with the Company.
2.02 Reporting
Dreamplay shall submit to the Company written reports on a monthly basis
on a date to be agreed upon by the parties hereto on the status of
Dreamplay's Internet Gaming Software development. In addition to the
aforementioned written reports, Dreamplay shall verbally inform the
Company of Dreamplay's activities and progress and of any new Internet
Gaming Software developments and Dreamplay shall regularly consult with
the Company as often as is necessary and prudent to do so.
2.03 Covenants
(a) Dreamplay agrees to transfer and assign to the Company,
and the Company agrees to acquire from Dreamplay,
Dreamplay's entire right, title and interest, including
all copyright ownership in the Internet Gaming Software,
as and when developed from time to time and subject to
payment therefor as herein provided, including but not
limited to all source and object code, audiovisual
effects created by program code and any documentation and
notes associated therewith. Dreamplay hereby waives all
moral rights or claims that Dreamplay may now or
hereafter have with respect to the Internet Gaming
Software that is sold by Dreamplay to the Company
hereunder.
(b) Dreamplay agrees to deliver and install the Internet Gaming
Software acquired by the Company hereunder to or to the order
of the Company.
ARTICLE THREE
CONSIDERATION
3.01 Purchase Price
Dreamplay shall render to the Company, on a quarterly basis, an invoice
for all Internet Gaming Software transferred or to be transferred by
Dreamplay to the Company hereunder, in amounts to be agreed upon by the
parties by separate letter. Payment shall be due and payable to Dreamplay
2
<PAGE>
in accordance with the terms noted on each invoice. Payments made by the
Company to Dreamplay hereunder shall be applied to the purchase price of
the Internet Gaming Software.
ARTICLE FOUR
REIMBURSEMENT OF EXPENSES
4.01 Dreamplay to Keep Records
Dreamplay shall keep and maintain detailed and timely records and receipts
of all direct out-of-pocket operating expenses incurred in developing the
Internet Gaming Software and shall submit the same to the Company no later
than 15 calendar days after the end of each month.
4.02 Reimbursements
The Company agrees to pay or reimburse Dreamplay for all reasonable
out-of-pocket operating expenses incurred in developing the Internet
Gaming Software.
ARTICLE FIVE
OTHER RIGHTS AND OBLIGATIONS
5.01 Confidentiality
Dreamplay is and shall remain obligated to maintain confidentiality and
hereby agrees not to disclose any aspects of the Company's operations, its
business activities, financial condition and its technical information to
third parties either verbally or otherwise without the prior written
consent of the Company. In this regard, any and all data generated or
acquired by Dreamplay as it develops the Internet Gaming Software shall be
transferred by Dreamplay to the Company and which shall thereupon be the
sole and exclusive property of the Company. Dreamplay agrees not to
divulge or indicate any of the said information to third parties.
5.02 Protection of Intellectual Property
Each party shall not infringe the other party's patents, trademarks,
copyrights or other intellectual property and shall not knowingly benefit
from or abet any third party's infringement thereof. Except to the extent
necessary for the parties to carry out their obligations under this
Agreement, nothing in this Agreement is intended to grant or confer to
either party by the other party any license or other right to use or
permit third parties to use such party's proprietary technology, software
or patents, or any other intellectual property.
5.03 Exclusivity and Proprietary Rights
Any and all software (including, without limitation, the Internet Gaming
Software) designed and developed by Dreamplay shall be the sole and
exclusive property of Dreamplay until transferred by Dreamplay to the
Company and until payment therefore is made by the Company to Dreamplay.
The Company shall not and will not receive by this Agreement, or otherwise
acquire, any interest therein whatsoever until such transfer and payment.
Dreamplay shall have the right to hold in its name all copyright
registrations or other registrations as may be appropriate until such
transfer and payment.
3
<PAGE>
5.04 Non-Competition
For the term of this Agreement, as extended from time to time, and for the
period of six months commencing thereafter, Dreamplay agrees that it will
not, directly or indirectly, as sole proprietor, shareholder, director,
employee, principal or partner, solicit the employees of the Company, the
clients of the Company or carry on any activity similar to that carried on
by them hereunder in competition with the business carried on by the
Company as of the date hereof, without the prior written consent of the
Company.
ARTICLE SIX
TERM, TERMINATION AND RENEWAL
6.01 Term
This Agreement shall be effective as of April 1, 1998 and shall continue
until December 1, 1999. This Agreement may be renewed for one (1) year
terms by the mutual agreement of the parties hereto. For greater
certainty, this Agreement supersedes the agreement dated April 16, 1997,
between the parties relating to Dreamplay's development of software for
the Company.
6.02 Termination
This Agreement may be terminated by either party, without cause, upon
sixty (60) days' written notice to the other party.
ARTICLE SEVEN
PAYMENTS AND NOTICES
7.01 Address for Notice
All payments and notices shall be made by personal delivery or by mailing
the same, postage prepaid:
(a) to Dreamplay at: 50 Wellington Street East
Top Floor
Toronto, Ontario, M5E 1C8
Canada
(b) to the Company at: PO Box 551, 31 Broad Street
St Helier, Jersey JE4 8XN
Channel Islands
or at such other address as either party may by notice specify, and if so
mailed, shall be conclusively deemed to have been given and received on
the fifth business day after the mailing thereof.
ARTICLE EIGHT
MISCELLANEOUS PROVISIONS
8.01 Governing Law
This Agreement shall be construed and interpreted according to the laws of
the province of Ontario.
4
<PAGE>
8.02 Headings
The heading in this Agreement are included for convenience only and shall
not be used in construing or interpreting this Agreement.
8.03 Enurement
The terms and conditions hereof shall be binding upon and shall inure to
the benefit of the heirs, administrators, successors and assigns of the
parties hereto.
8.04 Assignment
This Agreement shall not be assignable by either party without the prior
written consent of the other party which may not be withheld unreasonably.
8.05 Time
Time shall be of the essence herein.
8.06 Currency
Unless otherwise indicated, all amounts noted herein are expressed in US
Dollars.
8.07 Further Assurances
All of the parties hereto shall, at any time and from time to time,
execute and deliver all further documents and assurances and do all things
necessary or reasonably desirable to carry out the true intent and meaning
of this Agreement, and to give effect to the terms hereof.
8.08 Waiver
No failure or delay by any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any
waiver in one instance be deemed to be a continuing waiver in any other
instance.
8.09 Contravention
Any provision or provisions of this Agreement or of the terms and
conditions which in any way contravenes the law of any state, province or
country in which this Agreement is effective, shall in such state,
province or country, to the extent of such contravention of law, be deemed
severable and shall not affect any other provision or provision hereof.
8.10 Counterparts
This Agreement may be executed in counterparts.
5
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
) PlayStar Limited
)
- --------------------- )
Witness )
) Per: ______________________
) Director
) Dreamplay Research Corp.
)
- --------------------- )
Witness )
) Per: ______________________
) Julius Patta, President, Director
6
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
PlayStar Wyoming Holding Corp.
We consent to the inclusion in this registration statement on Form S-4 of
our report dated September 1, 1997 and March 18, 1998, on our audit of the
financial statements of PlayStar Corporation. We also consent to the reference
to our firm under the caption "Experts" in the Prospectus.
/s/ FRUITMAN KATES
FRUITMAN KATES
Toronto, Ontario
April 20, 1998
1
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED DECEMBER 31, 1997 FINANCIAL STATEMENTS OF PLAYSTAR CORPORATION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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