mary
Dormant account
- Joined
- Dec 12, 2000
This is from a Ragingbull post:
WebSports Technologies Inc. Sues CryptoLogic for Breach Of Contract,
Conspiracy, Misrepresentation and Collusion.
December 3, 2002
Toronto, Canada
WebSports Technologies Inc, a Toronto based gaming software developer, has filed a $293 Million U.S Law Suit against Toronto software company CryptoLogic Inc.
The suit alleges, that CryptoLogic conspired to alter the results of a testing procedure being conducted by TST testing systems of North America to authenticate and certify WebSports ProSportsTrade Exchange game in order to break a contract that had been signed by both parties. In a statement from CEO & President Nick Murphy, WebSports will pursue every legal avenue available in order to challenge the duplicitous actions of CryptoLogic.
WebSports is seeking more than $100 Million in punitive damages.
For more info please contact
nick@prosportstrade.com
Court File No. 02 CV 240094 CM 1
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
WEBSPORTS TECHNOLOGIES INC.
plaintiff
- and -
CRYPTOLOGIC INC.,
Defendant
STATEMENT OF CLAIM
TO THE DEFENDANT
A LEGAL PROCEEDING HAS BEEN COMMENCED AGAINST YOU by the plaintiff. The claim made against you is set out in the following pages.
IF YOU WISH TO DEFEND THIS PROCEEDING, you or an Ontario Lawyer acting for you must prepare a statement of defence in Form 18A prescribed by the Rules of Civil Procedure, serve it on the plaintiffs lawyer or, where the plaintiff does not have a lawyer, serve it on the plaintiff, and file it, with proof of service, in this court office, WITHIN TWENTY DAYS after this statement of claim is served on you, if you are served in Ontario.
If you are served in another province or territory of Canada or in the United States of America, the period for serving and filing your statement of defence is forty days. If you are served outside Canada and the United States of America, the period is sixty days.
Instead of serving and filing a statement of defence, you may serve and file a notice of intent to defend in Form 18B prescribed by the Rules of Civil Procedure. This will entitle you to ten more days within which to serve and file your statement of defence.
IF YOU FAIL TO DEFEND THIS PROCEEDING, JUDGMENT MAY BE GIVEN AGAINST YOU IN YOUR ABSENCE AND WITHOUT FURTHER NOTICE TO YOU. IF YOU WISH TO DEFEND THIS PROCEEDING BUT ARE UNABLE TO PAY LEGAL FEES, LEGAL AID MAY BE AVAILABLE TO YOU BY CONTACTING A LOCAL LEGAL AID OFFICE.
Date:_______ Issued by __________
Local registrar
Address of court office: 393 University Ave.
Toronto, Ontario
M5G 1E6
TO: CRYPTOLOGIC INC.
1867 Yonge Street
7th Floor
Toronto, Ontario
M4S 1Y5
Attention: Lewis Rose, Bob Stikeman and Dennis Wing
CLAIM
1. THE PLAINTIFF CLAIMS AGAINST THE DEFENDANT, CRYPTOLOGIC INC. (CRYPTOLOGIC), FOR:
(a) damages in the amount of One Hundred and fifty Three Million Five Hundred Thousand US Dollars ($153,500,000.00 USD) for breach of contract and for misrepresentation, in the alternative the Plaintiff claims as against the Defendant Cryptologic, the equivalent sum of money damages in Canadian Dollars;
(b) exemplary, punitive and aggravated damages in the amount of Fifteen Million US Dollars ($15,000,000.00 USD) as compensation for the manner in which Cryptologic has dealt with the Plaintiff and for intentionally interfering with the economic interests and contractual relations of the Plaintiff, in the alternative the Plaintiff claims as against the Defendant Cryptologic, the equivalent sum of money damages in Canadian Dollars;
(c) pre-judgment and post-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. 43, as amended;
(d) GST on all amounts in respect of which GST is applicable;
(e) costs of this action on a solicitor and client basis or on such other basis as this Honourable Court may deem fit; and
(f) such further and other relief as this Honourable Court may deem just.
2. THE PLAINTIFF FURHTER CLAIMS AS AGAINST THE DEFENDANT:
(a) for conspiracy, collusion, misrepresentation, deceit, sabotage, inducing a breach of contract and intentional interference with contractual relations and economic interests of the Plaintiff, damages in the sum of One Hundred Million US Dollars ($100,000,000.00 USD), in the alternative the Plaintiffs claim as against the Plaintiff the equivalent sum of money damages in Canadian Dollars;
(b) exemplary, punitive and aggravated damages in the amount of Twenty Five Million US Dollars ($25,000,000.00 USD), in the alternative the Plaintiffs claim as against the Plaintiff the equivalent sum of money damages in Canadian Dollars;
(c) pre-judgment and post-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. 43, as amended;
(d) GST on all amounts in respect of which GST is applicable;
(e) costs of this action on a solicitor and client basis or on such other basis as this Honourable Court may deem fit;
The Parties
3. The Plaintiff, Websports Technologies Inc. (Websports), is a corporation incorporated under the laws of the Province of Ontario with its registered office in the City of Toronto, Ontario. Websports operates as a computer software developer with its primary focus on a product called ProSports Trade Exchange, which is described below in greater detail.
4. The Defendant, Cryptologic, is a corporation incorporated under the laws of the Province of Ontario with its registered office in City of Toronto, Ontario. Cryptologic is a public corporation and its shares trade on the Toronto Stock Exchange and the Nasdaq National Market. In its Annual Information Form, Cryptologic describes itself as a leading Internet software development and licensing company operating in the Internet transaction processing market. Cryptologics software development is focused on the casino and gaming industry. According to its Annual Report, more than 640,000 players have registered and played at online casinos that use Cryptologics software and Cryptologic has processed secure electronic transactions worth $5.1 billion.
5. Jean Noelting (Noelting), is an individual resident in the City of Toronto in the Province of Ontario and was at all material times the Chief Executive Officer and a Director of the Defendant Cryptologic.
6. Luc Sevingny (Sevingny) is an individual resident in the City of Toronto in the Province of Ontario and was at all material times employed by Cryptologic in the capacity of Project Manager of the Defendant Cryptologic and was at all material times intimately involved with the development and refinement of the game and product herein described.
The Sportsbook Product
7. In 2000, Nicholas Murphy (Murphy), the current CEO and President of Websports, developed a game concept called ProSports Trade Exchange. This game concept envisioned that a virtual stock market of sports teams would be created among a series of brokerages, and participants would invest in and trade these sports teams among and between themselves. The game included but was not limited to teams in the NFL, NBA, MLB, NHL and English Premier League (U.K. Football) and was capable of being expanded into other sports applications. Each teams value would vary according to its performance, perceived value and other dynamic variables resulting in a higher valuation and trading price with an increase in that teams status and/or prospects with the opposite result in the event of negative prospects and/or performance. Revenue would be generated through the licensing of the software to brokerages who would solicit participation of their clients in the barter for the sports teams. Revenues were also to be generated through, among other things, an initial ticket offering of teams and from the sale and or purchase of various team tickets much in the same way as a broker would charge a fee for the sale and or purchase of shares in any public stock market exchange. As well, it was also expected that information would be offered to participants in exchange for a cost through the vehicle of an online newsletter or similar publication.
8. In or around October 2000, Websports was formed to further develop and market the ProSports Trade Exchange game concept. During the development of the game and the concept, the Plaintiff was represented by Bob Stikeman who engineered the corporate structure and negotiated various contractual arrangements from time to time. From and after that time, Websports further developed the ProSports Trade Exchange game concept into a prototype (the Product) and the supporting product and financial models were developed. Between October 2000 and January 2001, Websports raised capital and used the initial capital to complete the initial development of the Product and establish its base operational infrastructure. Websports states and the fact is that it incurred costs and expenses in excess of One Million Eight Hundred Thousand US Dollars ($1,800,000.00 USD) in the development of the software and the prototype of the game and that the Defendant was at all material times aware of the amount of money and time that was invested by Websports in the software and prototype of the game.
Cryptologics Initial Interest in the Product
9. Murphy began his investigation into companies that might be interested in cooperating with WebSports to form a joint venture for the development and marketing of the Product. Discussions and negotiations ensued with several companies in the gaming business. In or around January of 2001, after having being urged by Bob Stikeman, Murphy met with the then Chief Operating Officer of Cryptologic, David Outhwaite and with their Vice President Business Development, Paul Gragtmans and presented the ProSports Trade Exchange game concept to them. This game concept was well received and discussions between the parties took place from time to time thereafter.
10. In or around January 2001, Cryptologic signed a confidentiality agreement with Websports and shortly thereafter a meeting was held with and among the new Chief Executive Officer Jean Noelting and Chief Operating Officer David Outhwaite and other representatives of Cryptologic to discuss Cryptologics potential interest and investment in the Product and Game developed by Websports. Cryptologic was made privy to all of the critical information with respect to the operation of Websports and the Product including but not limited to the financial model, the business plan and the code and software platform being used by the game. Cryptologic conducted their own summary due diligence, reviewed all aspects of the business plan and the assumptions of the financial models and projections including the matrices and software of the Product and after due analysis expressed to the plaintiff and Murphy significant interest in the Product.
11. In or around May 2001, Websports entered into an agreement with Sandbox-inc. (Sandbox), a Corporation incorporated pursuant to the laws of the State of Virginia carrying on business as a fantasy sports and marketing database company for the purposes of soliciting its Seven Million (7,000,000) user database as potential players for the Product and Game developed by Websports. Cryptologic was made aware of the agreement between Websports and Sandbox-inc. This agreement further garnered the interest of Cryptologic and led to additional discussions with Cryptologic. Cryptologic represented that it was extremely interested in entering into an agreement with respect to the Product and Game developed by Websports and that Cryptologics involvement with Websports would certainly ensure the Games commercial viability and success and that the Plaintiff needed the Defendant know-how, technical prowess, business acumen skill and experience and that without them the Plaintiff was doomed to failure or mediocre success. It further represented that, assuming a deal could be completed between it and Websports, it would itself enter into an agreement with Sandbox towards the same objective as the one entered into between Sandbox and Websports. On or about June 3, 2001, Websports introduced the President of Sandbox to Cryptologics Licensees at a meeting at the offices of Cryptologic. The Plaintiff states and the fact is that Cryptologic represented that their database of users exceeded Four Hundred Thousand users and that Websports would have full and unlimited access to the database and by extension the users. Cryptologic asserted to the Plaintiff and to Murphy that the Product and the Game would most certainly be a success and that Cryptologics involvement would ensure that the Product and Game would be catapulted into the market and was assured of great and unparalleled success fortune and that the Plaintiff would be the leader in the Sports Gaming world for years to follow.
The Letter of Intent
12. A Letter of Intent was entered into between Websports and Cryptologic on or about July 9, 2001 (the First Letter of Intent). Pursuant to the First Letter of Intent, the parties agreed, among other things, that Cryptologic would make certain investments in Websports in return for a 10% equity stake and a share of all revenues generated by the Product. The First Letter of Intent also provided that, as part of Cryptologics due diligence, it would retain an independent accredited test and review organization at Cryptologics sole expense to conduct an independent test and review of the Product and Game to ensure that it met acceptable industry standards.
13. Shortly thereafter, on or around July 19, 2001, Cryptologic indicated that it did not wish to proceed with the transaction contemplated by the First Letter of Intent. Websports expressed its disappointment with Cryptologics decision and advised Cryptologic that it had made certain expenditures on the strength of Cryptologics commitment and had foregone other opportunities in order to pursue the transaction contemplated by the First Letter of Intent. Negotiation, however, continued between the parties during the interim.
Cryptologic Firmly Agrees to Invest in the Product
14. On or about August 15, 2001, after a meeting between the parties, Cryptologic presented Websports with a Letter of Intent which was intended to outline the verbal agreement reached between the parties (the Second Letter of Intent). This agreement was signed between the parties on or about that date. The Second Letter of Intent was thereafter further formalized through a signed Game Development and Operating Agreement between Websports and Cryptologic (the Agreement), which was executed by the parties on or about September, 2001.
15. The Agreement provides, among other things, that:
(a) Websports would further develop and own the Product and all permutations thereof;
(b) Cryptologic, or a wholly-owned subsidiary, would acquire a 9.9% ownership interest in Websports pursuant to a share purchase agreement to be entered into between the parties;
(c) Cryptologic and Websports would enter into a joint venture to create a brokerage company with Cryptologic owning 51% and Websports owning 49% of that corporation (the Brokerage Company). The Brokerage Company would procure customers for the Product and the Game and would facilitate the trading of the sports teams through a trading exchange but Cryptologic would control the trading exchange through the Brokerage Company and it (Cryptologic) would support online gaming sites and take the responsibility for the marketing of the ProSports Trade Exchange;
(d) The Product and the Game would be owned and operated by Websports. Websports would also endeavour to license the software to other brokerages;
(e) Cryptologic would allow Websports full access to their full database which existed of over Four Hundred Thousand (400,000) users and would allow Websports to market their product and game directly without hindrance to all individuals and firms within the database owned by Cryptologic
(f) In consideration for the interest that Cryptologic would be acquiring in Websports and the Brokerage Company, Cryptologic would pay a total of One Million U.S. Dollars ($1,000,000.00 U.S.) in goods, services and cash to Websports (the Purchase Price). The Purchase Price was to be allocated among the costs anticipated to be incurred in development and marketing of the Product and was payable to Websports when such costs were incurred. These costs were listed as follows:
technology fixes - $ 80,000.00
Multi-tier security - $ 70,000.00
product manager (including game testing) - $ 50,000.00
strategic management - $ 50,000.00
Websports operations in support of the
exchange and brokerage company - $250,000.00
marketing launch - $500,000.00
(g) The Product would undergo testing by an independent research firm and the Brokerage Company would begin its operations when the Product received an approval rating sufficient to ensure its commercial success. The independent research firm and the success criteria were to be agreed upon by the parties before the testing of the Product was conducted;
(h) The launch date for the Product was to be on or before February 2002;
(i) Time was of the essence ; and
(j) Once Cryptologic had met its obligations under the Agreement, it would receive its interest in each of Websports and the Brokerage Company.
16. The Plaintiff states and the fact is that each of the aforementioned representations and warranties were false at the time that they were made and or uttered by the Defendant and that the Defendant knew them to be false at the time they were being made and uttered or were indifferent to the veracity of the representations and warranties being made. In the alternative the Plaintiff states and the fact is that the aforementioned representations and warranties were either deceptive, misleading, designed to sabotage the Plaintiffs business plan and model and exaggerated and were uttered by the Defendant or its employees, agents representatives and or assigns who had the apparent or ostensible authority to bind the Defendant to the Plaintiff negligently, recklessly or without regard to their veracity.
17. In addition the Plaintiff states and the fact is that Cryptologic, its employees, agents representatives and or assigns made representations and warranties to the Plaintiff with the intent that the Plaintiff would rely upon the representations and warranties. The Plaintiff states and the fact is that the Plaintiff did indeed rely upon the representations and warranties made by Cryptologic, its agents representatives and or employees all of whom had the apparent or ostensible authority to bind Cryptologic. The representations and warranties made by Cryptologic, its representatives, agents and or employees include but are not limited to the following;
(a) that Cryptologic would retain and pay for the services of an accredited test and certification firm to ensure the commercial viability of the game and product and that if the accredited test and certification firm made recommendations to modify the Product or the Game or the software and or the code, that Cryptologic would ensure that all modifications and amendments were completed in an expeditious manner in order to ensure the launch of the Program and the Game into the market;
(b) that Websports would be intimately involved in the test and certification process and in the selection of who would be engaged as the accredited organization which would conduct the testing and certification of the Product and the Game;
(c) that Websports would be provided with full access to all of the reports, analysis and the examination and to any of the recommendations or proposals of the testing facility and would have unlimited access and full disclosure of all matters and at all times in the and during the testing and certification of the Game and the Product
(d) that Cryptologic would dedicate sufficient staff, technical people, technical know how and software developers and would provide their full and unfettered support to the Plaintiff in order to ensure the integration of the Product and the Game with Cryptologics cash and security software to ensure the commercial viability and success of the Game once launched
18. The Plaintiff states and the fact is that each of the aforementioned representations and warranties were false at the time that they were made and or uttered by the Defendant and that the Defendant knew them to be false at the time they were being made and uttered or in the alternative, were indifferent to the veracity of the representations and warranties being made. In the alternative the Plaintiff states and the fact is that the aforementioned representations and warranties were either deceptive, misleading, designed to sabotage the Plaintiffs business plan and model and exaggerated and were uttered by the Defendants to the Plaintiff negligently, recklessly or without regard to their veracity.
19. In addition, Cryptologic agreed to execute and did in fact execute a limited guarantee in favour of Sun Microsystems Finance (Sun Microsystems) up to a maximum amount of $500,000 Cdn. in relation to an equipment lease granted to Websports upon the understanding that Websports would make the down payment and pay all of the monthly lease payments.
Websports Relies on the Agreement,
20. From and after the date that the First Letter of Intent was entered into, and from and after the date that the Agreement was entered into, Websports expended significant resources and significant sums of money in reliance on the commitment of Cryptologic to participate in the development, marketing, launch and operation of the Product. As well, Websports invested substantial sums in Websports wholly owned subsidiary, Websports Overseas Licensing Limited, a Malta based company (WOLL) to facilitate implementation of the infrastructure, which has since collapsed as a result of the withholding of the funding which was promised. Details of the money and resources expended by Websports pursuant to and in reliance on the First Letter of Intent and the Agreement will be provided prior to the date of trial but are estimated by the Plaintiff to be approximately Three Million Five Hundred Thousand U.S. Dollars ($3,500,000.00 U.S.).
21. At all times throughout the preliminary discussions leading to the First Letter of Intent and, more significantly, as part of and after the execution of the Agreement, Websports relied on what Websports understood to be the good faith representations of Cryptologic that the development of the Product was of great significance to Cryptologic and that Cryptologic would do what ever it was required to do and whatever was commercially reasonable to ensure the commercial success of the Game and the Product. These representations were made by Cryptologics President and CEO, John Noelting, who also specifically directed that Websports refrain from engaging or continuing in discussions with any other potential partners until the Product was ready to launch. In reliance, Websports did refrain from pursuing several other opportunities and terminated discussion with a number of other potential partners. It refrained because it had an agreement with Cryptologic. Cyptologics name has substantial recognition and carries significant weight in the industry. As well, Websports investors advanced considerable funds to Websports in furtherance of the development of the Product in reliance on the commitment of Cryptologic and the representations as expressed above. Websports found itself bound to Cryptologic without any option to move forward with another prospective partner.
Cryptologic Efforts Under the Agreement,
22. In accordance with its obligations under the Agreement, Cryptologic did execute the guarantee of the leasing arrangement with Sun Microsystems.
23. The Plaintiff states and the fact is that without its knowledge, consent or authority and without consultation and or discussion the Defendant, Crypotologic unilaterally retained Technical Systems Testing North America Inc. (TST) a Corporation which specializes in the testing and certification of the commercial viability of various software and internet applications as the independent research firm, for certification purposes to test the Product until receipt of its approval to reasonably ensure its commercial success. TST is one of a few companies in this area with international recognition. Notwithstanding the provisions of the Agreement, Websports was not involved with the selection of TST as the test and certification consultant nor was the Plaintiff involved in the design of the criteria to be used by TST in evaluating and testing the Product nor was the Plaintiff involved in arranging and or outlining any of the parameters with which the test and certification consultant would be able to complete their report and make their recommendations.
24. Inexplicably and unilaterally, Cryptologic without the knowledge or consent of the Plaintiff entered into a non-disclosure agreement with TST (to which Websports was not made a party) under which Cryptologic bound TST to a restrictive non-disclosure agreement which directed and forced TST into a regime of non-disclosure with the Plaintiff and failed to authorize and indeed prohibited the disclosure of any information, proposals, recommendations and the final report by TST on the Product, the Game and the software to Websports contrary to the Agreement and the representations and warranties made by Cryptologic. The Plaintiff states and the fact is that Cryptologic and others not known to the Plaintiff conspired and indeed concealed and forced TST to conceal information which had previously been agreed would be shared to Websports without justification or excuse in an effort to force the Plaintiff to abandon the Product and the Game knowing full well that had the information been provided the Plaintiff would have known that the Product and the Game had no material flaws and were commercially viable. Accordingly, Websports was denied the first hand ability to review information concerning its own Product directly in contravention of the agreement and the representations and warranties previously provided to Websports by Cryptologic. In fact, certain progress reports prepared by TST were not initially disclosed to Websports, hampering its ability to advance the development of the Product. Despite that fact, Websports persevered in the development of the Product. Only after repeated requests was critical information released to Websports.
25. The status of the development of the Product was substantially advanced by September 2001. However, the lack of availability of Cryptologic personnel to perform its obligations under the Agreement, including Cryptologics lack of technical staff to integrate the Product with Cryptologics cash and security software, prevented the development of the software from further progressing.
26. Accordingly, rather than leaving its technology staff idle (while their expense to Websports accrued) Websports entered into an agreement with Cryptologic whereby Cryptologic would engage Websports technology team to assist Cryptologic with its separate technology projects. The arrangement was entered into at below market rates (30% below market) in order to enhance the Websports/Cryptologic relationship. The Plaintiff states and the fact is that the Plaintiff acted and conducted themselves in a manner consistent with the best interests of the joint venture and in good faith. The Plaintiff states and the fact is that Cryptologic took advantage of the Plaintiff and received substantial benefits al at the cost of the Plaintiff.
Cryptologics Breach of the Agreement
27. Websports states that Cryptologic has breached the Agreement and each of the representations made to Websports and has expressed to Websports that is has no intention of honouring its future obligations under the Agreement, as particularized below notwithstanding that Websports has conducted itself in accordance with the obligations imposed upon it by the agreement and consistent with the best interests of the joint venture and the intentions expressed in the Agreement and to one another while the agreement was being negotiated and finalized. In fact, despite its representations that it considered itself fully bound to the Agreement and despite the advice to Websports from Cryptologics counsel (who also acted as counsel to Websports) that it considered the Agreement to be a good one, Cryptologic has decided to reject its commitment and obligations under the Agreement for no good or valid reason. The Plaintiff states and the fact is that several meetings with Cryptologics technical team were promised and unilaterally cancelled by Cryptologic without rescheduling any of the meetings and without conducting any work to the game or product, leading to further delays in the launch of the game and product and damages naturally arising from the said delays.
28. In accordance with the Agreement, Sun Micro Systems provided equipment to Websports and Websports provided the down payment as well as all monthly lease payments required of it. Upon Crypotologic deciding not to continue to honour its commitments and obligations to Websports, Cryptologic without the knowledge or consent or authority of Websports paid the outstanding debt to Sun Mircosystems Finance and took possession of the equipment and failed to account to this Plaintiff or reconcile with this Plaintiff for the value of the down payment provided to obtain the equipment financing and for the value of the monthly lease payments made by this Plaintiff all at the expense and loss of this Plaintiff.
29. Websports further states that Cryptologic used its influence and or authority over TST to demand that TST conceal, manipulate and re-engineer the true results of the test and certification process of the Game and Product and to compromise, obscure, fabricate and misrepresent TSTs true findings after the test and certification stages to Websports in an effort to deceive and betray Websports with bogus test results and reports from the knowledge of the truth of the commercial viability of the Game and Product and in an effort to allow Cryptologic the opportunity, excuse, justification and method to avoid the responsibilities it had agreed to under the terms of the Agreement with Websports and to call the Agreement with Websports at an end without consequence or lawful reason all at the expense and with substantial damages incurred by Websports and to Websports sole detriment. As a result, TST has apparently declined further involvement in this project. This conduct on the part of Cryptologic was contrary to the letter and the spirit of the Agreement and was an attempt by Cryptologic to deliberately avoid its obligations to Websports, especially in light of the fact that the Reports and recommendations prepared by TST in connection with the Product have indicated that its development had been quite satisfactory and that it was on target to be completed by the launch date. This, of course, assumed that Cryptologic would comply with its obligations under the Agreement with Websports. Cryptologics conduct as set out in this paragraph has had the effect of impairing WebSports reputation in the international marketplace. The attempt by Cryptologic, and by others not known to the Plaintiff to convince TST to fabricate, rewrite and alter the reports and recommendations in a manner which sheds negative light on the Product and the Game constitutes conspiracy, collusion and deceit with the intent to cause economic damage and harm to the Plaintiff. In the alternative the same action constitutes intentional and unabashed interference with the Plaintiffs economic interests and intentionally inducing a breach of contract.
30. Finally, Cryptologic has refused to reimburse Websports for the costs that it incurred under the Agreement in developing the Product, the down payment of the equipment financing and the monthly lease payments made by the Plaintiff and, in fact, refused to advance the funds required of it pursuant to the Agreement. As a result, Websports does not have access to the funding that is required to make the final adjustments required to ready the Product for its market launch.
31. As a result of Cryptologics utter disregard for the Agreement that binds the parties and the misrepresentations, attempts at conspiracy and collusion to cause economic harm, the intentional interference with the Plaintiffs contracts, the inducing of a breach of contract and the unfulfilled commitments and obligations agreed and made by and on behalf of Cryptologic and its representatives on which Websports relied, Websports has lost the operational infrastructure required to advance the Websports business and, if possible, will have to rebuild the Websports infrastructure to facilitate the development of the Product to enable it to proceed to market. Websports has lost considerable value due to the breach of contract of Cryptologic, its improper and high handed conduct, and the lack of regard and respect that Cryptologic and others unknown to the Plaintiff who conspired with Cryptologic have shown the Plaintiff.
The Conspiracy, Collusion and Inducement of the Breach
32. Unbeknownst to the Plaintiff at the time, the Defendant, Cryptologic, and others unknown to the Plaintiff but known to Cryptologic conspired and colluded with and amongst one another and with others unknown to the Plaintiff and attempted unsuccessfully to recruit into the conspiracy and collusion TST in an effort to unlawfully and improperly convince TST to alter, amend and fabricate test results suggesting that the product was unsound, not commercially viable and wholly unfeasible notwithstanding that the test results showed that the Game and Product developed by Websports was sound, commercially viable and practically feasible with little or no structural faults. The conspiracy and collusion referred to herein was designed to further take advantage of the Plaintiff and to cause the unsuspecting Plaintiff once presented with the altered and bogus test results to release and remise Cryptologic from all obligations Cryptologic had obliged itself to under the terms of the letters of intent, the joint venture agreements and the agreements reached with Websports without lawful excuse and or without Cryptologic having to uphold and perform its end of the bargain. The conspiracy herein referred to was further designed to allow Cryptologic the opportunity to amend the game after having been provided with full and unfettered access and disclosure of all of the nomenclature and the architecture, the software and all of the code for the Game and to either reconfigure and or disguise the Game and present the Game as Cryptologics own Game in due course thereby eliminating the necessity and obligation of sharing the success and the profits of which Cryptologic was sure of after having investigated the Game and Product to the extent that they had and after having reconfirmed all of the assumptions and projections of the business plan and the model presented to Cryptologic by the Plaintiff at the first meetings to the direct detriment of the Plaintiff.
33. Particulars of the said conspiracy include but are not limited to the following:
a) The Defendant and others not known to this Plaintiff but certainly known to Cryptologic agreed and conspired amongst themselves and with one another, and communicated for the purpose of unlawfully and improperly depriving and denying the Plaintiff information and test results achieved by TST and by extension the viability of the Game and Product and the conspirators communicated for this purpose at dates and times not known to the Plaintiff but known to the Defendant;
b) the object of the conspiracy was to deprive, deny, misappropriate, deceive, conceal, manipulate and re-engineer test results which otherwise shed a very positive light on the Game and Product that the Plaintiff had developed in an effort to misappropriate the technology, the intellectual property, the investment already made by the Plaintiff and the toil of the Plaintiff and to avoid responsibilities and obligations incurred and agreed to by the Defendant;
c) in furtherance of the conspiracy, the Defendant deceived and misrepresented to the Plaintiff the nature and scope of the test results and certification process that they had completed;
d) the Defendant together with its co-conspirators who are not known to the Plaintiff but who are known to the Defendant fabricated, concealed, manipulated and re-engineered or attempted to convince and recruit others including TST into the conspiracy and collusion to fabricate, conceal, manipulate and re-engineer the test results and the certification reports that had been the task of TST and continued to create, invent and conceive of manners, methods, schemes and techniques to continue to give the Plaintiff false and misleading reports with respect to the commercial viability of the Game and Product in order to avoid obligations it had voluntarily entered into and in order to misappropriate and convert the intellectual property into its own for its own use and benefit;
e) on the strength of and relying upon the disclosure that was being made and controlled by the Defendant to the Plaintiff and the ruse that was being staged by the Defendant and the co-conspirators which all appeared to be valid and regular on its face, the Plaintiff set out on a course of action which was detrimental to its own interests and incurred damages and costs as a direct result.
34. The Plaintiff states and the fact is that the Defendant together with its co-conspirators who are not known to the Plaintiff but who are known to the Defendant and or Noelting and Sevingny each conspired and colluded among and between themselves during the summer of 2001 in order to convince Cryptologic and indeed used all of their respective influence and power within Cryptologic to induce, encourage and persuade Cryptologic to avoid the agreement with Websports at all costs and to do or engage in any activity including but not limited to the conspiracy set out herein necessary to avoid the agreement and the responsibilities and the liabilities outlined therein. The Plaintiff states and the fact is that the Defendant breached the agreement and the obligations it had with Websports as set out herein as a result of being influenced by others unknown to this Plaintiff to do so and the Defendant further recruited others unknown to this Plaintiff as willing and active participants in the conspiracy and collusion set out herein and in so doing the Defendant is liable to the Plaintiff for the amounts claimed in this Statement of Claim as a result causing the Plaintiff damages by inducing a breach of contract and as a result of the Defendants intentional interference with the economic interests of the Plaintiff.
Websports has Suffered Significant Damages
35. The refusal of Cryptologic to fulfill its obligations and perform in accordance with the Agreement to Websports, both under the Agreement and otherwise, including its funding obligations, and its conduct contrary to the Letter and the spirit of the Agreement, may jeopardize Websports ability to carry on its operations, resulting in the loss of its significant investment of approximately $3.5 million and the loss of the anticipated profits expected from the successful development of the Product.
36. Further, Cryptologic has failed to render any operational input or advice as promised and has failed to participate in the development of the Product despite the ownership interest intended to be allocated to it.
37. Websports states that the Pro Forma Statement of Revenue in respect of the Product, which were acknowledged as accurate by both parties, projected that Websports would earn One Hundred and Fifty Million U.S. Dollars ($150,000,000.00 US) over the next 7 years if the Agreement was carried out. Compensation of the amount pleaded in the claim herein would put Websports in the position that it would have been in had Cryptologic fulfilled its obligations under the Agreement.
38. Under the Agreement, it was intended that both parties would use their best efforts to ensure that the Product was in a position to be launched in February 2002, in time for the 2002 baseball season. This is no longer possible.
39. Websports further states that Cryptologics failure to fulfill its obligation under the Agreement has delayed the progress of the development of the Product and may cause other competitors to advance their position in the marketplace at Websports expense.
Punitive Damages
40. Cryptologic has conducted itself in a high handed, arrogant, ill spirited, vexatious and malevolent manner, with utter and complete disregard for the commitments and obligations it assumed to Websports both under the Agreement and otherwise. As a result of its leadership position in the software gaming industry, Cryptologic must believe that it can bully its contracting parties to do what it wishes and to renegotiate contracts to its liking. Websports requests that this Honourable Court send a message to Cryptologic saying that it cannot do so and that obligations that were agreed to must be performed to the extent agreed to.
41. On the basis of the above, the Plaintiff seeks the relief set forth in the statement of Claim herein and in particular paragraphs 1 and 2 herein.
42. The Plaintiff proposes that this action be tried at Toronto.
November 25, 2002
Marcello Di Francesco
Barrister & Solicitor
Suite 22,
200 Edgeley Blvd.
Vaughan, Ontario L4K 3Y8
Marcello Di Francesco
Tel 905.761.2815
Fax 905.761.6662
Solicitors for the Plaintiff
Registrant:
Websports Technologies Inc. (WEBSPORTSTECH-DOM)
2345 Yonge St., Suite 401
Toronto, ON M4P 2E5
CA
Domain Name: WEBSPORTSTECH.COM
Administrative Contact:
Websports Technologies Inc. (Q11306-OR) tsnider@snidergroup.com
Websports Technologies Inc.
2345 Yonge St., Suite 401
Toronto, ON M4P 2E5
CA
416 440-0458 fax: 416 482-9258
Technical Contact:
Cherry, Scott (SC20432) scherry@sequoia.on.ca
SFG Technologies Inc.
2345 Yonge St., Suite 401
Toronto, ON M4R 2E5
CA
416 440-0095 (FAX) 416 482-9258
Record expires on 16-Jan-2006.
Record created on 16-Jan-2001.
Database last updated on 7-Dec-2002 20:01:59 EST.
Domain servers in listed order:
NS1.WEBSPORTSTECH.COM 216.94.39.171
NS2.WEBSPORTSTECH.COM 216.94.39.172
WebSports Technologies Inc. Sues CryptoLogic for Breach Of Contract,
Conspiracy, Misrepresentation and Collusion.
December 3, 2002
Toronto, Canada
WebSports Technologies Inc, a Toronto based gaming software developer, has filed a $293 Million U.S Law Suit against Toronto software company CryptoLogic Inc.
The suit alleges, that CryptoLogic conspired to alter the results of a testing procedure being conducted by TST testing systems of North America to authenticate and certify WebSports ProSportsTrade Exchange game in order to break a contract that had been signed by both parties. In a statement from CEO & President Nick Murphy, WebSports will pursue every legal avenue available in order to challenge the duplicitous actions of CryptoLogic.
WebSports is seeking more than $100 Million in punitive damages.
For more info please contact
nick@prosportstrade.com
Court File No. 02 CV 240094 CM 1
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
WEBSPORTS TECHNOLOGIES INC.
plaintiff
- and -
CRYPTOLOGIC INC.,
Defendant
STATEMENT OF CLAIM
TO THE DEFENDANT
A LEGAL PROCEEDING HAS BEEN COMMENCED AGAINST YOU by the plaintiff. The claim made against you is set out in the following pages.
IF YOU WISH TO DEFEND THIS PROCEEDING, you or an Ontario Lawyer acting for you must prepare a statement of defence in Form 18A prescribed by the Rules of Civil Procedure, serve it on the plaintiffs lawyer or, where the plaintiff does not have a lawyer, serve it on the plaintiff, and file it, with proof of service, in this court office, WITHIN TWENTY DAYS after this statement of claim is served on you, if you are served in Ontario.
If you are served in another province or territory of Canada or in the United States of America, the period for serving and filing your statement of defence is forty days. If you are served outside Canada and the United States of America, the period is sixty days.
Instead of serving and filing a statement of defence, you may serve and file a notice of intent to defend in Form 18B prescribed by the Rules of Civil Procedure. This will entitle you to ten more days within which to serve and file your statement of defence.
IF YOU FAIL TO DEFEND THIS PROCEEDING, JUDGMENT MAY BE GIVEN AGAINST YOU IN YOUR ABSENCE AND WITHOUT FURTHER NOTICE TO YOU. IF YOU WISH TO DEFEND THIS PROCEEDING BUT ARE UNABLE TO PAY LEGAL FEES, LEGAL AID MAY BE AVAILABLE TO YOU BY CONTACTING A LOCAL LEGAL AID OFFICE.
Date:_______ Issued by __________
Local registrar
Address of court office: 393 University Ave.
Toronto, Ontario
M5G 1E6
TO: CRYPTOLOGIC INC.
1867 Yonge Street
7th Floor
Toronto, Ontario
M4S 1Y5
Attention: Lewis Rose, Bob Stikeman and Dennis Wing
CLAIM
1. THE PLAINTIFF CLAIMS AGAINST THE DEFENDANT, CRYPTOLOGIC INC. (CRYPTOLOGIC), FOR:
(a) damages in the amount of One Hundred and fifty Three Million Five Hundred Thousand US Dollars ($153,500,000.00 USD) for breach of contract and for misrepresentation, in the alternative the Plaintiff claims as against the Defendant Cryptologic, the equivalent sum of money damages in Canadian Dollars;
(b) exemplary, punitive and aggravated damages in the amount of Fifteen Million US Dollars ($15,000,000.00 USD) as compensation for the manner in which Cryptologic has dealt with the Plaintiff and for intentionally interfering with the economic interests and contractual relations of the Plaintiff, in the alternative the Plaintiff claims as against the Defendant Cryptologic, the equivalent sum of money damages in Canadian Dollars;
(c) pre-judgment and post-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. 43, as amended;
(d) GST on all amounts in respect of which GST is applicable;
(e) costs of this action on a solicitor and client basis or on such other basis as this Honourable Court may deem fit; and
(f) such further and other relief as this Honourable Court may deem just.
2. THE PLAINTIFF FURHTER CLAIMS AS AGAINST THE DEFENDANT:
(a) for conspiracy, collusion, misrepresentation, deceit, sabotage, inducing a breach of contract and intentional interference with contractual relations and economic interests of the Plaintiff, damages in the sum of One Hundred Million US Dollars ($100,000,000.00 USD), in the alternative the Plaintiffs claim as against the Plaintiff the equivalent sum of money damages in Canadian Dollars;
(b) exemplary, punitive and aggravated damages in the amount of Twenty Five Million US Dollars ($25,000,000.00 USD), in the alternative the Plaintiffs claim as against the Plaintiff the equivalent sum of money damages in Canadian Dollars;
(c) pre-judgment and post-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. 43, as amended;
(d) GST on all amounts in respect of which GST is applicable;
(e) costs of this action on a solicitor and client basis or on such other basis as this Honourable Court may deem fit;
The Parties
3. The Plaintiff, Websports Technologies Inc. (Websports), is a corporation incorporated under the laws of the Province of Ontario with its registered office in the City of Toronto, Ontario. Websports operates as a computer software developer with its primary focus on a product called ProSports Trade Exchange, which is described below in greater detail.
4. The Defendant, Cryptologic, is a corporation incorporated under the laws of the Province of Ontario with its registered office in City of Toronto, Ontario. Cryptologic is a public corporation and its shares trade on the Toronto Stock Exchange and the Nasdaq National Market. In its Annual Information Form, Cryptologic describes itself as a leading Internet software development and licensing company operating in the Internet transaction processing market. Cryptologics software development is focused on the casino and gaming industry. According to its Annual Report, more than 640,000 players have registered and played at online casinos that use Cryptologics software and Cryptologic has processed secure electronic transactions worth $5.1 billion.
5. Jean Noelting (Noelting), is an individual resident in the City of Toronto in the Province of Ontario and was at all material times the Chief Executive Officer and a Director of the Defendant Cryptologic.
6. Luc Sevingny (Sevingny) is an individual resident in the City of Toronto in the Province of Ontario and was at all material times employed by Cryptologic in the capacity of Project Manager of the Defendant Cryptologic and was at all material times intimately involved with the development and refinement of the game and product herein described.
The Sportsbook Product
7. In 2000, Nicholas Murphy (Murphy), the current CEO and President of Websports, developed a game concept called ProSports Trade Exchange. This game concept envisioned that a virtual stock market of sports teams would be created among a series of brokerages, and participants would invest in and trade these sports teams among and between themselves. The game included but was not limited to teams in the NFL, NBA, MLB, NHL and English Premier League (U.K. Football) and was capable of being expanded into other sports applications. Each teams value would vary according to its performance, perceived value and other dynamic variables resulting in a higher valuation and trading price with an increase in that teams status and/or prospects with the opposite result in the event of negative prospects and/or performance. Revenue would be generated through the licensing of the software to brokerages who would solicit participation of their clients in the barter for the sports teams. Revenues were also to be generated through, among other things, an initial ticket offering of teams and from the sale and or purchase of various team tickets much in the same way as a broker would charge a fee for the sale and or purchase of shares in any public stock market exchange. As well, it was also expected that information would be offered to participants in exchange for a cost through the vehicle of an online newsletter or similar publication.
8. In or around October 2000, Websports was formed to further develop and market the ProSports Trade Exchange game concept. During the development of the game and the concept, the Plaintiff was represented by Bob Stikeman who engineered the corporate structure and negotiated various contractual arrangements from time to time. From and after that time, Websports further developed the ProSports Trade Exchange game concept into a prototype (the Product) and the supporting product and financial models were developed. Between October 2000 and January 2001, Websports raised capital and used the initial capital to complete the initial development of the Product and establish its base operational infrastructure. Websports states and the fact is that it incurred costs and expenses in excess of One Million Eight Hundred Thousand US Dollars ($1,800,000.00 USD) in the development of the software and the prototype of the game and that the Defendant was at all material times aware of the amount of money and time that was invested by Websports in the software and prototype of the game.
Cryptologics Initial Interest in the Product
9. Murphy began his investigation into companies that might be interested in cooperating with WebSports to form a joint venture for the development and marketing of the Product. Discussions and negotiations ensued with several companies in the gaming business. In or around January of 2001, after having being urged by Bob Stikeman, Murphy met with the then Chief Operating Officer of Cryptologic, David Outhwaite and with their Vice President Business Development, Paul Gragtmans and presented the ProSports Trade Exchange game concept to them. This game concept was well received and discussions between the parties took place from time to time thereafter.
10. In or around January 2001, Cryptologic signed a confidentiality agreement with Websports and shortly thereafter a meeting was held with and among the new Chief Executive Officer Jean Noelting and Chief Operating Officer David Outhwaite and other representatives of Cryptologic to discuss Cryptologics potential interest and investment in the Product and Game developed by Websports. Cryptologic was made privy to all of the critical information with respect to the operation of Websports and the Product including but not limited to the financial model, the business plan and the code and software platform being used by the game. Cryptologic conducted their own summary due diligence, reviewed all aspects of the business plan and the assumptions of the financial models and projections including the matrices and software of the Product and after due analysis expressed to the plaintiff and Murphy significant interest in the Product.
11. In or around May 2001, Websports entered into an agreement with Sandbox-inc. (Sandbox), a Corporation incorporated pursuant to the laws of the State of Virginia carrying on business as a fantasy sports and marketing database company for the purposes of soliciting its Seven Million (7,000,000) user database as potential players for the Product and Game developed by Websports. Cryptologic was made aware of the agreement between Websports and Sandbox-inc. This agreement further garnered the interest of Cryptologic and led to additional discussions with Cryptologic. Cryptologic represented that it was extremely interested in entering into an agreement with respect to the Product and Game developed by Websports and that Cryptologics involvement with Websports would certainly ensure the Games commercial viability and success and that the Plaintiff needed the Defendant know-how, technical prowess, business acumen skill and experience and that without them the Plaintiff was doomed to failure or mediocre success. It further represented that, assuming a deal could be completed between it and Websports, it would itself enter into an agreement with Sandbox towards the same objective as the one entered into between Sandbox and Websports. On or about June 3, 2001, Websports introduced the President of Sandbox to Cryptologics Licensees at a meeting at the offices of Cryptologic. The Plaintiff states and the fact is that Cryptologic represented that their database of users exceeded Four Hundred Thousand users and that Websports would have full and unlimited access to the database and by extension the users. Cryptologic asserted to the Plaintiff and to Murphy that the Product and the Game would most certainly be a success and that Cryptologics involvement would ensure that the Product and Game would be catapulted into the market and was assured of great and unparalleled success fortune and that the Plaintiff would be the leader in the Sports Gaming world for years to follow.
The Letter of Intent
12. A Letter of Intent was entered into between Websports and Cryptologic on or about July 9, 2001 (the First Letter of Intent). Pursuant to the First Letter of Intent, the parties agreed, among other things, that Cryptologic would make certain investments in Websports in return for a 10% equity stake and a share of all revenues generated by the Product. The First Letter of Intent also provided that, as part of Cryptologics due diligence, it would retain an independent accredited test and review organization at Cryptologics sole expense to conduct an independent test and review of the Product and Game to ensure that it met acceptable industry standards.
13. Shortly thereafter, on or around July 19, 2001, Cryptologic indicated that it did not wish to proceed with the transaction contemplated by the First Letter of Intent. Websports expressed its disappointment with Cryptologics decision and advised Cryptologic that it had made certain expenditures on the strength of Cryptologics commitment and had foregone other opportunities in order to pursue the transaction contemplated by the First Letter of Intent. Negotiation, however, continued between the parties during the interim.
Cryptologic Firmly Agrees to Invest in the Product
14. On or about August 15, 2001, after a meeting between the parties, Cryptologic presented Websports with a Letter of Intent which was intended to outline the verbal agreement reached between the parties (the Second Letter of Intent). This agreement was signed between the parties on or about that date. The Second Letter of Intent was thereafter further formalized through a signed Game Development and Operating Agreement between Websports and Cryptologic (the Agreement), which was executed by the parties on or about September, 2001.
15. The Agreement provides, among other things, that:
(a) Websports would further develop and own the Product and all permutations thereof;
(b) Cryptologic, or a wholly-owned subsidiary, would acquire a 9.9% ownership interest in Websports pursuant to a share purchase agreement to be entered into between the parties;
(c) Cryptologic and Websports would enter into a joint venture to create a brokerage company with Cryptologic owning 51% and Websports owning 49% of that corporation (the Brokerage Company). The Brokerage Company would procure customers for the Product and the Game and would facilitate the trading of the sports teams through a trading exchange but Cryptologic would control the trading exchange through the Brokerage Company and it (Cryptologic) would support online gaming sites and take the responsibility for the marketing of the ProSports Trade Exchange;
(d) The Product and the Game would be owned and operated by Websports. Websports would also endeavour to license the software to other brokerages;
(e) Cryptologic would allow Websports full access to their full database which existed of over Four Hundred Thousand (400,000) users and would allow Websports to market their product and game directly without hindrance to all individuals and firms within the database owned by Cryptologic
(f) In consideration for the interest that Cryptologic would be acquiring in Websports and the Brokerage Company, Cryptologic would pay a total of One Million U.S. Dollars ($1,000,000.00 U.S.) in goods, services and cash to Websports (the Purchase Price). The Purchase Price was to be allocated among the costs anticipated to be incurred in development and marketing of the Product and was payable to Websports when such costs were incurred. These costs were listed as follows:
technology fixes - $ 80,000.00
Multi-tier security - $ 70,000.00
product manager (including game testing) - $ 50,000.00
strategic management - $ 50,000.00
Websports operations in support of the
exchange and brokerage company - $250,000.00
marketing launch - $500,000.00
(g) The Product would undergo testing by an independent research firm and the Brokerage Company would begin its operations when the Product received an approval rating sufficient to ensure its commercial success. The independent research firm and the success criteria were to be agreed upon by the parties before the testing of the Product was conducted;
(h) The launch date for the Product was to be on or before February 2002;
(i) Time was of the essence ; and
(j) Once Cryptologic had met its obligations under the Agreement, it would receive its interest in each of Websports and the Brokerage Company.
16. The Plaintiff states and the fact is that each of the aforementioned representations and warranties were false at the time that they were made and or uttered by the Defendant and that the Defendant knew them to be false at the time they were being made and uttered or were indifferent to the veracity of the representations and warranties being made. In the alternative the Plaintiff states and the fact is that the aforementioned representations and warranties were either deceptive, misleading, designed to sabotage the Plaintiffs business plan and model and exaggerated and were uttered by the Defendant or its employees, agents representatives and or assigns who had the apparent or ostensible authority to bind the Defendant to the Plaintiff negligently, recklessly or without regard to their veracity.
17. In addition the Plaintiff states and the fact is that Cryptologic, its employees, agents representatives and or assigns made representations and warranties to the Plaintiff with the intent that the Plaintiff would rely upon the representations and warranties. The Plaintiff states and the fact is that the Plaintiff did indeed rely upon the representations and warranties made by Cryptologic, its agents representatives and or employees all of whom had the apparent or ostensible authority to bind Cryptologic. The representations and warranties made by Cryptologic, its representatives, agents and or employees include but are not limited to the following;
(a) that Cryptologic would retain and pay for the services of an accredited test and certification firm to ensure the commercial viability of the game and product and that if the accredited test and certification firm made recommendations to modify the Product or the Game or the software and or the code, that Cryptologic would ensure that all modifications and amendments were completed in an expeditious manner in order to ensure the launch of the Program and the Game into the market;
(b) that Websports would be intimately involved in the test and certification process and in the selection of who would be engaged as the accredited organization which would conduct the testing and certification of the Product and the Game;
(c) that Websports would be provided with full access to all of the reports, analysis and the examination and to any of the recommendations or proposals of the testing facility and would have unlimited access and full disclosure of all matters and at all times in the and during the testing and certification of the Game and the Product
(d) that Cryptologic would dedicate sufficient staff, technical people, technical know how and software developers and would provide their full and unfettered support to the Plaintiff in order to ensure the integration of the Product and the Game with Cryptologics cash and security software to ensure the commercial viability and success of the Game once launched
18. The Plaintiff states and the fact is that each of the aforementioned representations and warranties were false at the time that they were made and or uttered by the Defendant and that the Defendant knew them to be false at the time they were being made and uttered or in the alternative, were indifferent to the veracity of the representations and warranties being made. In the alternative the Plaintiff states and the fact is that the aforementioned representations and warranties were either deceptive, misleading, designed to sabotage the Plaintiffs business plan and model and exaggerated and were uttered by the Defendants to the Plaintiff negligently, recklessly or without regard to their veracity.
19. In addition, Cryptologic agreed to execute and did in fact execute a limited guarantee in favour of Sun Microsystems Finance (Sun Microsystems) up to a maximum amount of $500,000 Cdn. in relation to an equipment lease granted to Websports upon the understanding that Websports would make the down payment and pay all of the monthly lease payments.
Websports Relies on the Agreement,
20. From and after the date that the First Letter of Intent was entered into, and from and after the date that the Agreement was entered into, Websports expended significant resources and significant sums of money in reliance on the commitment of Cryptologic to participate in the development, marketing, launch and operation of the Product. As well, Websports invested substantial sums in Websports wholly owned subsidiary, Websports Overseas Licensing Limited, a Malta based company (WOLL) to facilitate implementation of the infrastructure, which has since collapsed as a result of the withholding of the funding which was promised. Details of the money and resources expended by Websports pursuant to and in reliance on the First Letter of Intent and the Agreement will be provided prior to the date of trial but are estimated by the Plaintiff to be approximately Three Million Five Hundred Thousand U.S. Dollars ($3,500,000.00 U.S.).
21. At all times throughout the preliminary discussions leading to the First Letter of Intent and, more significantly, as part of and after the execution of the Agreement, Websports relied on what Websports understood to be the good faith representations of Cryptologic that the development of the Product was of great significance to Cryptologic and that Cryptologic would do what ever it was required to do and whatever was commercially reasonable to ensure the commercial success of the Game and the Product. These representations were made by Cryptologics President and CEO, John Noelting, who also specifically directed that Websports refrain from engaging or continuing in discussions with any other potential partners until the Product was ready to launch. In reliance, Websports did refrain from pursuing several other opportunities and terminated discussion with a number of other potential partners. It refrained because it had an agreement with Cryptologic. Cyptologics name has substantial recognition and carries significant weight in the industry. As well, Websports investors advanced considerable funds to Websports in furtherance of the development of the Product in reliance on the commitment of Cryptologic and the representations as expressed above. Websports found itself bound to Cryptologic without any option to move forward with another prospective partner.
Cryptologic Efforts Under the Agreement,
22. In accordance with its obligations under the Agreement, Cryptologic did execute the guarantee of the leasing arrangement with Sun Microsystems.
23. The Plaintiff states and the fact is that without its knowledge, consent or authority and without consultation and or discussion the Defendant, Crypotologic unilaterally retained Technical Systems Testing North America Inc. (TST) a Corporation which specializes in the testing and certification of the commercial viability of various software and internet applications as the independent research firm, for certification purposes to test the Product until receipt of its approval to reasonably ensure its commercial success. TST is one of a few companies in this area with international recognition. Notwithstanding the provisions of the Agreement, Websports was not involved with the selection of TST as the test and certification consultant nor was the Plaintiff involved in the design of the criteria to be used by TST in evaluating and testing the Product nor was the Plaintiff involved in arranging and or outlining any of the parameters with which the test and certification consultant would be able to complete their report and make their recommendations.
24. Inexplicably and unilaterally, Cryptologic without the knowledge or consent of the Plaintiff entered into a non-disclosure agreement with TST (to which Websports was not made a party) under which Cryptologic bound TST to a restrictive non-disclosure agreement which directed and forced TST into a regime of non-disclosure with the Plaintiff and failed to authorize and indeed prohibited the disclosure of any information, proposals, recommendations and the final report by TST on the Product, the Game and the software to Websports contrary to the Agreement and the representations and warranties made by Cryptologic. The Plaintiff states and the fact is that Cryptologic and others not known to the Plaintiff conspired and indeed concealed and forced TST to conceal information which had previously been agreed would be shared to Websports without justification or excuse in an effort to force the Plaintiff to abandon the Product and the Game knowing full well that had the information been provided the Plaintiff would have known that the Product and the Game had no material flaws and were commercially viable. Accordingly, Websports was denied the first hand ability to review information concerning its own Product directly in contravention of the agreement and the representations and warranties previously provided to Websports by Cryptologic. In fact, certain progress reports prepared by TST were not initially disclosed to Websports, hampering its ability to advance the development of the Product. Despite that fact, Websports persevered in the development of the Product. Only after repeated requests was critical information released to Websports.
25. The status of the development of the Product was substantially advanced by September 2001. However, the lack of availability of Cryptologic personnel to perform its obligations under the Agreement, including Cryptologics lack of technical staff to integrate the Product with Cryptologics cash and security software, prevented the development of the software from further progressing.
26. Accordingly, rather than leaving its technology staff idle (while their expense to Websports accrued) Websports entered into an agreement with Cryptologic whereby Cryptologic would engage Websports technology team to assist Cryptologic with its separate technology projects. The arrangement was entered into at below market rates (30% below market) in order to enhance the Websports/Cryptologic relationship. The Plaintiff states and the fact is that the Plaintiff acted and conducted themselves in a manner consistent with the best interests of the joint venture and in good faith. The Plaintiff states and the fact is that Cryptologic took advantage of the Plaintiff and received substantial benefits al at the cost of the Plaintiff.
Cryptologics Breach of the Agreement
27. Websports states that Cryptologic has breached the Agreement and each of the representations made to Websports and has expressed to Websports that is has no intention of honouring its future obligations under the Agreement, as particularized below notwithstanding that Websports has conducted itself in accordance with the obligations imposed upon it by the agreement and consistent with the best interests of the joint venture and the intentions expressed in the Agreement and to one another while the agreement was being negotiated and finalized. In fact, despite its representations that it considered itself fully bound to the Agreement and despite the advice to Websports from Cryptologics counsel (who also acted as counsel to Websports) that it considered the Agreement to be a good one, Cryptologic has decided to reject its commitment and obligations under the Agreement for no good or valid reason. The Plaintiff states and the fact is that several meetings with Cryptologics technical team were promised and unilaterally cancelled by Cryptologic without rescheduling any of the meetings and without conducting any work to the game or product, leading to further delays in the launch of the game and product and damages naturally arising from the said delays.
28. In accordance with the Agreement, Sun Micro Systems provided equipment to Websports and Websports provided the down payment as well as all monthly lease payments required of it. Upon Crypotologic deciding not to continue to honour its commitments and obligations to Websports, Cryptologic without the knowledge or consent or authority of Websports paid the outstanding debt to Sun Mircosystems Finance and took possession of the equipment and failed to account to this Plaintiff or reconcile with this Plaintiff for the value of the down payment provided to obtain the equipment financing and for the value of the monthly lease payments made by this Plaintiff all at the expense and loss of this Plaintiff.
29. Websports further states that Cryptologic used its influence and or authority over TST to demand that TST conceal, manipulate and re-engineer the true results of the test and certification process of the Game and Product and to compromise, obscure, fabricate and misrepresent TSTs true findings after the test and certification stages to Websports in an effort to deceive and betray Websports with bogus test results and reports from the knowledge of the truth of the commercial viability of the Game and Product and in an effort to allow Cryptologic the opportunity, excuse, justification and method to avoid the responsibilities it had agreed to under the terms of the Agreement with Websports and to call the Agreement with Websports at an end without consequence or lawful reason all at the expense and with substantial damages incurred by Websports and to Websports sole detriment. As a result, TST has apparently declined further involvement in this project. This conduct on the part of Cryptologic was contrary to the letter and the spirit of the Agreement and was an attempt by Cryptologic to deliberately avoid its obligations to Websports, especially in light of the fact that the Reports and recommendations prepared by TST in connection with the Product have indicated that its development had been quite satisfactory and that it was on target to be completed by the launch date. This, of course, assumed that Cryptologic would comply with its obligations under the Agreement with Websports. Cryptologics conduct as set out in this paragraph has had the effect of impairing WebSports reputation in the international marketplace. The attempt by Cryptologic, and by others not known to the Plaintiff to convince TST to fabricate, rewrite and alter the reports and recommendations in a manner which sheds negative light on the Product and the Game constitutes conspiracy, collusion and deceit with the intent to cause economic damage and harm to the Plaintiff. In the alternative the same action constitutes intentional and unabashed interference with the Plaintiffs economic interests and intentionally inducing a breach of contract.
30. Finally, Cryptologic has refused to reimburse Websports for the costs that it incurred under the Agreement in developing the Product, the down payment of the equipment financing and the monthly lease payments made by the Plaintiff and, in fact, refused to advance the funds required of it pursuant to the Agreement. As a result, Websports does not have access to the funding that is required to make the final adjustments required to ready the Product for its market launch.
31. As a result of Cryptologics utter disregard for the Agreement that binds the parties and the misrepresentations, attempts at conspiracy and collusion to cause economic harm, the intentional interference with the Plaintiffs contracts, the inducing of a breach of contract and the unfulfilled commitments and obligations agreed and made by and on behalf of Cryptologic and its representatives on which Websports relied, Websports has lost the operational infrastructure required to advance the Websports business and, if possible, will have to rebuild the Websports infrastructure to facilitate the development of the Product to enable it to proceed to market. Websports has lost considerable value due to the breach of contract of Cryptologic, its improper and high handed conduct, and the lack of regard and respect that Cryptologic and others unknown to the Plaintiff who conspired with Cryptologic have shown the Plaintiff.
The Conspiracy, Collusion and Inducement of the Breach
32. Unbeknownst to the Plaintiff at the time, the Defendant, Cryptologic, and others unknown to the Plaintiff but known to Cryptologic conspired and colluded with and amongst one another and with others unknown to the Plaintiff and attempted unsuccessfully to recruit into the conspiracy and collusion TST in an effort to unlawfully and improperly convince TST to alter, amend and fabricate test results suggesting that the product was unsound, not commercially viable and wholly unfeasible notwithstanding that the test results showed that the Game and Product developed by Websports was sound, commercially viable and practically feasible with little or no structural faults. The conspiracy and collusion referred to herein was designed to further take advantage of the Plaintiff and to cause the unsuspecting Plaintiff once presented with the altered and bogus test results to release and remise Cryptologic from all obligations Cryptologic had obliged itself to under the terms of the letters of intent, the joint venture agreements and the agreements reached with Websports without lawful excuse and or without Cryptologic having to uphold and perform its end of the bargain. The conspiracy herein referred to was further designed to allow Cryptologic the opportunity to amend the game after having been provided with full and unfettered access and disclosure of all of the nomenclature and the architecture, the software and all of the code for the Game and to either reconfigure and or disguise the Game and present the Game as Cryptologics own Game in due course thereby eliminating the necessity and obligation of sharing the success and the profits of which Cryptologic was sure of after having investigated the Game and Product to the extent that they had and after having reconfirmed all of the assumptions and projections of the business plan and the model presented to Cryptologic by the Plaintiff at the first meetings to the direct detriment of the Plaintiff.
33. Particulars of the said conspiracy include but are not limited to the following:
a) The Defendant and others not known to this Plaintiff but certainly known to Cryptologic agreed and conspired amongst themselves and with one another, and communicated for the purpose of unlawfully and improperly depriving and denying the Plaintiff information and test results achieved by TST and by extension the viability of the Game and Product and the conspirators communicated for this purpose at dates and times not known to the Plaintiff but known to the Defendant;
b) the object of the conspiracy was to deprive, deny, misappropriate, deceive, conceal, manipulate and re-engineer test results which otherwise shed a very positive light on the Game and Product that the Plaintiff had developed in an effort to misappropriate the technology, the intellectual property, the investment already made by the Plaintiff and the toil of the Plaintiff and to avoid responsibilities and obligations incurred and agreed to by the Defendant;
c) in furtherance of the conspiracy, the Defendant deceived and misrepresented to the Plaintiff the nature and scope of the test results and certification process that they had completed;
d) the Defendant together with its co-conspirators who are not known to the Plaintiff but who are known to the Defendant fabricated, concealed, manipulated and re-engineered or attempted to convince and recruit others including TST into the conspiracy and collusion to fabricate, conceal, manipulate and re-engineer the test results and the certification reports that had been the task of TST and continued to create, invent and conceive of manners, methods, schemes and techniques to continue to give the Plaintiff false and misleading reports with respect to the commercial viability of the Game and Product in order to avoid obligations it had voluntarily entered into and in order to misappropriate and convert the intellectual property into its own for its own use and benefit;
e) on the strength of and relying upon the disclosure that was being made and controlled by the Defendant to the Plaintiff and the ruse that was being staged by the Defendant and the co-conspirators which all appeared to be valid and regular on its face, the Plaintiff set out on a course of action which was detrimental to its own interests and incurred damages and costs as a direct result.
34. The Plaintiff states and the fact is that the Defendant together with its co-conspirators who are not known to the Plaintiff but who are known to the Defendant and or Noelting and Sevingny each conspired and colluded among and between themselves during the summer of 2001 in order to convince Cryptologic and indeed used all of their respective influence and power within Cryptologic to induce, encourage and persuade Cryptologic to avoid the agreement with Websports at all costs and to do or engage in any activity including but not limited to the conspiracy set out herein necessary to avoid the agreement and the responsibilities and the liabilities outlined therein. The Plaintiff states and the fact is that the Defendant breached the agreement and the obligations it had with Websports as set out herein as a result of being influenced by others unknown to this Plaintiff to do so and the Defendant further recruited others unknown to this Plaintiff as willing and active participants in the conspiracy and collusion set out herein and in so doing the Defendant is liable to the Plaintiff for the amounts claimed in this Statement of Claim as a result causing the Plaintiff damages by inducing a breach of contract and as a result of the Defendants intentional interference with the economic interests of the Plaintiff.
Websports has Suffered Significant Damages
35. The refusal of Cryptologic to fulfill its obligations and perform in accordance with the Agreement to Websports, both under the Agreement and otherwise, including its funding obligations, and its conduct contrary to the Letter and the spirit of the Agreement, may jeopardize Websports ability to carry on its operations, resulting in the loss of its significant investment of approximately $3.5 million and the loss of the anticipated profits expected from the successful development of the Product.
36. Further, Cryptologic has failed to render any operational input or advice as promised and has failed to participate in the development of the Product despite the ownership interest intended to be allocated to it.
37. Websports states that the Pro Forma Statement of Revenue in respect of the Product, which were acknowledged as accurate by both parties, projected that Websports would earn One Hundred and Fifty Million U.S. Dollars ($150,000,000.00 US) over the next 7 years if the Agreement was carried out. Compensation of the amount pleaded in the claim herein would put Websports in the position that it would have been in had Cryptologic fulfilled its obligations under the Agreement.
38. Under the Agreement, it was intended that both parties would use their best efforts to ensure that the Product was in a position to be launched in February 2002, in time for the 2002 baseball season. This is no longer possible.
39. Websports further states that Cryptologics failure to fulfill its obligation under the Agreement has delayed the progress of the development of the Product and may cause other competitors to advance their position in the marketplace at Websports expense.
Punitive Damages
40. Cryptologic has conducted itself in a high handed, arrogant, ill spirited, vexatious and malevolent manner, with utter and complete disregard for the commitments and obligations it assumed to Websports both under the Agreement and otherwise. As a result of its leadership position in the software gaming industry, Cryptologic must believe that it can bully its contracting parties to do what it wishes and to renegotiate contracts to its liking. Websports requests that this Honourable Court send a message to Cryptologic saying that it cannot do so and that obligations that were agreed to must be performed to the extent agreed to.
41. On the basis of the above, the Plaintiff seeks the relief set forth in the statement of Claim herein and in particular paragraphs 1 and 2 herein.
42. The Plaintiff proposes that this action be tried at Toronto.
November 25, 2002
Marcello Di Francesco
Barrister & Solicitor
Suite 22,
200 Edgeley Blvd.
Vaughan, Ontario L4K 3Y8
Marcello Di Francesco
Tel 905.761.2815
Fax 905.761.6662
Solicitors for the Plaintiff
Registrant:
Websports Technologies Inc. (WEBSPORTSTECH-DOM)
2345 Yonge St., Suite 401
Toronto, ON M4P 2E5
CA
Domain Name: WEBSPORTSTECH.COM
Administrative Contact:
Websports Technologies Inc. (Q11306-OR) tsnider@snidergroup.com
Websports Technologies Inc.
2345 Yonge St., Suite 401
Toronto, ON M4P 2E5
CA
416 440-0458 fax: 416 482-9258
Technical Contact:
Cherry, Scott (SC20432) scherry@sequoia.on.ca
SFG Technologies Inc.
2345 Yonge St., Suite 401
Toronto, ON M4R 2E5
CA
416 440-0095 (FAX) 416 482-9258
Record expires on 16-Jan-2006.
Record created on 16-Jan-2001.
Database last updated on 7-Dec-2002 20:01:59 EST.
Domain servers in listed order:
NS1.WEBSPORTSTECH.COM 216.94.39.171
NS2.WEBSPORTSTECH.COM 216.94.39.172
