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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 endeavor 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 Cryptologic’s 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.
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