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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
dated August 9, 2004
WORLD GAMING PLC
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(Exact Name as Specified in its Charter)
N/A
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(Translation of Registrant's Name)
Jasmine Court
Friars Hill Road
St. Johns, Antigua
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(Address of principal executive offices) (Zip code)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
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Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): Not applicable.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
WE MAKE CERTAIN FORWARD-LOOKING STATEMENTS IN THIS DOCUMENT WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 PROVIDES A SAFE HARBOUR FOR FORWARD-LOOKING STATEMENTS. TO
COMPLY WITH THE TERMS OF THE SAFE HARBOUR, WE NOTE THAT A VARIETY OF FACTORS
COULD CAUSE OUR ACTUAL RESULTS AND EXPERIENCE TO DIFFER SUBSTANTIALLY FROM THE
ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN OUR FORWARD-LOOKING
STATEMENTS. WHEN WORDS AND EXPRESSIONS SUCH AS: "BELIEVES," "EXPECTS,"
"ANTICIPATES," "ESTIMATES," "PLANS," "INTENDS," "OBJECTIVES," "GOALS," "AIMS,"
"PROJECTS," "FORECASTS," "POSSIBLE," "SEEKS," "MAY," "COULD," "SHOULD," "MIGHT,"
"LIKELY," "ENABLE" OR SIMILAR WORDS OR EXPRESSIONS ARE USED IN THIS DOCUMENT, AS
WELL AS STATEMENTS CONTAINING PHRASES SUCH AS "IN OUR VIEW," "THERE CAN BE NO
ASSURANCE," "ALTHOUGH NO ASSURANCE CAN BE GIVEN" OR "THERE IS NO WAY TO
ANTICIPATE WITH CERTAINTY," FORWARD-LOOKING STATEMENTS ARE BEING MADE. THESE
FORWARD-LOOKING STATEMENTS SPEAK AS OF THE DATE OF THIS DOCUMENT.
THE FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND
INVOLVE RISK AND UNCERTAINTIES. THESE RISKS AND UNCERTAINTIES MAY AFFECT THE
OPERATION, PERFORMANCE, DEVELOPMENT AND RESULTS OF OUR BUSINESS AND COULD CAUSE
FUTURE OUTCOMES TO DIFFER MATERIALLY FROM THOSE SET FORTH IN OUR FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS ARE BASED ON OUR CURRENT BELIEFS AS TO THE OUTCOME
AND TIMING OF FUTURE EVENTS, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
PROJECTED OR IMPLIED IN THE FORWARD LOOKING STATEMENTS. FURTHER, SOME
FORWARD-LOOKING STATEMENTS ARE BASED UPON ASSUMPTIONS OF FUTURE EVENTS WHICH MAY
NOT PROVE TO BE ACCURATE. THE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES INCLUDING, WITHOUT LIMITATION, THE RISKS AND UNCERTAINTIES
REFERRED TO IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING OUR MOST RECENT FORM 20-F.
WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS AS A RESULT OF FUTURE DEVELOPMENTS, EVENTS AND CONDITIONS OUTSIDE OF
OUR CONTROL. NEW RISK FACTORS EMERGE FROM TIME TO TIME AND IT IS NOT POSSIBLE
FOR US TO PREDICT ALL SUCH RISK FACTORS, NOR CAN WE ASSESS THE IMPACT OF ALL
SUCH RISK FACTORS ON OUR BUSINESS OR THE EXTENT TO WHICH ANY FACTOR, OR
COMBINATION OF FACTORS, MAY CAUSE ACTUAL RESULTS TO DIFFER SIGNIFICANTLY FROM
THOSE FORECAST IN ANY FORWARD-LOOKING STATEMENTS. GIVEN THESE RISKS AND
UNCERTAINTIES, INVESTORS SHOULD NOT OVERLY RELY OR ATTACH UNDUE WEIGHT TO OUR
FORWARD-LOOKING STATEMENTS AS AN INDICATION OF OUR ACTUAL FUTURE RESULTS.
EXPLANATORY NOTE: This Form 6-K is being filed to disclose a change in World
Gaming plc's (the "Company" or "World Gaming") relationship with its major
customer Sportingbet Plc ("Sportingbet").
INTRODUCTION
World Gaming is incorporated in England and Wales and carries on business as an
Internet gaming software and related services provider.
World Gaming licenses Internet gaming software to third party licensees enabling
their customers to play casino games, place sports and horse wagers and enjoy
other gaming services over the Internet (the "Gaming Software"). World Gaming
earns royalties on the revenue licensees generate from the use of the Gaming
Software.
The Gaming Software is owned by a Starnet Systems International Inc. ("SSII") a
subsidiary of World Gaming, which licenses the Gaming Software to third parties.
SSII is incorporated and carries on business in Antigua. SSII also carries out
all hosting activities on behalf of its licensees. SSII owns equipment and
maintains systems in Antigua that host all data that is processed on the Gaming
Software in accordance with its licensees gaming licenses.
The Gaming Software was developed, and continues to be further developed, by
Inphinity Interactive Inc. ("Inphinity"), a subsidiary of World Gaming, for the
benefit of SSII. Inphinity is incorporated and carries on business in British
Columbia, Canada. Inphinity has employees and owns certain computer and related
equipment that are required for the purpose of developing the software (the
"Ancillary Assets").
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World Gaming's largest licensee is Sportingbet. Sportingbet is incorporated in
England. In the financial year 1 January to 31 December 2003, approximately 80%
of World Gaming's royalty revenues were generated from Sportingbet. Sportingbet
currently owns 29.5% of the outstanding equity of World Gaming ("SB Shares").
Sportingbet, through a wholly owned subsidiary, also holds a convertible loan
for U.S. $900,000 under an instrument dated 4 April 2003 (the "Convertible
Loan"). Pursuant to this Convertible Loan, Sportingbet has an option to purchase
a further 14% equity interest in World Gaming at twelve cents per ordinary
share. Upon conversion of the Convertible Loan, Sportingbet would own
approximately 39.2% of the equity in World Gaming.
Upon 45 days notice prior to the annual contract anniversary each March,
Sportingbet may terminate the existing licence agreement with SSII. While no
actual termination notice has been given and Sportingbet has agreed in principle
to an extension of the licence agreement to March 2006, Sportingbet has
indicated that it will not be renewing its licence agreement with SSII
thereafter. Sportingbet has provided the Board of World Gaming with the
following reasons as to why it would not renew the licence:
(a) Sportingbet's own in-house platform could service its business on a more
economic basis;
(b) Sportingbet requires a greater degree of security over the software being
used;
(c) Sportingbet requires a greater degree of influence over the future
development of the software.
Furthermore, since the existing licence agreement does not require Sportingbet
to use World Gaming's software for all of Sportingbet's U.S. facing markets,
there can be no guarantee that, even if Sportingbet did renew the licence World
Gaming would generate sufficient revenues to continue as a going concern. If
Sportingbet did not renew the licence, the loss of revenue would have serious
cash flow implications for World Gaming and would also threaten its ability to
continue as a going concern.
In April 2004, Sportingbet advised World Gaming and announced publicly that it
was reviewing its options with respect to continuing to use World Gaming's
Gaming Software on any or all of its brands. In addition, Sportingbet indicated
that it might begin to sell its shares in World Gaming. The Board of Directors
of World Gaming explored several alternative arrangements before proceeding with
the transaction to be proposed to shareholders for approval, as set out below.
SUMMARY OF PROPOSED TRANSACTION
World Gaming has signed an agreement with Sportingbet which is conditional upon
approval by a majority of World Gaming shareholders voting at the Annual General
Meeting ("AGM"). The framework and other main proposals of the transaction
comprise the following:
A. JOINT PARTNERSHIP FOR GAMING SOFTWARE
1. A wholly owned Sportingbet group company ("IOE") will purchase a 50%
interest in the Gaming Software from SSII. Both SSII and IOE will each
contribute their 50% ownership of the Gaming Software to a newly formed
limited liability partnership that will be incorporated in the Cayman
Islands (the "Joint Partnership"). World Gaming and Sportingbet
(through their respective affiliates) will be equal partners in the
Joint Partnership and accordingly will jointly own the Gaming Software.
World Gaming will be required to give warranties on the ownership and
sufficiency of the Gaming Software.
2. The Joint Partnership will grant each of World Gaming and Sportingbet a
perpetual royalty-free master licence to use the Gaming Software. World
Gaming will have the right to continue to sub-license the Gaming
Software to any third party whatsoever. Sportingbet may only use the
Gaming Software royalty free for its existing licensees and for the
benefit of members of its group. World Gaming and Sportingbet will only
make payments in the following situations:
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(i) Sportingbet will pay 5% of licensee's net win to World Gaming
for any new white-label marketing partner taken on after
completion of this transaction (where "net win" is the
difference between amount wagered (bet placed) by a customer
of a licensee and the amount back to (won by) that customer);
(ii) World Gaming will pay 5% of licensee's net win to Sportingbet
if it acquires a controlling interest in a competitor of
Sportingbet or enters into a transaction with a competitor
which requires World Gaming or the competitor to consolidate
any or all of each others revenues;
(iii) World Gaming will pay 5% of relevant websites' net win if it
owns and operates its own gaming website;
(iv) Where such a payment is payable, these will continue for the
duration of the Joint Partnership and for a period of three
years from the date of its termination.
B. NEWLY INCORPORATED COMPANY FOR DEVELOPMENT FUNCTION
3. Inphinity will move its development, maintenance and second level
support functions, including all of the Ancillary Assets to a newly
formed limited liability company that will be incorporated in British
Columbia, Canada ("NewCan"). NewCan, which will be owned by
Sportingbet, will offer to take on all employees of Inphinity who
presently carry out the above functions.
4. NewCan will report directly to the Joint Partnership. The Joint
Partnership will be equally controlled by World Gaming and Sportingbet.
5. NewCan's purpose will be to continue developing and maintaining the
Gaming Software in accordance with a plan agreed between World Gaming
and Sportingbet (the "Development Plan"). The Development Plan will be
agreed at the commencement of the transaction and will be subject to
review by World Gaming and Sportingbet on a quarterly basis.
Sportingbet and World Gaming shall directly share in the objectives of
the Development Plan on a 70/30 basis, respectively. World Gaming may
purchase additional development time should the need arise. Given the
nature of each business, it is expected that such objectives will often
be entirely congruent.
6. Sportingbet has agreed to fully fund the operating costs of NewCan.
Sportingbet has committed to spend at least U.S. $4.5 million per year
on the operational and development costs of NewCan in the first 3 years
and a minimum of U.S. $2.5 million in the fourth year. In addition to
this, NewCan will also provide second level support services to World
Gaming in the ordinary course of its business. Sportingbet has
indicated that it may, although it is not required to, invest
additional sums into development over and above this minimum
commitment.
7. In accordance with its obligations described in the preceding
paragraph, Sportingbet will have day-to-day control over NewCan. Such
control will be predominately carried out through the jointly elected
Chief Technology Officer. NewCan will enter into a Development Services
Agreement to which World Gaming will be a party to ensure that NewCan
operates according to the Development Plan.
C. CONSIDERATION AND ANCILLARY ARRANGEMENTS
8. The consideration for the Gaming Software (the "Sale Consideration") is
in total U.S. $13.3 million value which will comprise:
(a) U.S. $10 million of which:
(i) U.S. $3 million cash is payable on completion of the
transaction;
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(ii) at least U.S. $3 million cash on or before 1 March
2005; and
(iii) U.S. $4 million cash to be paid in installments on or
before 1 November 2005;
(b) Additional consideration of U.S. $3.3 million as value for:
(i) the 13.6 million shares in World Gaming owned by
Sportingbet (29.5% of World Gaming's equity) having
restrictions attached to them by ordinary resolution
of the Company with the effect that such shares will
have no dividend, voting, participation or other
rights; and
(ii) the cancellation of the convertible loan note and the
options thereunder and to otherwise release World
Gaming from all obligations under this instrument.
9. The full payment of the $10 million will be secured by a partnership
pledge over Sportingbet's partnership interest in the Joint
Partnership. This arrangement is to permit World Gaming to acquire
exclusive access to the Gaming Software and development thereof in the
event of a payment default by Sportingbet.
10. As part of the transaction NewCan will acquire the Ancillary Assets and
assume various employer obligations related to the Inphinity employees.
11. The parties will also enter into the following ancillary arrangements:
(a) Information Technology Services
World Gaming will provide certain U.S. facing hosting services
to Sportingbet on an exclusive basis for the life of the
proposed transaction. Such services will be charged on the
basis of actual cost plus a 10% margin.
(b) Sportingbet Ancillary Services
Sportingbet or its affiliates will continue to provide certain
customer and transaction processing services to World Gaming's
existing and future licensees on agreed terms that do not
materially differ from those already offered.
(c) European Marketing
Sportingbet will provide World Gaming, through a joint
marketing arrangement, with access to Sportingbet's in-house
technology to allow World Gaming to market a European Gaming
solution for the benefit of existing and future licensees.
The combination of services described in the above ancillary arrangements above
effectively enables existing licensees and future licensees to access a turn-key
gaming operation from World Gaming should they require such services.
D. TERMINATION OF THE JOINT PARTNERSHIP AND NEWCAN
12. Sportingbet may not terminate the Joint Partnership and NewCan for the
first 3 years from completion of the transaction. Thereafter,
Sportingbet may terminate upon 12 months notice to World Gaming.
However, Sportingbet may terminate at any time if certain events of
default occur, such as material breach by World Gaming or a material
change in control of World Gaming.
13. World Gaming may terminate the Joint Partnership and the arrangements
with NewCan at any time upon 3 months notice to Sportingbet, or upon
the occurrence of certain events of default.
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14. Upon termination:
(a) Sportingbet is required to make a further payment to World
Gaming of U.S. $3 million (if World Gaming voluntarily
terminates and then sells the Gaming Software within 2 years,
this additional payment to be reduced by the consideration
received by World Gaming, up to a maximum of U.S. $3 million);
(b) The Gaming Software (as updated and improved) will be jointly
owned by Sportingbet and World Gaming (or their respective
affiliates), and both parties will have an unrestricted right
to use, sub-licence and assign their interest in the software.
Neither party will have the rights to any further improvements
or developments made by the other party.
RECOMMMENDATION TO SHAREHOLDERS
At the Annual General Meeting ("AGM") shareholders will be asked to vote on the
transaction as discussed in this document.
The Board of Directors of World Gaming (or the "Company") will unanimously
recommend this transaction to World Gaming shareholders. In forming this
recommendation, the board considered the likely alternatives should Sportingbet
commence removing any or all of its brands from the World Gaming platform, the
Internet gaming market as a whole and the Company's position in that market and
what the most valuable course of action would be for Shareholders. In addition,
the Board has received a written opinion dated 6 August 2004, from Houlihan
Lokey Howard & Zukin Financial Advisors Inc. ("HLHZ") that, as of the date of
the opinion, the transaction, taken as a whole, is fair, from a financial point
of view, to the existing shareholders of World Gaming other than Sportingbet
(subject to final accounting and legal confirmation).
The key benefits of the transaction for World Gaming include:
i. Significantly lower cost base than that of our competitors;
ii. Cash injection of U.S. $10m over 18 months;
iii. Sportingbet relinquishes controlling interest in World Gaming;
iv. Cancellation of remaining World Gaming debt;
v. Expected continuation of profitability;
vi. Improved products and stability for existing World Gaming
licensees;
vii. Addition of European software platform to World Gaming's
product suite;
viii. Continuation of market leading gaming operator utilizing the
World Gaming software platform.
The entire existing holding of Sportingbet in World Gaming (29.5% of World
Gaming's equity) will have restrictions attached to them by ordinary resolution
of the Company with the effect that will have no dividend, voting, participation
or other rights. These shares will also be subject to an irrevocable right of
World Gaming to buy-back the shares at a later date. This method has been
adopted at this time instead of a share buy-back as World Gaming is unable to
buy back shares under the UK Companies Act 1985 as it has insufficient retained
earnings.
STRATEGIC OVERVIEW OF WORLD GAMING
The benefits described above have had a significant influence over World
Gaming's future strategic direction. World Gaming's revised business plan will
focus on four key strategies:
1. Actively engage in marketing to seek new licensees for its
existing software platform together with exploration of the
European market.
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2. Deliver a robust, industry leading software platform to
existing and future licensees with the key advantages of:
i. Significantly lower cost base than our competitors;
ii. Access to both leading US and European software
solutions with access to all development and
enhancements utilized in the Sportingbet Group in
addition to the flexibility to add other unique
enhancements as required;
iii. Access to market leading customer service and
transaction processing should licensees require these
services.
3. Actively participate in management of the Joint Partnership
ensuring that development objectives meet with its
requirements.
4. Seek new markets for investment and potential listing
opportunities to maximize shareholder value.
The Board of World Gaming is actively considering certain other business
opportunities which are synergistic with the licensing business described above.
World Gaming has engaged industry consultants to provide analysis on the
Internet gaming industry examining where opportunities exist. In this regard
World Gaming plans to hire a sales and marketing team to exploit these
opportunities.
A full update of World Gaming's strategy and the measures under which it will
review the successful implementation of such strategy are expected to be
provided to shareholders at World Gaming's AGM.
ANNUAL GENERAL MEETING
The final date for the AGM will be announced to Shareholders by early September,
2004. Shareholders will receive relevant circulars, proxies and other
information in the coming weeks.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused the Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 9, 2004
WORLD GAMING PLC
By: /s/ David James Naismith
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Name: David James Naismith
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Title: CFO
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