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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BIGSTAR ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5735 13-399-5258
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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19 FULTON STREET
5TH FLOOR
NEW YORK, NEW YORK 10038
(212) 981-6300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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DAVID FRIEDENSOHN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
19 FULTON STREET -- 5TH FLOOR
NEW YORK, NEW YORK 10038
(212) 981-6300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE OF PROCESS)
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PLEASE SEND A COPY OF ALL COMMUNICATIONS TO:
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RUBI FINKELSTEIN, ESQ. MICHAEL R. LITTENBERG, ESQ.
RICHARD D. HARROCH, ESQ. SCHULTE ROTH & ZABEL LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP 900 THIRD AVENUE
30 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10112 (212) 756-2000
(212) 506-5380 (212) 593-3955 (FAX)
(212) 506-3730 (FAX)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, par value $.001
per share.................. $46,000,000 $12,788
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. BIGSTAR
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- MAY 6, 1999
PROSPECTUS
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Shares
BIGSTAR.COM LOGO BIGSTAR ENTERTAINMENT, INC.
Common Stock
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BigStar Entertainment, Inc. is offering shares of its common stock in an
initial public offering. Prior to this offering, there has been no public market
for BigStar's common stock.
BigStar is an online filmed entertainment superstore that sells filmed
entertainment products in all popular formats.
It is anticipated that the public offering price will be between $ and
$ per share. The shares of BigStar will be quoted in the Nasdaq National
Market under the symbol BGST.
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Per Share Total
<S> <C> <C>
Public offering price................................ $ $
Underwriting discounts and commissions............... $ $
Proceeds, before expenses, to BigStar................ $ $
</TABLE>
SEE "RISK FACTORS" ON PAGES 8 TO 14 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF BIGSTAR.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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The underwriters may, under certain circumstances, purchase up to
additional shares from BigStar at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on
, 1999.
PRUDENTIAL SECURITIES
, 1999
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[ARTWORK]
2
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary................ 4
Risk Factors...................... 8
Forward-Looking Statements........ 15
Use of Proceeds................... 16
Dividend Policy................... 16
Dilution.......................... 17
Capitalization.................... 18
Selected Financial Data........... 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 20
Business.......................... 25
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PAGE
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Management........................ 36
Certain Transactions.............. 42
Principal Stockholders............ 43
Description of Capital Stock...... 45
Shares Eligible for Future Sale... 48
Underwriting...................... 49
Legal Matters..................... 50
Experts........................... 51
Where You Can Find More
Information..................... 51
Index to Financial Statements..... F-1
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The terms "BigStar," "we," "our" and "us" refer to BigStar Entertainment,
Inc. unless the context suggests otherwise. The term "you" refers to a
prospective investor. Our Internet address is www.BigStar.com. Information
contained in our web sites is not part of this prospectus.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
investors should consider before investing in our common stock. Investors should
read the entire prospectus carefully.
THE COMPANY
We are a leading online filmed entertainment superstore that sells video
cassettes, digital video discs, or DVDs, and laserdiscs. Through our web sites,
customers have the convenience of shopping 24 hours a day, seven days a week.
According to Media Metrix, we had 707,000 unique visitors to our web sites in
March 1999, up from 67,000 in September 1998. We were formed in March 1998.
We have four web sites that target purchasers of filmed entertainment
products. Our main web site, BigStar.com, offers approximately 34,000 filmed
entertainment products, including feature films and educational, health and
fitness and instructional videos. Our other web sites are abcBigStar.com, which
targets the children's filmed entertainment market, BigStarDVD.com, which
focuses on DVD enthusiasts, and Astrophile.com, a content-only web site designed
to attract customers to our product web sites.
Among other marketing techniques, BigStar uses direct e-mail to attract new
customers and increase purchases by existing customers. Our recently developed
BigStar Direct Email(TM) software allows us to customize promotions to
individuals based on their page viewing patterns, demographic information,
indicated preferences and purchasing habits. Based on our preliminary use of
this software, we believe that it will enhance the effectiveness of our e-mail
promotions. At April 30, 1999, we had a database of more than 430,000 e-mail
addresses of current and prospective customers.
MARKET OPPORTUNITY
The Internet is emerging as a significant medium for commerce. In addition,
over the last several years, consumer video spending habits have shifted from
renting video cassettes to purchasing them due to falling prices and broader
distribution. Paul Kagan Associates estimates that annual retail sales of videos
and DVDs in the United States will increase to $12.8 billion in 2003, up from
$9.1 billion in 1998. We believe that as commerce on the Internet increases,
sales of online filmed entertainment will also increase.
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OUR ADVANTAGES
Web-based retailers of filmed entertainment products face challenges in
promoting and sustaining online sales. These challenges include competition from
traditional retailers and attracting and retaining customers. We believe we are
well-positioned to meet these challenges because of the following key strengths:
- relationships with wholesalers that allow us to offer approximately
34,000 filmed entertainment products without the risks associated with
carrying inventory;
- our proprietary BigStar Direct Email software, which is designed to
increase sales through one-to-one marketing;
- proprietary software that integrates editorial content into our web
sites; and
- a management team experienced in electronic commerce and Internet
marketing.
OUR STRATEGY
Our objective is to be the leading online filmed entertainment superstore.
We intend to attain our objective through the following strategies:
- continue to grow our customer base through advertising campaigns,
strategic marketing relationships and our affiliate partner networks;
- continue to use direct e-mail marketing;
- provide a superior shopping experience;
- continue to improve our technology; and
- pursue additional revenue opportunities.
OUR OFFICES
Our principal executive offices are located at 19 Fulton Street, 5th Floor,
New York, New York 10038 and our telephone number is (212) 981-6300.
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THE OFFERING
Shares offered by BigStar............... shares
Total shares outstanding after this
offering................................ shares
Use of proceeds......................... To (1) increase marketing,
advertising and promotion, (2)
expand facilities, (3) hire
additional personnel, (4) upgrade
computer systems and develop
additional software and (5) fund
working capital and losses. A
portion of the proceeds also may be
used for possible future strategic
alliances and acquisitions.
Proposed Nasdaq National Market
symbol.................................. BGST
The information on this page is stated as of May 3, 1999. You should be
aware that the total shares outstanding after this offering does not include:
- 2,733,700 shares subject to outstanding options with a weighted average
exercise price of $1.40 per share;
- 1,790,384 shares subject to outstanding warrants with a weighted average
exercise price of $2.03 per share;
- 266,300 shares reserved for issuance under our stock option and incentive
plans; and
- shares reserved upon exercise of the underwriters'
over-allotment option.
RISK FACTORS
Investors should consider the risk factors before investing in BigStar's
common stock and the impact from various events which could adversely affect its
business. See "Risk Factors."
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SUMMARY FINANCIAL DATA
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MARCH 10, 1998 (INCEPTION)
TO DECEMBER 31, 1998
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(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 789
Cost of sales......................................... 694
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Gross profit.......................................... 95
Operating expenses:
Sales and marketing................................ 1,430
General and administrative......................... 963
Web site and software development.................. 951
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Total operating expenses.............................. 3,344,101
Loss from operations.................................. (3,249)
Interest income....................................... 7
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Net loss.............................................. $ (3,242)
==========
Basic and diluted net loss per share.................. $ (0.60)
Shares used in computing basic and diluted net loss
per share.......................................... 5,366,564
</TABLE>
The following table indicates a summary of our balance sheet at December
31, 1998. The table also shows how this data would appear if it were adjusted to
reflect our receipt of the estimated net proceeds of $ million from our sale
of common stock in this offering, at an assumed initial public offering price of
$ , after deducting underwriting discounts and commissions and our estimated
offering expenses. See also "Use of Proceeds" and "Capitalization."
<TABLE>
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AT DECEMBER 31, 1998
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ACTUAL AS ADJUSTED
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash................................................... $ 816 $
Working capital (deficit).............................. (938)
Total assets........................................... 1,338
Total long-term debt................................... 9
Total debt............................................. 11
Total stockholders' equity (deficit)................... (494)
</TABLE>
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RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information included in this prospectus, before purchasing shares of
common stock of BigStar. Each of these risk factors could adversely affect our
business, operating results and financial condition, which could adversely
affect the value of an investment in our common stock. This investment involves
a high degree of risk.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE WILL FACE DIFFICULTIES
TYPICALLY ENCOUNTERED BY DEVELOPMENT STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING
MARKETS. We commenced operations in March 1998. An investor purchasing our
common stock must therefore consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets, such
as online commerce. These risks include our ability to:
- continue to expand our customer base;
- generate repeat business from existing customers;
- respond to changes in a rapidly evolving and unpredictable business
environment;
- successfully compete against other companies that sell our products;
- maintain current and develop new strategic relationships;
- manage growth;
- continue to develop and upgrade our technology; and
- attract, retain and motivate qualified personnel.
WE LACK SIGNIFICANT REVENUES AND EXPECT SIGNIFICANT CONTINUING LOSSES,
WHICH COULD DECREASE THE VALUE OF YOUR SHARES. We have not achieved
profitability and expect to continue to incur significant operating losses and
net losses for at least the next several years. We incurred a net loss of
approximately $3.2 million from March 10, 1998 (inception) through December 31,
1998. As of December 31, 1998, our accumulated deficit was approximately $3.2
million. See "Selected Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
We expect that our operating expenses will increase substantially as we
continue to expand our business. As a result, we will need to generate
significantly more revenues to achieve profitability. We may not be able to do
so. If revenues grow slower than we anticipate, or if operating expenses exceed
our expectations or cannot be reduced accordingly, our business, operating
results and financial condition may be materially harmed.
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OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF ELECTRONIC COMMERCE. If
electronic commerce does not continue to grow or grows more slowly than
expected, our business will be materially harmed. A number of factors could slow
the growth of electronic commerce, including the following:
- the network infrastructure required to support a substantially larger
volume of transactions may not be developed;
- government regulation may increase;
- telecommunications capacity problems may result in slower response times;
and
- consumers may have concerns about the security of electronic commerce
transactions.
WE COMPETE WITH OTHER ONLINE RETAILERS AND TRADITIONAL FILMED ENTERTAINMENT
RETAILERS WHO MAY BE MORE SUCCESSFUL THAN WE ARE IN ATTRACTING AND RETAINING
CUSTOMERS. The retail filmed entertainment industry is intensely competitive.
In addition, the online commerce market for retail filmed entertainment sales is
new, rapidly evolving and competitive. We expect that online competition will
further intensify since a competitor can launch a new site at relatively low
cost. If we are unable to successfully compete against other retailers of filmed
entertainment products, our business, operating results and financial condition
would be materially harmed.
Price competition in our industry also is intense, and price is one of the
principal factors on which consumers base their purchasing decisions. Price
competition may reduce our gross margins, which could materially harm our
business, operating results and financial condition. Some of our competitors use
aggressive pricing or inventory availability policies to build market share.
Some also have adopted business models that include selling filmed entertainment
products for less than their product cost and not charging customers for
shipping and handling. Software applications also are available that can
indicate which online site has the lowest price for a particular title and
direct customers to our competitors' sites.
Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than we have. In addition, some of our competitors devote
substantially more resources to web site and systems development than we do. See
"Business -- Competition" for further information concerning our competitors and
competitive factors affecting our industry.
WE DEPEND UPON STRATEGIC MARKETING RELATIONSHIPS TO GENERATE SALES. We use
strategic marketing relationships to attract new customers, and this is an
important part of our growth strategy. These relationships may not generate
significant numbers of new customers. Alternatively, these relationships may be
successful at generating new customers, but we may not be able to maintain these
relationships or enter into more of them. If any of these events were to occur,
it could materially harm our business, operating results and financial
condition. See "Business -- Marketing and Promotion -- Strategic Marketing
Relationships" for a discussion of these relationships.
OUR RELIANCE ON E-MAIL MARKETING COULD LEAVE US VULNERABLE IF CONSUMERS
REJECT THIS MARKETING TECHNIQUE OR IF THERE IS ADDITIONAL GOVERNMENTAL
REGULATION. E-mail
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marketing is a significant part of our growth strategy. If the acceptance or use
of e-mail marketing is limited, it could harm our sales growth, which could
materially harm our business, operating results and financial condition.
Consumer rejection of this marketing technique or governmental regulation could
limit its acceptance or use. Consumer acceptance of e-mail marketing also may be
limited due to e-mail viruses.
OUR RAPID GROWTH IS PLACING A SIGNIFICANT STRAIN ON OUR RESOURCES. We
anticipate continued rapid expansion of our operations. If we are unable to
manage our growth effectively, our business could be materially harmed. Our
rapid expansion has placed a significant strain on our ability to manage our
growth, including our ability to monitor operations, bill customers, control
costs and maintain effective quality controls. Our anticipated future expansion
will increase this strain.
Our senior management team has been assembled in a very short period. These
individuals have not previously worked together. The ability of our senior
managers to work together effectively as a team is critical to successfully
managing our growth.
WE MUST MAINTAIN SATISFACTORY VENDOR RELATIONSHIPS TO COMPETE SUCCESSFULLY.
We rely on wholesalers to fill our customers' orders. Our primary vendor of
filmed entertainment products is Baker & Taylor Entertainment, from whom we
obtained substantially all of our inventory in 1998. We also obtain filmed
entertainment products from Valley Media and Rentrak. We are dependent upon
maintaining these relationships for filling our customers' orders because there
are a limited number of wholesalers who sell filmed entertainment products. If
we are unable to maintain suitable relationships with vendors, we will be
materially harmed.
As we continue to grow, our wholesalers will need to satisfy our increasing
product requirements on a timely basis. They also must continue to provide
adequate selections of filmed entertainment titles and competitive prices. If
our wholesalers are unable or unwilling to do so, it would materially harm our
ability to compete, which would in turn materially harm our business, operating
results and financial condition.
WE COULD EXPERIENCE SYSTEM FAILURES THAT INTERFERE WITH CUSTOMERS' ACCESS
TO OUR ONLINE SUPERSTORE. Our business depends on the efficient and
uninterrupted operation of our computer and communications hardware and software
systems. Systems interruptions that cause our web sites to be unavailable or
that reduce our ability to process transactions could materially harm our
business, operating results and financial condition. Interruptions could result
from natural disasters as well as power loss, telecommunications failure and
similar events. We have had minor systems interruptions in the past and expect
further interruptions in the future. We have fully redundant systems but have
not yet formalized a formal disaster recovery plan.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS. To protect confidential
information, we rely on encryption technology, which transforms information into
a code designed to be unreadable by third parties. We also use authentication
technology that utilizes passwords and other information to prevent unauthorized
persons from accessing a customer's information. If a person circumvents our
security measures, he or she could misappropriate proprietary information or
cause interruptions in our operations. Security breaches that result in access
to confidential information also could damage our reputation and expose us to a
risk of loss or liability. In addition, we
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may be required to make significant expenditures and expend considerable effort
to try and protect against security breaches or remedy problems caused by these
breaches.
IF WE FAIL TO KEEP PACE WITH RAPID CHANGES INVOLVING THE INTERNET, IT COULD
MATERIALLY HARM OUR ABILITY TO RETAIN AND ATTRACT CUSTOMERS. Internet
technology, commercial applications and usage are all rapidly evolving. If we do
not successfully respond to rapid changes involving the Internet, our business
will be materially harmed. For example, we must respond to marketplace
developments in a timely and cost-effective manner. In this regard, we must
continue to develop, enhance and improve the responsiveness and features of our
web sites and develop new features to meet customer needs. We also must respond
to technological advances and emerging industry standards and practices on a
cost-effective and timely basis.
WE DO NOT PUBLISH OUR OWN EDITORIAL CONTENT, WHICH MEANS WE MUST RELY ON
LICENSED THIRD-PARTY CONTENT ON OUR WEB SITES. We license third-party content,
including filmed entertainment reviews, news reports and features, in order to
attract and retain web site users. If we are unable to obtain desirable content
from our content licensors or from new licensors, it could reduce visits to our
web sites, which could materially harm our business. In addition, if we are
unable to obtain content at an acceptable cost, it could materially harm our
ability to compete and our operating results and financial condition.
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS AND MAY INFRINGE ON
THE PROPRIETARY RIGHTS OF OTHERS. We regard our trademarks, trade secrets and
similar intellectual property as important to our success. However, our efforts
to establish and protect our proprietary rights may be inadequate to prevent
misappropriation or infringement of our proprietary property. If we are unable
to safeguard our intellectual property rights, it could materially harm our
business, operating results and financial condition.
We have established a network of links with numerous small online sites
through our affiliate partners network. Many of the sites may not have licenses
for the use of proprietary intellectual property that they display. The
copyright holders of this proprietary intellectual property or their licensees
may assert infringement claims against our affiliate partner sites and us
because of our relationships with these sites.
Although we believe that our use of third-party material on our web sites
is permitted under current provisions of copyright law, some aspects of Internet
content and commerce law are not clearly settled. We may therefore be the
subject of alleged infringement claims of the trademarks and other intellectual
property rights of third parties. If we become subject to these types of claims,
our business could be materially harmed even if we successfully defend against
the claims. It also is possible that future legal developments would prohibit us
from having rights to downloadable information, sound or video.
THE PROTECTION OF OUR DOMAIN NAMES IS UNCERTAIN BECAUSE THE REGULATION OF
DOMAIN NAMES IS SUBJECT TO CHANGE. We currently hold various web domain names
relating to our brand, including BigStar.com, abcBigStar.com, BigStarDVD.com and
Astrophile.com. The acquisition and maintenance of domain names generally is
regulated by governmental agencies and their designees. The regulation of domain
names in the United States and in foreign countries is expected to change in the
near future. As a result, we may be unable to acquire or maintain relevant
domain names in
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all countries in which we conduct business. If our ability to acquire or
maintain domain names is limited, it could materially harm our business,
operating results and financial condition.
WE ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL LIABILITIES THAT MAY BE
COSTLY AND MAY INTERFERE WITH OUR ABILITY TO CONDUCT BUSINESS. Laws and
regulations directly applicable to online commerce or Internet communications
are becoming more prevalent. These laws and regulations could expose us to
compliance costs and substantial liability, which could materially harm our
business, operating results and financial condition. In addition, the growth of
the Internet, coupled with publicity regarding Internet fraud, may lead to the
enactment of more stringent consumer protection laws. These laws would also be
likely to impose additional burdens on our business.
In addition, some jurisdictions in the United States have objected to the
sale of copyrighted materials, such as books, that are deemed pornographic and
have started proceedings against online commerce companies selling these
materials. Should jurisdictions object to the sale of some filmed entertainment
products by us, we could be exposed to litigation that could be costly and that
could materially harm our business.
WE MAY BE SUBJECT TO LIABILITY FOR SALES AND OTHER TAXES. We do not
collect sales or other similar taxes in most states. Our business could be
materially harmed if additional sales and similar taxes are imposed on us, or if
penalties are assessed on us for past nonpayment of these taxes. Recently
adopted legislation provides that, prior to October 2001, a state cannot impose
sales taxes on products sold on the Internet unless these taxes could be charged
on non-Internet transactions involving the products. During this moratorium, it
is possible that taxing mechanisms may be developed that would, following the
moratorium, impose increasing sales and similar tax burdens on us. If these
burdens are placed on us, our business could be materially harmed and there
could be a material adverse effect on our operating results and financial
condition.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL. Our success is substantially
dependent on the ability and experience of our senior management and other key
personnel, particularly David Friedensohn, our Chief Executive Officer and
Chairman of the Board, and David Levitsky, our Executive Vice President and
General Manager. If one or more members of our management team become unable or
unwilling to continue in their present positions, our business could be
materially harmed.
In addition, to manage our anticipated growth, we must hire more employees.
Competition for personnel, particularly persons having software development and
other technical expertise, is intense. If we are unable to hire additional
qualified employees, our growth will be impaired.
MANAGEMENT WILL CONTROL % OF BIGSTAR; THEIR INTERESTS MAY BE DIFFERENT
FROM AND CONFLICT WITH YOURS. The interests of management could conflict with
the interests of our other stockholders. Following this offering, executive
officers and directors will beneficially own a total of approximately %, and
% if the underwriters' over-allotment option is exercised in full, of our
outstanding common stock. Accordingly, if they act together, they will have the
power to control the election of directors and the approval of actions for which
the approval of our shareholders is required.
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WE MAY EXPERIENCE PROBLEMS FROM COMPUTER SYSTEMS THAT ARE NOT READY ON A
TIMELY BASIS TO PROCESS INFORMATION ASSOCIATED WITH THE YEAR 2000. Many
existing software programs may not accurately process dates arising in the year
2000 and after because they use only two digits to identify a year and assume
that the two missing digits are always "19." We cannot assure you that all of
the computer systems and related products and software that are important to our
business will be ready by the deadline to deal with the concerns arising from
the year 2000 problem. If they are not ready, we may experience difficulty in
properly managing our web sites and face the possibility of business
interruptions, financial loss, reputational harm and legal liability. Any of
these could materially harm our business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000" for a more extensive discussion of year 2000
risks.
Our business is dependent upon the operations and technology of various
Internet sites, merchant acquiring banks, product wholesalers and credit card
issuers, as well as other third parties. Our business, operating results and
financial condition may be materially harmed if these or other third parties are
not year 2000 compliant on a timely basis.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS OF
THIS OFFERING AND MAY NOT APPLY THEM EFFECTIVELY. Management will have
significant flexibility in applying the net proceeds of this offering and may
apply the proceeds in ways with which you do not agree. The failure of
management to apply these funds effectively could materially harm our business.
See "Use of Proceeds" for a discussion of our intended uses of the net proceeds
of this offering.
WE HAVE ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION OF OUR
BUSINESS AT A PREMIUM PRICE. Some of the provisions of our certificate of
incorporation and bylaws could discourage, delay or prevent an acquisition of
our company at a premium price or at all. These provisions:
- permit the board of directors to increase its own size and fill the
resulting vacancies;
- provide for a staggered board;
- authorize the issuance of preferred stock in one or more series; and
- limit the persons who may call special meetings of stockholders.
In addition, Section 203 of the Delaware General Corporation Law also imposes
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our common stock. See "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Delaware Law and
Certificate of Incorporation and Bylaw Provisions" for a more detailed
discussion of these anti-takeover provisions.
OUR STOCK PRICE MAY FLUCTUATE, WHICH MAY MAKE IT DIFFICULT TO RESELL YOUR
SHARES AT ATTRACTIVE PRICES. The market price of our common stock may be highly
volatile. The market prices of securities of other technology-based companies,
particularly
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<PAGE> 15
Internet-related companies, currently are highly volatile. Factors that could
cause volatility in our stock price include:
- fluctuations in our quarterly operating results;
- deviations in our results of operations from the estimates of securities
analysts;
- changes in the market valuations of other Internet companies and stock
market price and volume fluctuations generally;
- economic conditions specific to online commerce and the filmed
entertainment retailing industry;
- announcements by us or our competitors relating to new services or
technologies, significant acquisitions, strategic relationships, joint
ventures or capital commitments;
- regulatory developments; and
- additions or departures of our key personnel.
SALES OF SHARES ELIGIBLE FOR FUTURE SALE COULD IMPAIR OUR STOCK PRICE. The
market price of our common stock could drop due to sales of a large number of
shares of our common stock or the perception that these sales could occur. These
factors could also make it more difficult to raise funds through future
offerings of common stock. See "Shares Eligible for Future Sale" for further
information concerning potential sales of our shares after this offering.
Our officers, directors and our principal stockholders have entered into
lock-up agreements under which they have agreed not to offer or sell any shares
of common stock or securities convertible into or exchangeable or exercisable
for shares of common stock for a period of 180 days from the date of this
prospectus without the prior written consent of Prudential Securities, on behalf
of the underwriters. Prudential Securities may, at any time and without notice,
waive the terms of those lock-up agreements specified in the underwriting
agreement.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION. You will experience an
immediate and substantial dilution of $ per share in the net tangible
book value per share of common stock from the initial public offering price,
assuming an initial public offering price of $ per share. In addition,
the exercise of options and warrants currently outstanding could cause
additional substantial dilution to you. See "Dilution" for more detailed
information regarding the potential dilution you may incur.
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<PAGE> 16
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based on our current
expectations, assumptions, estimates and projections about BigStar and our
industry. These forward-looking statements are identified by words such as
"believe," "may," "will," "estimate," "continue," "anticipate," "intend,"
"expect" and similar expressions. These forward-looking statements involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of the factors
described in the "Risk Factors" section and elsewhere in this prospectus. We
undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
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<PAGE> 17
USE OF PROCEEDS
The net proceeds to BigStar from the sale of the shares of common stock in
this offering are estimated to be approximately $ million, or $ million if the
underwriters' over-allotment option is exercised in full, after deducting
underwriting discounts and commissions and estimated offering expenses, assuming
an initial public offering price of $ per share. We intend to use these net
proceeds as follows:
- to increase our marketing, advertising and promotion;
- to expand our facilities;
- to hire additional marketing, technical and production personnel;
- to upgrade computer systems and for additional software development; and
- to fund working capital needs and losses.
A portion of the net proceeds also may be used for possible future
strategic alliances and acquisitions. We presently do not have any
understandings, commitments or agreements concerning these types of
transactions.
Pending these uses, we intend to invest the net proceeds temporarily in
short-term, investment grade, interest-bearing securities or guaranteed
obligations of the U.S. government.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain all of our earnings, if any, to finance the expansion
of our business and do not anticipate declaring or paying any cash dividends on
our common stock. Future cash dividends, if any, will be paid at the discretion
of our board of directors. The payment of dividends will depend upon:
- future operations;
- earnings;
- capital requirements and surplus;
- our general financial condition;
- contractual restrictions; and
- other factors deemed relevant by our board of directors.
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<PAGE> 18
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock from
the initial public offering price. Net tangible book value per share represents
the amount of BigStar's total tangible assets less its total liabilities,
divided by the number of shares of common stock issued and outstanding. At
December 31, 1998, BigStar had negative net tangible book value of $(494,497) or
$(0.08) per share of common stock. After giving effect to the sale of
shares of common stock offered by BigStar, at an assumed initial public offering
price of $ per share and after deducting underwriting discounts and
commissions and estimated offering expenses, BigStar's net tangible book value
as of December 31, 1998 would have been $ or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to existing stockholders and an immediate and substantial dilution of $ per
share to new investors purchasing shares in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Negative net tangible book value as of December 31,
1998................................................... $(0.08)
Increase attributable to new investors....................
------
Pro forma net tangible book value after this offering.......
Dilution to new investors................................... $
======
</TABLE>
The following table summarizes as of December 31, 1998 the number of shares
of common stock purchased from BigStar, the total consideration paid and the
average price per share paid by existing stockholders and by investors
purchasing shares in this offering. The following table excludes the deduction
of underwriting discounts and commissions and other estimated expenses payable
by BigStar. In addition, the following table assumes an initial public offering
price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... $
New investors...............
-------- ----- -------- -----
Total............. 100.0% 100.0%
======== ===== ======== =====
</TABLE>
Assuming the exercise in full of the underwriters' over-allotment option,
the net tangible book value of BigStar at December 31, 1998 would have been
approximately $ per share, representing an immediate increase in net
tangible book value of $ per share to BigStar's existing stockholders and an
immediate and substantial dilution in net tangible book value of $ per share
to new investors.
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<PAGE> 19
CAPITALIZATION
The following table provides, as of December 31, 1998, the actual
capitalization of BigStar. The table also provides the capitalization of BigStar
as adjusted to reflect the receipt of the estimated net proceeds of this
offering, at an assumed initial public offering price of $ per share. See
"Use of Proceeds." You should read this table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................... $ 9 $
------- -------
Stockholders' equity (deficit)
Preferred stock, $.001 par value; 10,000,000 shares
authorized; no shares issued and outstanding, actual
and as adjusted..................................... -- --
Common stock, $.001 par value; 40,000,000 shares
authorized; 6,231,560 shares issued and outstanding,
actual; shares issued and
outstanding, as adjusted............................ 6
Additional paid-in capital............................. 2,353
Subscribed stock....................................... 453
Deferred compensation.................................. (64)
Accumulated deficit.................................... (3,242)
------- -------
Total stockholders' equity (deficit)................ (494)
------- -------
Total capitalization........................... $ (485) $
======= =======
</TABLE>
Our actual and as adjusted number of outstanding shares of common stock
does not include, as of May 3, 1999, 2,733,700 shares of common stock issuable
upon exercise of options under our stock option and incentive plans, 1,790,384
shares of common stock issuable upon the exercise of outstanding warrants and
assumes no exercise of the underwriters' over-allotment option.
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<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1998 is
derived from the financial statements and related notes of BigStar, which have
been audited by Arthur Andersen LLP, independent public accountants. The results
of operations for the periods indicated do not necessarily reflect the results
to be expected for any other period. You should read the selected financial data
presented below in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 10, 1998 (INCEPTION)
TO DECEMBER 31, 1998
---------------------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 789
Cost of sales......................................... 694
----------
Gross profit.......................................... 95
Operating expenses:
Sales and marketing................................ 1,430
General and administrative......................... 963
Web site and software development.................. 951
----------
Total operating expenses.............................. 3,344,101
----------
Loss from operations.................................. (3,249)
Interest income....................................... 7
----------
Net loss.............................................. $ (3,242)
==========
Basic and diluted net loss per share.................. $ (0.60)
Shares used in computing basic and diluted net
loss per share..................................... 5,366,564
DECEMBER 31, 1998
----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash.................................................. $ 816
Working capital (deficit)............................. (938)
Total assets.......................................... 1,338
Total long-term debt.................................. 9
Total debt............................................ 11
Total stockholders' (deficit)......................... (494)
</TABLE>
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<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with BigStar's
financial statements and notes to those statements and the other financial
information appearing elsewhere in this prospectus. In addition to historical
information, the following discussion contains forward-looking information that
involves risks and uncertainties. BigStar's results could differ materially from
those anticipated by such forward-looking information due to the factors
discussed under "Risk Factors" and elsewhere in this prospectus. See
"Forward-Looking Statements."
OVERVIEW
BigStar was incorporated in March 1998. We began offering products for sale
on our main web site, BigStar.com, in May 1998. Until that time, our operating
activities related primarily to the development of the BigStar.com web site.
Because we have a limited operating history on which to base an evaluation of
our business and prospects, we believe that period-to-period comparisons of our
operating results are not meaningful and should not be relied upon as an
indication of future performance.
Since our inception, we have incurred significant operating losses. These
losses primarily result from development costs associated with building our web
sites and order processing systems, and marketing, advertising and promotion
expenses. As of December 31, 1998, we had an accumulated deficit of
approximately $3.2 million. As we expand our business, we believe that our
operating expenses will increase significantly primarily due to increased
marketing, advertising and promotion expenses, strategic partnerships, software
development and additional depreciation related to capital expenditures. As a
result, we expect to incur operating and net losses and negative cash flow from
operations for the next several years.
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<PAGE> 22
RESULTS OF OPERATIONS
Quarterly Results of Operations
Described below are selected statement of operations data for the three
quarters ended December 31, 1998. This information is derived from unaudited
quarterly financial statements that include, in the opinion of management, all
adjustments necessary for a fair presentation of the information for these
periods. Results of operations for any fiscal quarter are not expected to be
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
JUNE 30, 1998 SEPT. 30, 1998 DEC. 31, 1998
------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................. $ 14,709 $ 172,740 $ 601,658
Cost of sales......................... 8,605 139,788 545,438
--------- --------- -----------
Gross profit.......................... 6,104 32,952 56,220
--------- --------- -----------
Sales and marketing expenses........ 40,085 247,468 1,142,314
General and administrative
expenses......................... 106,913 233,789 601,573
Web site and software development
expenses......................... 99,348 305,732 538,396
--------- --------- -----------
Total operating expenses.............. 246,346 786,989 2,282,283
--------- --------- -----------
Loss from operations.................. (240,242) (754,037) (2,226,063)
Interest income (expense)............. -- (2,336) 9,490
--------- --------- -----------
Net loss.............................. $(240,242) $(756,373) $(2,216,573)
========= ========= ===========
</TABLE>
March 10, 1998 (inception) to December 31, 1998
NET SALES. Net sales were $789,107 from March 10, 1998 (inception) to
December 31, 1998. Net sales reflect sales of filmed entertainment products, net
of returns, and include shipping and handling charges. Sales are recognized upon
product shipment. BigStar recorded no barter income during 1998.
Through December 31, 1998, BigStar had approximately 24,000 customers.
Until November 1998, we sold primarily video cassettes. Beginning in November
1998, we commenced promoting DVDs through BigStarDVD.com. In order to increase
our customer base, we promote selected products through aggressive pricing. In
the future, we may increase the discounts we offer to our customers.
COST OF SALES. Cost of sales from March 10, 1998 (inception) to December
31, 1998 was $693,831. Gross margin was 12.1% for this period. Cost of sales
consists of the cost of merchandise sold and shipping and handling costs.
SALES AND MARKETING EXPENSES. Sales and marketing expenses from March 10,
1998 (inception) to December 31, 1998 were approximately $1.4 million. Sales and
marketing expenses consist primarily of payments relating to advertising,
promotion and marketing programs. These expenses also include personnel costs
and related expenses for marketing and selling activities. Sales and marketing
expenses also include the costs of promotional filmed entertainment products
that are made available to customers who agree to receive notification of future
promotions.
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<PAGE> 23
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
from March 10, 1998 (inception) to December 31, 1998 were $963,081. General and
administrative expenses consist of payroll and related expenses for executive,
accounting and administrative personnel, insurance, professional fees and other
general and corporate expenses.
WEB SITE AND SOFTWARE DEVELOPMENT EXPENSES. Web site and software
development expenses from March 10, 1998 (inception) to December 31, 1998 were
$951,153. Web site and software development expenses consist primarily of
personnel costs and related expenses for the design, development and management
of our web sites. These expenses also include costs for systems and
telecommunications infrastructure, as well as the cost of content purchased and
licensed from third parties.
NET LOSS. BigStar's net loss was approximately $3.2 million from March 10,
1998 (inception) to December 31, 1998. Because of the uncertainty regarding our
future profitability, the future tax benefits of our losses have been fully
reserved for and, therefore, no benefit for the net operating loss has been
recorded. Under Section 382 of the Internal Revenue Code, this net operating
loss may be limited due to ownership changes.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operating cash requirements primarily
through sales of our common stock. In 1998, we raised net proceeds of
approximately $1.9 million in two private placements. At December 31, 1998, our
cash was $816,124, including $453,000 held in escrow pending a closing in
January 1999. From January through April 1999, we sold 6,081,616 shares of
common stock for net proceeds of approximately $11.8 million.
Net cash used in operating activities of approximately $1.3 million in 1998
was primarily due to our net loss of approximately $3.2 million, offset by an
increase in accounts payable, accrued payroll costs and accrued expenses of
approximately $1.8 million. Net cash used in investing activities of $470,342 in
1998 was used for capital expenditures consisting of the purchase of computer
equipment, office equipment and furniture.
BigStar currently has an agreement with one of its wholesalers under which
BigStar receives a credit for the purchase of goods with 60 day payment terms.
At December 31, 1998, our principal commitments consisted of obligations
for advertising under cancelable agreements and were approximately $456,000. We
have no material commitments for capital expenditures but anticipate future
purchases related to enhancements of our web sites.
We believe that the net proceeds from this offering combined with our
current cash balances will be sufficient to meet our anticipated cash needs for
working capital, operating losses and capital expenditures for at least the next
12 months. Our future liquidity and capital requirements will depend upon
numerous factors discussed under the section entitled "Risk Factors." In
addition, we will, from time to time, consider the acquisition of or investment
in complementary businesses, services and technologies, which might increase our
liquidity requirements or cause us to issue additional equity or debt
securities. We cannot assure you that we will not require additional
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<PAGE> 24
financing within this time frame or that such additional funding, if needed,
will be available on terms acceptable to us or at all. We do not currently use
derivative financial instruments.
SEASONALITY AND REVENUE FLUCTUATIONS
BigStar's limited operating history and rapid growth make it difficult to
ascertain the effects of seasonality on its business. Seasonal fluctuations in
sales of filmed entertainment products may affect our sales. Fluctuations in
revenue also may result from the timing of hit releases on video cassettes and
DVD.
YEAR 2000 COMPLIANCE
We believe our internal information systems are year 2000 compliant.
However, our failure to address potential year 2000 malfunctions in our computer
and non-information technology equipment and systems and those of our business
partners could result in our suffering business interruption, financial loss,
reputational harm and legal liability.
Prior to purchasing information technology systems, we have received
confirmation from our vendors that the systems are year 2000 compliant. Systems
developed internally or by third parties on our behalf were designed to be year
2000 compliant. We do not have any significant non-information technology
equipment or systems.
We are currently assessing year 2000 compliance risks related to our
subcontractors, strategic partners, suppliers, service providers and other
third-party relationships. In particular, our business is dependent upon the
operations and technology of various Internet sites, merchant acquiring banks,
product wholesalers and credit card issuers. We are in the process of making
oral and written inquiries to these third parties to determine their year 2000
readiness. We have not, however, received year 2000 compliance assurances from
all of these parties nor do we expect to. We also do not plan to independently
verify any of the assurances we receive. In addition, these parties are reliant
upon other companies' applications, some of which may contain or rely upon
software that is not year 2000 compliant and that may not be revealed through
our inquiries.
Year 2000 compliance problems also could undermine the general
infrastructure necessary to support BigStar's operations. For example, we depend
on third-party Internet service providers, or ISPs, or hosting centers to
provide connections to the Internet and to customer information systems. Any
interruption of service from ISPs or hosting centers to provide connections
could result in a temporary interruption of the operation of our web sites. Any
interruption in the security, access, monitoring or power systems at the ISPs or
hosting centers could result in an interruption of services. Moreover, it is
difficult to predict what effect year 2000 compliance problems will have on the
integrity and stability of the Internet.
Should we identify any problem with respect to our year 2000 readiness, we
will seek to develop a remedy, test the proposed remedy and prepare a
contingency plan, if necessary. We intend to develop contingency plans to
resolve our most reasonably likely worst case year 2000 problems, which have not
yet been identified. We intend to complete our determination of the worst case
scenarios after we have received and
23
<PAGE> 25
analyzed responses to our inquiries of third parties. We expect to complete our
contingency plan by the end of September 1999.
We do not expect the costs of year 2000 compliance to be material to our
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, we adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. The adoption of this standard has had no impact on our
financial statements. Accordingly, BigStar's comprehensive net loss is equal to
its net loss for the period from March 10, 1998 (date of inception) to December
31, 1998.
In June 1997, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for the way that a public enterprise
reports information about operating segments in annual financial statements, and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years must be restated. Management has
determined that it does not have any separately reportable business segments.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance for determining whether computer software is internal-use software and
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. SOP 98-1
also provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. BigStar does not expect the
adoption of SOP 98-1 to have a material effect on its capitalization policy.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. This
statement is not expected to affect BigStar since it does not currently engage
in derivative instruments or hedging activities.
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<PAGE> 26
BUSINESS
We are a leading online filmed entertainment superstore. We sell filmed
entertainment products in all popular formats such as video cassettes, DVDs and
laserdiscs. Through our web sites, customers have the convenience of shopping 24
hours a day, seven days a week. According to Media Metrix, we had 707,000 unique
visitors to our web sites in March 1999, up from 67,000 in September 1998.
Our main web site, BigStar.com, offers approximately 34,000 filmed
entertainment products, including feature films and educational, health and
fitness and instructional videos. Our other web sites are abcBigStar.com, which
targets the children's filmed entertainment market, BigStarDVD.com, which
focuses on DVD enthusiasts, and Astrophile.com, a content-only web site designed
to attract customers to our product web sites.
INDUSTRY OVERVIEW
The Internet is emerging as a significant global communications medium. It
enables millions of people to conduct research, share information and transact
business electronically. International Data Corporation estimates that in 1998
there were approximately 70 million U.S. Internet users and that the number of
users will grow to approximately 154 million users in 2002. Further,
International Data Corporation estimates that 49.1% of U.S. households will be
online by 2002, up from 26.5% in 1998.
The growth in the Internet represents a substantial opportunity for
companies to conduct business online. Internet retailers are able to communicate
more effectively with customers by providing:
- visual product presentations;
- up-to-date pricing and product information;
- customer support, including opportunities for customer feedback;
- product offerings tailored to customer preferences; and
- electronic billing and payment systems.
An increasing number of products and services are sold online, including
books, brokerage services, computers, music and travel services. International
Data Corporation estimates that sales to U.S. households over the Internet will
increase from approximately $12.4 billion in 1998 to approximately $60.6 billion
in 2002.
Video Cassettes
Over the last several years, consumer video spending habits have shifted
from renting videos to purchasing them. This trend has been driven by falling
prices and broader distribution. According to the Veronis Suhler & Associates
1998 Communications Industry Forecast, the average household with a video
cassette recorder purchased 7.9 tapes in 1997, compared with only 3.8 tapes in
1992. According to Paul Kagan Associates, revenues from retail sales of video
cassettes are expected to total more than $8.7 billion annually in 2003.
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<PAGE> 27
'Sales of children's videos comprise a significant portion of the total market
for purchased filmed entertainment. BigStar aggressively targets this market
through its abcBigStar.com web site. According to Kalorama Information, sales of
children's animated and live action videos in the United States were
approximately $2.6 billion in 1996 and are expected to increase to $3.8 billion
in 2001.
Digital Video Discs
We believe growth in the video market will be supported by the increased
acceptance of DVDs. This new storage medium is capable of storing substantially
more data than a video cassette, allows for easier searching and frequently has
better sound quality. DVD players may be purchased as a component in a home
entertainment system or integrated into a computer system as a DVD-ROM storage
device. Although DVD-ROM drives are primarily for computer software storage and
playback, they also may be used to view filmed entertainment on a computer
screen.
Paul Kagan Associates estimates that the installed base of DVD players in
U.S. households will increase from 1.1 million in 1998 to 18.4 million in 2003,
representing a compound annual growth rate of 75.7%. Paul Kagan Associates
estimates that retail sales of DVDs in the United States will increase from
approximately 14.3 million discs in 1998 to approximately 228.4 million discs in
2003, representing a compound annual growth rate of 74.0%. According to Paul
Kagan Associates, annual U.S. revenue from retail sales of DVDs was
approximately $286 million in 1998, and is expected to increase to approximately
$4.1 billion in 2003, representing a compound annual growth rate of 70.3%.
Laserdiscs
Due to the success of the DVD format, the laserdisc market has contracted.
However, according to Paul Kagan Associates, the installed base of laserdisc
players in U.S. households was more than two million in 1998. Accordingly, we
offer a large selection of laserdiscs to serve this substantial installed base
of potential purchasers.
Broadband Delivery of Filmed Entertainment
Within the next few years, new technologies may enable consumers to
download digital filmed entertainment directly into the home. We believe the
potential of this new market will depend on the expansion of affordable
broadband access to households and sales of significant numbers of consumer
electronic storage devices capable of receiving and recording large amounts of
digital information.
INDUSTRY CHALLENGES
Web-based retailers of filmed entertainment products face challenges in
promoting and sustaining online sales, including the following:
- COMPETITION FROM TRADITIONAL RETAIL INDUSTRY. Most customers purchase
filmed entertainment products from traditional store-based retailers,
many of which have longer operating histories, larger customer bases and
greater brand recognition than online retailers. Online retailers must
convince customers that purchasing filmed entertainment on the Internet
offers advantages to them such as greater product selection, better
prices and increased convenience.
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<PAGE> 28
- ATTRACTING AND RETAINING CUSTOMERS. The online commerce market is new,
rapidly evolving and intensely competitive. Online retailers must
increase their brand awareness, attract customers, develop customer trust
and loyalty and maintain high levels of customer traffic on their web
sites.
THE BIGSTAR ADVANTAGES
We believe we are well-positioned to meet the challenges facing online
filmed entertainment retailers because of the following key strengths:
Wide Selection and Lower Costs
We currently offer approximately 34,000 filmed entertainment products for
sale. As a result of our distribution strategy, we do not need to carry physical
inventory. In contrast, traditional filmed entertainment retailers must make
significant investments in inventory, real estate and personnel for each store
location. The amount of space available in a physical store also limits the
number of titles and the amount of inventory that a traditional retailer can
carry in any one store.
BigStar Direct Email
Our recently developed BigStar Direct Email software will help us increase
sales through one-to-one-marketing with our customers. This software creates
personalized electronic catalogs based upon an individual's page viewing
patterns on BigStar's web sites, demographic information, indicated preferences
and purchasing habits. BigStar Direct Email can also deliver graphics and
pictures to further enhance the effectiveness of e-mail promotions.
BigStar Direct Email may be adapted to promote other products and services
to online buyers. BigStar believes there may be an opportunity to sell or
license this software to publishers, retailers and electronic commerce web
sites.
Proprietary Software
We have created proprietary software to enhance our web sites and reduce
costs. For example, we enhance content licensed from third parties by using
software that generates links between sources of content. These links allow
users to quickly and easily locate news, actor and director biographies, photos
and other editorial programming contained in different databases. We believe
that integrating content from many sources into one easy-to-navigate web site
produces a superior user experience, which in turn attracts more users to our
web sites, lengthens site visits and results in more purchases.
We are also developing a software program that will allow us to
automatically select a wholesaler to fulfill a particular order based on
variables such as price, title availability, shipping costs, speed of delivery
and credit terms. We believe this program will reduce our cost of sales by
helping us to purchase products more efficiently and cost effectively. We expect
this software to be in use by the end of the third quarter of 1999.
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<PAGE> 29
Targeted Web Sites
We have developed separate web sites for different demographic segments who
purchase filmed entertainment products. Through the BigStar web sites
BigStar.com, abcBigStar.com, BigStarDVD.com and Astrophile.com, we target
several distinct online groups, including:
- people seeking well-known feature films and specialty titles such as
educational, health and fitness and instructional videos;
- parents seeking to educate and entertain their children through the
purchase of filmed entertainment products;
- owners of DVD players who seek a wide variety of titles and in-depth
technical and product information; and
- movie fans seeking extensive information about films.
We believe that customers are more receptive to web sites that provide
information and products tailored to their interests. Our strategy of using
targeted web sites is designed to increase initial and repeat visits and sales.
Experienced Management Team
Our management team has more than 15 years of experience managing
electronic commerce sites and web marketing campaigns. In particular, one of our
founders was Chairman and Chief Executive Officer of an entertainment and
commerce web site. Our other founder served as a Director of Marketing for a
major online retailer of music and videos. In addition, our Vice
President -- Site Development was a senior consultant to several major online
and traditional marketers of books and filmed entertainment products. We believe
that our management team provides significant advantages in the rapidly evolving
market in which we compete.
BUSINESS STRATEGY
Our objective is to be the leading online filmed entertainment superstore.
We intend to attain our objective through the following strategies:
Continue to Grow Customer Base
According to Media Metrix, we had 707,000 unique visitors to our web sites
in March 1999, up from 67,000 in September 1998. We intend to continue to grow
our customer base through online and offline advertising, strategic marketing
relationships and our affiliate partner networks. For example, we intend to
significantly increase advertising on leading web sites and other traditional
media, conduct an ongoing public relations campaign and develop business
alliances and partnerships.
Continue to Use Direct E-mail Marketing
BigStar uses direct e-mail marketing to attract new customers and increase
purchases by existing customers. Our BigStar Direct Email software allows us to
customize promotions to individuals based on their page viewing patterns,
demographic information, indicated preferences and purchasing habits. Based on
our preliminary use of this software, we believe that it will enhance the
effectiveness of our e-mail
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promotions. At April 30, 1999, we had a database of more than 430,000 e-mail
addresses of current and prospective customers.
Provide a Superior Shopping Experience
By providing customers with a superior shopping experience, we believe that
we can increase both our customer base and repeat customer purchases. Our web
sites collectively offer approximately 34,000 filmed entertainment products. Our
web sites are designed to be easy to use and contain search functions, an
electronic shopping basket, personalized user profiles and secure credit card
payment processing and allow customers to choose from a variety of delivery
options. In addition, we seek to offer our customers a superior shopping
experience through informative and entertaining editorial content.
Continue to Improve Technology
We believe that innovative technology is essential to successfully
providing online retail services. As a result, we have developed our BigStar
Direct Email software. We also have developed technology that enables other web
sites to create their own filmed entertainment web sites and link to
BigStar.com.
We intend to continue to develop, acquire and implement enhancements to our
web sites and order processing systems. For example, we intend to continue to
enhance the capabilities of our BigStar Direct Email software. We also are
developing a software program that will allow us to automatically select a
wholesaler to fill a particular order based on variables such as price, title
availability, shipping costs, speed of delivery and credit terms. We expect this
software to be in use by the end of the third quarter of 1999.
Pursue Additional Revenue Opportunities
We intend to pursue additional revenue opportunities, which may include the
following:
- expand to fulfill international orders;
- expand into new product categories, such as movie soundtracks,
merchandise and memorabilia and video games;
- acquire complementary businesses or technologies;
- license our BigStar Direct Email technology to other web-based marketers;
and
- develop the capacity to sell filmed entertainment through digital
downloads.
BIGSTAR WEB SITES
We have created four web sites to target purchasers of filmed entertainment
products. Our web sites are BigStar.com, abcBigStar.com, BigStarDVD.com and
Astrophile.com. We intend to develop additional web sites that feature specific
categories of filmed entertainment products.
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BigStar.com
BigStar.com is our main web site and contains all of the filmed
entertainment products that can be purchased from us. This web site offers
approximately 34,000 filmed entertainment products, including feature films and
educational, health and fitness and instructional videos. BigStar.com also
contains in-depth information on more than 69,000 filmed entertainment titles,
biographies of actors and directors, daily movie news, movie stills and online
chats with Hollywood stars.
abcBigStar.com
We have targeted the children's market with the development of
abcBigStar.com. This web site offers approximately 2,700 children's filmed
entertainment products. This site also includes information that helps adults
purchase suitable titles for children, such as age-appropriate recommendations
for more than 700 titles.
BigStarDVD.com
BigStar has targeted DVD enthusiasts with the development of
BigStarDVD.com. This web site offers approximately 2,100 DVD products and has
information about the features and technical standards of many of these titles.
Astrophile.com
Astrophile.com is a content-only entertainment web site designed to
entertain and educate users. This web site features more than 4,000 biographies,
200 interviews, movie stills and transcripts of chats with popular actors and
actresses and is updated weekly. We believe that this site is one of the most
comprehensive and up-to-date information sources on Hollywood celebrities on the
Internet.
We do not sell products through Astrophile.com. Instead, we use the site to
attract movie fans. Through hyperlinks, visitors to Astrophile.com can visit our
other web sites where products can be purchased.
WEB SITE FEATURES
Our web sites have several key features designed to enhance each customer's
shopping experience.
Content
We have enhanced our web sites by adding editorial content. We believe that
the inclusion of editorial content on our product web sites increases the time
each customer spends on our web sites, as well as the likelihood and frequency
of subsequent visits and purchases. Examples of our editorial content include
reviews, biographies, news, photos and other editorial programming. We license
the majority of our editorial content from third parties, rather than develop it
internally, because we believe that this approach is more cost-effective. In
addition, we have original editorial features including polls, chats and trivia.
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Searching
Visitors can search our web sites by genre, category, title, actor,
director or other criteria. For example, the "kids search" function on
abcBigStar.com allows parents to select suitable filmed entertainment products
for children according to age. We also have developed software links that make
it easier for users to access editorial content from separate sources. For
example, a user reading a biography of a particular actor can click a single
button to view information about each of the movies in which the actor has
appeared.
Electronic Shopping Basket
Our web sites allow a customer to put each selected item into an electronic
shopping basket by clicking on the item. Customers can continue shopping while
adding to or deleting items from the electronic shopping basket. Once the
customer has finalized his or her selection, the customer submits an order. In
addition, a customer may save the items in the shopping basket and purchase them
during a later visit to our web sites.
Personalized Features
Visitors to our web sites can enter a profile that personalizes the web
sites to the user. Users that enter a profile are then greeted by name when they
log on to our web sites. They also receive personalized recommendations through
e-mail and other customized services such as personalized sales offers and
notices of exclusive sale promotions. We also send web site news, periodic
updates about new movies, featured selections and special offers to these
customers.
Secure Credit Card Payment
We utilize secure server software for transactions. Our software encrypts
all of the customer's personal information, including credit card number, name
and address, to ensure security and privacy.
Order Fulfillment
Customers can select from a variety of delivery options, including
overnight delivery and gift messages. We use e-mail to notify customers that
their orders have been received and shipped. Most of our products are available
for shipment within one to three days.
MARKETING AND PROMOTION
We use a variety of methods, which are discussed below, to attract users to
our web sites. By using multiple methods to promote our web sites, we believe we
increase our traffic and sales. In addition, we are not dependent on any single
method of promotion or marketing partner. From inception through April 30, 1999,
we estimate our web sites attracted more than 10 million visits. Of this amount,
we estimate that approximately 5 million visits occurred during the first
quarter of 1999. We plan to significantly increase our marketing and sales
expenditures in 1999.
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Direct Marketing
We engage in one-to-one marketing using our BigStar Direct Email software.
This software allows us to create personalized electronic catalogs based on an
individual's page viewing on our web sites, demographic information, indicated
preferences and purchasing habits. Big Star Direct Email software can also
deliver graphics and pictures to further enhance the effectiveness of our e-mail
promotions. In addition, we send online promotions to addresses in our e-mail
database that we have collected from our strategic marketing partners. Using
e-mail enables us to do frequent mailings on a cost-effective basis. We also
intend to develop other direct marketing campaigns, such as the inclusion of
inserts in major credit card statement mailings.
Online and Offline Advertising Campaigns
We have online marketing campaigns on a number of high traffic web sites.
From September 1998 through March 1999, we conducted campaigns on more than 70
web sites. These campaigns use a variety of online marketing techniques,
including:
- click-through banners that bring consumers directly to our web sites;
- campaigns that collect the e-mail addresses of visitors who wish to
receive online promotions;
- affiliate promotion campaigns;
- coupons, contests and other sponsorships; and
- inclusion of our search technology in relevant content areas of other web
sites.
We also conduct special promotions at various times during the year, such as the
holiday season and the Academy Awards season. For example, we created a special
gift giving program on our web sites for the 1998 holiday season.
We generally enter into short-term advertising commitments that can be
canceled on a maximum of 60 days' notice. As a result, we can cancel and quickly
replace advertising that performs poorly.
In addition to Internet-specific marketing and advertising, we also use or
plan to use print, radio, outdoor and television advertising.
Strategic Marketing Relationships
We have entered into strategic marketing relationships with Yahoo!,
MovieFone, Earthlink Network, The New York Times on the Web, Mail.com,
MiningCo.com and Women.com Networks.
For example, the BigStar Celebrity Chat series is hosted by Yahoo! in its
Yahoo! Chat area. This series features chats with movie and television stars.
These chats are showcased and archived for future reference on our web sites. We
believe that the BigStar Celebrity Chat series is a highly effective means of
promoting our web sites because it reaches a large number of users.
BigStar is also the exclusive provider of videos, DVDs and laserdiscs for
MovieFone, the largest provider of movie tickets online. Our agreement with
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MovieFone also allows us to send electronic mailings to MovieFone's mailing list
and advertise our products to MovieFone's online users.
We recently entered into a strategic marketing agreement with Earthlink
Network, a leading Internet service provider, or ISP, with over 1,000,000
subscribers.
We will be the exclusive online provider of filmed entertainment products on
Earthlink's web site. The agreement calls for placement of a link to BigStar's
web sites on Earthlink's home page, the inclusion of an exclusive co-branded
movie store for Earthlink's members and other prominent placements on the
Earthlink web site.
In addition, we build customized filmed entertainment stores for our
strategic partners, such as the stores we have created for MiningCo.com and
Women.com Networks. These online stores offer customers search and selection
capabilities on the affiliates' web sites. These stores attract new customers
and increase sales for BigStar.
Affiliate Partner Networks
Our affiliate program enables other web sites to create their own filmed
entertainment web site and link to BigStar. When first-time visitors follow a
link to our online superstore, the affiliated web site receives a percentage of
any resulting sale. Because there is no payment unless a sale occurs, the
program is an efficient means of acquiring new customers.
In order to encourage other web sites to participate in the affiliate
program, we provide without charge all of the necessary software to establish
the filmed entertainment area and link, as well as other technical and customer
service support.
ORDER FULFILLMENT AND CUSTOMER SERVICE
Our products are usually shipped directly from our wholesalers to the
customer. As a result, we currently do not maintain an inventory of products.
For the year ended December 31, 1998, we purchased substantially all of our
products from Baker & Taylor. We also have contractual relationships with Valley
Media and Rentrak.
Our distribution agreement with Baker & Taylor extends through December 31,
2000. The agreement automatically renews for an additional two-year term unless
terminated before the end of the initial term. BigStar has no obligation to make
minimum purchases under this agreement.
We utilize electronic links with our wholesalers to process orders. This
reduces processing time and costs. Products are generally shipped by our
wholesalers the same day they receive an order from us.
We are developing a proprietary software program that will enable us to
automatically select a wholesaler to fill a particular order based on variables
such as price, title availability, shipping costs, speed of delivery and credit
terms. We believe this program will reduce our cost of sales by enabling us to
purchase many products more efficiently. In addition, by providing electronic
access to the inventories of multiple wholesalers, this program will help us
increase the number of items we offer and the number that are in stock at any
given time. This software program also will
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give us the capability to bundle different types of products together for
product promotions.
We plan to contract with a third party during 1999 for a distribution
facility to handle a small amount of order fulfillment internally. Carrying
selected inventory will allow us to offer additional products and provide
quicker shipping on some items and special promotions to our customers. In
addition, we believe that having our own distribution facility may also
facilitate fulfillment of international orders.
We believe that our ability to attract and retain customers depends in part
on the strength of our customer support. We seek to achieve frequent
communication with and feedback from our customers to continually improve our
online superstore and related services. Our customer service staff monitors our
incoming customer e-mails and generally responds within 24 hours. We also send
automated e-mails after a purchase has been made to inform customers of the
status of their orders. In addition, we also plan to add a toll-free telephone
number that directs customer inquiries to a voice response system or a customer
service representative.
COMPETITION
The online commerce market is new and rapidly evolving. We expect that our
online competition will further intensify. In addition, the broader retail
filmed entertainment industry is intensely competitive. Our current or potential
competitors include:
- online sellers of videotapes, DVDs and other video products, including
DVD EXPRESS, Movie Street, Reel.com, a subsidiary of Hollywood
Entertainment, CDnow, Buy.com, Amazon.com and Total E, an online store
from Columbia House;
- publishers and wholesalers of video and related products, such as
Columbia House, Good Times Entertainment and Time Life Video;
- traditional filmed entertainment retailers, such as Blockbuster and
Hollywood Entertainment, that currently sell or may sell filmed
entertainment products or services through stores or over the Internet;
and
- specialty video retailers, mass merchandisers, department and electronic
consumer stores, as well as non-store retailers such as mail-order video
clubs.
Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than we have. Some of BigStar's competitors also may be able
to secure merchandise from vendors on more favorable terms, devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
or inventory availability policies and devote substantially more resources to
web site and systems development than we can. We believe that the principal
competitive factors in our market are:
- brand recognition;
- ease of use, content quality and convenience of web sites;
- price;
- selection; and
- personalized services.
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INTELLECTUAL PROPERTY
We use proprietary technology in our business. Most of our software and
systems have been developed internally. For example, we have developed our
BigStar Direct Email software that allows us to conduct one-to-one-marketing
with our customers. We also have developed software that enables other web sites
to create their own filmed entertainment web site and link to BigStar.com. In
addition, we are in the process of developing a software program to enable us to
purchase products from wholesalers more efficiently. Some of our software is
developed on our behalf by outside consultants. We also license software from
third parties.
The source code for our proprietary software is protected both as a trade
secret and as copyrighted work. We enter into confidentiality and assignment
agreements with our consultants and vendors with access to our proprietary
information.
We have applied for the registration of some of our trademarks and service
marks in the United States. We have no patents.
EMPLOYEES
As of April 30, 1999, we had 50 full time employees, including 20 in
technology positions, 7 in marketing, 6 in site development, 9 in customer
service and 8 in administrative and executive positions. We believe our
relations with our employees are satisfactory.
LEGAL PROCEEDINGS
BigStar is not currently involved in any material legal proceedings.
FACILITIES
Our principal executive offices are located at 19 Fulton Street, 5th Floor,
New York, New York 10038, where we lease approximately 8,000 square feet of
space.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of BigStar are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David Friedensohn*.................. 37 Chief Executive Officer and Chairman
of the Board
David Levitsky...................... 37 Executive Vice President, General
Manager, Secretary and Director
Robert S. Yingling.................. 37 Vice President -- Finance and Chief
Financial Officer
Donna M. Williams................... 36 Vice President -- Marketing
Anthony Witek....................... 47 Vice President -- Operations
Brooke Bessert...................... 31 Vice President -- Site Development
Eugene Mondrus...................... 30 Vice President -- Technology
D. Jonathan Merriman*............... 38 Director
William Lansing..................... 40 Director
Steven A. Ledger*................... 39 Director
</TABLE>
- ---------------
* Member of audit and compensation committees.
David Friedensohn has served as the Chairman and Chief Executive Officer of
BigStar since our formation in March 1998. Prior to joining BigStar, Mr.
Friedensohn was the Chief Executive Officer of SonicNet, which was sold in
December 1997 as part of Paradigm Music Entertainment to TCI Music, an affiliate
of Tele-Communications, Inc. Mr. Friedensohn previously held the positions of
Vice President, Business Development and General Manager of the Wildflower
Partners Fund at Prodigy from October 1995 until January 1997 and was Chairman
of the Board and President of SonicNet from January 1996 to January 1997. Prior
to working at Prodigy, Mr. Friedensohn was President of GB Investment Corp., a
consulting company to the entertainment industry. Mr. Friedensohn received a
Bachelor of Arts from Dartmouth College in 1983 and a Masters in Business
Administration from Columbia University Graduate School of Business in 1987.
David Levitsky has served as the Executive Vice President, General Manager
and Secretary and as a Director of BigStar since our formation in March 1998.
From June 1997 to January 1998, Mr. Levitsky served as the Director of Marketing
of New Century Network, a joint venture of Cox Newspapers, Knight Ridder, The
New York Times Company and other large media companies. Prior to joining New
Century Network, Mr. Levitsky served as a Director of Marketing for Columbia
House Online. From 1990 through 1996, Levitsky served as a Director of Marketing
for the Columbia House Video Club. Mr. Levitsky received a Bachelor of Arts from
Columbia University in 1983 and a Masters in Business Administration in
Information Systems and Finance from New York University Stern School of
Business in 1996.
Robert S. Yingling has served as the Vice President -- Finance and Chief
Financial Officer of BigStar since April 1999. Prior to joining BigStar, Mr.
Yingling
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was a consultant to several Internet companies, including EarthWeb and
DynamicWeb Enterprises, as well as BigStar. From January 1997 to August 1998,
Mr. Yingling was the Chief Financial Officer of GDC International. Previously,
Mr. Yingling was Director of Finance at Standard Microsystems and a Manager at
Arthur Andersen. Mr. Yingling received a Bachelor of Science in Accounting from
Lehigh University in 1983 and a Masters in Business Administration from Columbia
University Graduate School of Business in 1996. Mr. Yingling is a certified
public accountant.
Donna M. Williams has served as Vice President -- Marketing of BigStar
since April 1998. From May 1997 to April 1998, Ms. Williams ran a marketing
consulting business. From June 1994 to May 1997, Ms. Williams was employed by
The Times Mirror Company where she held various positions, including Vice
President of Business Development for Mosby, a subsidiary focused on medical
publishing. Ms. Williams also spent five years with the Bankers Trust Company in
the Merchant Banking division. Ms. Williams received her Bachelor of Arts in
Economics from Mount Holyoke College in 1984 and a Masters in Business
Administration from Columbia University Graduate School of Business in 1992.
Anthony Witek has served as Vice President -- Operations of BigStar since
May 1999. From December 1996 to April 1999, Mr. Witek was a Managing Director of
Thomson Newspapers in software development and production. Prior to joining
Thomson Newspapers, Mr. Witek was the Director of Application Development for
new business ventures for Prodigy Services. Mr. Witek received a Bachelor of
Business Administration from Hofstra University in 1974.
Brooke Bessert has served as Vice President -- Site Development of BigStar
since our formation in March 1998. From 1992 to 1998, Ms. Bessert acted as a
computer and web site consultant to various companies, including
barnesandnoble.com, Columbia House, Time Inc., The McGraw Hill Companies and
Radio Free Europe/ Radio Liberty. She received a Bachelor of Science in
Economics with a concentration in Marketing from The Wharton School, University
of Pennsylvania in 1990.
Eugene Mondrus has served as Vice President -- Technology of BigStar since
November 1998. Prior to joining BigStar, Mr. Mondrus was a software development
consultant with Oracle and a software and hardware analyst for Progressive
Strategies during 1998. From June 1996 to September 1997, Mr. Mondrus held the
position of Webmaster at Bigfoot International, directing web site operations.
Prior to joining Bigfoot International, Mr. Mondrus worked as a software
programmer and consultant for various companies.
D. Jonathan Merriman has served as a Director of BigStar since our
formation in March 1998. Mr. Merriman is the Managing Director of the Capital
Markets Group of First Security Van Kasper & Company, an investment banking and
brokerage firm. Mr. Merriman joined First Security Van Kasper in June 1998 and
oversees the Research, Institutional Sales and Trading Syndicate, and
Derivatives Trading Departments. Prior to joining First Security Van Kasper, Mr.
Merriman served as a Managing Director at The Seidler Companies. From 1990 to
1996, Mr. Merriman was the Managing Director of the Equity Department at
Dabney/Resnick/Imperial. Mr. Merriman attended the New York University Stern
School of Business and received a Bachelor of Arts from Dartmouth College in
1982. Mr. Merriman serves on
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the Board of First Security Van Kasper, as well as Brio Industries and Pacer
Technology.
William Lansing has served as a Director of BigStar since April 1999. Mr.
Lansing is the President and Chief Executive Officer of Fingerhut, a database
marketing company that sells a range of products and services through catalogs,
direct marketing and the Internet. Prior to joining Fingerhut in May 1998, Mr.
Lansing served as Vice President of Business Development for General Electric
from October 1996 to May 1998. Prior to joining General Electric, Mr. Lansing
served as Chief Operating Officer for Prodigy from January 1996 to October 1996,
an on-line joint venture of IBM and Sears. Mr. Lansing was also a Partner at
McKinsey & Company from October 1986 to January 1996, where he led the Internet
practice. Mr. Lansing received a Bachelor of Arts from Wesleyan University in
1980, a Masters in Business Administration from Harvard University and a law
degree from Georgetown Law School in 1985. Mr. Lansing currently serves as a
Director for Digital River, Select Comfort, Freeshop.com, PCFlowers.com and
Mountainzone.com.
Steven A. Ledger has served as a Director of BigStar since April 1999. Mr.
Ledger is a Managing Partner and Founder of Storie Partners, a private
partnership formed in 1993 to invest in emerging growth companies. Mr. Ledger
has served the San Francisco Sentry Investment Group and San Francisco Sentry
Securities as a Managing Partner since 1993. Mr. Ledger received a Bachelor of
Arts from the University of Connecticut in 1982. Mr. Ledger currently serves as
a Director of APB Multimedia, HyCurve, PeopleNet Communications and Software
Technologies.
BOARD COMPOSITION
Our board of directors consists of five directors. Our bylaws provide that
the authorized number of directors may be changed by resolution of the board of
directors. Prior to the closing of this offering, the terms of office of the
members of the board of directors will be divided into three classes. At each
annual meeting of stockholders after the initial classification, the successors
to directors whose term will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following election.
Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one third of the total number of directors.
This classification of the board of directors may have the effect of delaying or
preventing changes in control or management of BigStar.
Each officer is elected by, and serves at the discretion of the board of
directors. Each of BigStar's officers and directors, other than non-employee
directors, devotes full time to the affairs of BigStar. BigStar's non-employee
directors devote such time to the affairs of BigStar as is necessary to
discharge their duties.
The audit committee of the board of directors is responsible for reviewing
any transactions, other than compensation arrangements, between BigStar and our
executive officers and directors, the plans for and audits of BigStar,
compliance with any written policies and procedures and the adequacy of our
systems of internal accounting controls. The audit committee also considers
annually the qualifications of our independent auditors. Effective upon
consummation of this offering, the audit
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committee will be composed of David Friedensohn, Steven A. Ledger and D.
Jonathan Merriman.
The compensation committee of the board of directors reviews and recommends
to the board the compensation and benefits of all executive officers of BigStar,
administers BigStar's stock option plans and establishes and reviews general
policies relating to compensation and benefits of employees of BigStar.
Effective upon consummation of the offering, the compensation committee will
consist of David Friedensohn, Steven A. Ledger and D. Jonathan Merriman. No
interlocking relationships exist between BigStar's board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
DIRECTOR COMPENSATION
Directors do not currently receive cash compensation from BigStar for their
service as members of the board of directors, although they are reimbursed for
certain expenses in connection with attendance at board and committee meetings.
BigStar does not provide additional compensation for committee participation or
special assignments of the board of directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation and bylaws contain provisions indemnifying
our directors and executive officers against liabilities to the fullest extent
permitted by law. In our certificate of incorporation, we have eliminated the
personal liability of our directors to BigStar and its stockholders for monetary
damages for breach of their fiduciary duty, including acts constituting gross
negligence. However, in accordance with Delaware law, a director will not be
indemnified for a breach of its duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct or a knowing violation or any
transaction from which the director derived improper personal benefit. In
addition, our bylaws further provide that BigStar may advance to our directors
and officers expenses incurred in connection with proceedings against them for
which they are entitled to indemnification.
BigStar has entered into indemnification agreements with its officers and
directors containing provisions which may require BigStar to, among other
things, indemnify its officers and directors against certain liabilities that
may arise by reason of their status or service as officers or directors, other
than liabilities arising from willful misconduct of a culpable nature, and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid
during 1998 to our chief executive officer and each other executive officer
whose aggregate salary and bonus for 1998 was in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION SALARY ($)
- --------------------------- -------------------
<S> <C>
David Friedensohn
Chief Executive Officer................................. $160,000
David Levitsky
Executive Vice President................................ $120,000
</TABLE>
There were no option grants during 1998 for the officers listed in the
Summary Compensation Table. No options were exercised in 1998.
EMPLOYMENT AGREEMENTS
In March 1999, we entered into an employment agreement with David
Friedensohn. The agreement provides for Mr. Friedensohn to be employed as Chief
Executive Officer of BigStar for an unspecified period of time. As a result,
either BigStar or Mr. Friedensohn may terminate the employment relationship at
any time. Pursuant to the agreement, BigStar shall nominate Mr. Friedensohn to
serve on the board of directors. The agreement obligates BigStar to pay Mr.
Friedensohn an annual salary of $160,000 in 1999, $200,000 in 2000 and $250,000
in 2001. We will also pay Mr. Friedensohn a guaranteed bonus of $90,000 in 1999,
$20,000 in 2000 ($40,000 if BigStar then has publicly traded shares) and $75,000
in 2001 ($150,000 if BigStar has publicly traded shares). In addition, Mr.
Friedensohn was granted options to purchase 400,000 shares of common stock at an
exercise price of $2.00 per share pursuant to our 1999 Stock Option and
Incentive Plan. The shares vest in equal installments over 48 months and are
exercisable until the earlier of five years or 90 days after Mr. Friedensohn's
termination of employment.
STOCK OPTION AND INCENTIVE PLANS
1998 and 1999 Plans
We currently have a 1998 Stock Option and Incentive Plan and a 1999 Stock
Option and Incentive Plan. Each stock option and incentive plan is administered
by the board of directors, which has the sole discretion to select the
employees, officers and consultants to whom awards are made, to determine the
nature and amounts of such awards and to interpret, construe and implement the
plans.
Each stock option and incentive plan provides for awards of the following:
- non-qualified stock options and incentive stock options;
- stock appreciation rights;
- restricted stock subject to forfeiture and restrictions on transfer; and
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- performance awards entitling the recipient to receive cash or common
stock in the future following the attainment of performance goals
determined by the board of directors.
As of April 30, 1999, under the 1998 Stock Option and Incentive Plan,
options to purchase 1,000,000 shares were authorized and options to purchase
992,200 shares had been granted. As of April 30, 1999, under the 1999 Stock
Option and Incentive Plan, options to purchase 2,000,000 shares were authorized
and options to purchase 1,741,500 shares had been granted.
41
<PAGE> 43
CERTAIN TRANSACTIONS
In March 1998, we issued and sold 254,000 shares of common stock at a
purchase price of $0.59 per share to Morton H. Meyerson, a principal stockholder
of BigStar. We also issued a warrant to Mr. Meyerson to purchase 254,000 shares
of common stock at a price per share of $0.59, which was exercised by Mr.
Meyerson in December 1998. In May 1998, we issued and sold to Mr. Meyerson
152,000 shares of common stock at a purchase price of $0.59 per share.
In April 1998, we issued a warrant to D. Jonathan Merriman, a director of
BigStar, to purchase 100,000 shares of common stock at a price per share of
$0.59, exercisable at any time prior to January 31, 2000. On January 1, 1999, we
also issued a warrant to Mr. Merriman to purchase 100,000 shares of common stock
at a price per share of $1.81, exercisable at any time prior to January 1, 2002.
Effective February 1, 1999, we entered into a lease for office space. David
Friedensohn, our Chief Executive Officer, is a partial guarantor of this lease.
In February and April 1999, we paid an aggregate of $310,360 to First
Security Van Kasper & Company, of which Mr. Merriman is a Managing Director, as
compensation in connection with private equity financings. We also issued to
First Security Van Kasper & Company warrants to purchase 126,392 shares of
common stock at an exercise price of $1.81 per share, exercisable at any time
prior to February 18, 2003, and warrants to purchase 144,000 shares of common
stock at an exercise price of $3.13 per share, exercisable at any time prior to
April 20, 2002.
In April 1999, we issued and sold 1,655,172 shares of common stock at a
purchase price of $1.81 per share to Storie Partners and issued a warrant to
Storie Partners to purchase 240,000 shares of common stock at an exercise price
of $3.13 per share, exercisable any time prior to April 1, 2003. Steven A.
Ledger, a director of BigStar, is a Managing Partner and founder of Storie
Partners.
In April 1999, we issued a warrant to William Lansing, a director of
BigStar, to purchase 50,000 shares of common stock at an exercise price of $2.00
per share, exercisable at any time prior to April 20, 2003.
42
<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial ownership
of BigStar's common stock, as of May 3, 1999, and as adjusted for this offering,
assuming no exercise of the underwriters' over-allotment option by:
- each person who we know beneficially owns more than 5% of our common
stock;
- each of our directors;
- each of the officers listed in the Summary Compensation Table; and
- all of our directors and executive officers as a group.
We believe that each person named below has sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them, subject to community property laws where applicable. The number of shares
of common stock outstanding used in calculating the percentage for each listed
person includes the shares of common stock underlying options or warrants held
by such person that are exercisable within 60 days of May 3, 1999, but excludes
shares of common stock underlying options or warrants held by any other person.
Unless otherwise indicated, the address of each listed director and officer is
c/o BigStar Entertainment, Inc., at 19 Fulton Street, 5th Floor, 11th Floor, New
York, NY 10005.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
SHARES SHARES
SHARES BENEFICIALLY BENEFICIALLY
BENEFICIALLY OWNED OWNED
OWNED PRIOR TO OFFERING AFTER THIS OFFERING
------------ ----------------- --------------------
<S> <C> <C> <C>
Storie Partners, L.P.(1)............ 1,895,172 14.9%
100 Pine Street
San Francisco, California 94104
Morton H. Meyerson.................. 660,000 5.3
4514 Cole Avenue, Suite
Dallas, Texas 75205
David Friedensohn(2)................ 2,225,000 17.8
David Levitsky(3)................... 1,800,000 14.4
D. Jonathan Merriman(4)............. 484,188 3.7
William Lansing(5).................. 2,083 *
Steven A. Ledger(6)................. 1,895,172 14.9
All directors and executive officers
as a group (10 persons)(7)........ 6,914,443 50.5%
</TABLE>
- -------------------------
* less than 1%
(1) Includes a warrant to purchase 240,000 shares of common stock.
(2) Includes 100,000 shares of common stock beneficially owned by The
Friedensohn 1999 Annuity Trust. Mr. Friedensohn beneficially owns the shares
of common stock held by the trust.
43
<PAGE> 45
(3) Includes 75,000 shares of common stock beneficially owned by The Levitsky
1999 Annuity Trust. Mr. Levitsky beneficially owns the shares of common
stock held by the trust.
(4) Mr. Merriman is a Senior Managing Director of First Security Van Kasper &
Company. In such capacity, Mr. Merriman beneficially owns the warrants of
First Security Van Kasper & Company entitling it to purchase 270,392 shares
of common stock.
(5) Represents the shares beneficially owned by Mr. Lansing pursuant to a
warrant to purchase 50,000 shares of common stock.
(6) Mr. Ledger is a Managing Partner of Storie Advisors, Inc., the general
partner of Storie Partners. Mr. Ledger beneficially owns the shares of
common stock beneficially owned by Storie Partners and a warrant of Storie
Partners to purchase 240,000 shares of common stock.
(7) Includes 1,245,475 shares of common stock issuable upon the exercise of
warrants and options.
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The following description of the material terms of our capital stock is not
intended to be complete. Our capital stock is fully described in our certificate
of incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part. Our capital stock is also
governed by the provisions of applicable Delaware law.
Our authorized stock consists of 40,000,000 shares of common stock, par
value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share. As of May 3, 1999, 12,458,376 shares of common stock were
outstanding and were held by 115 holders of record. No shares of preferred stock
were outstanding.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders. There are no cumulative voting
rights. Holders of common stock are entitled to receive ratably dividends, if
any, as may be declared from time to time by the board of directors out of
legally available funds, except that holders of preferred stock issued after the
sale of the common stock in this offering may be entitled to receive dividends
before the holders of the common stock.
In the event of a liquidation, dissolution or winding up of BigStar,
holders of common stock would be entitled to share in our assets remaining after
the payment of liabilities and the satisfaction of any liquidation preference
granted the holders of any then outstanding shares of preferred stock. Holders
of common stock have no preemptive or conversion rights or other subscription
rights. In addition, there are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are, and
the shares of common stock offered by us in this offering, when issued and paid
for, will be fully paid and nonassessable.
The rights, preferences and privileges of the holders of common stock may
be adversely affected by the rights of the holders of shares of any series of
preferred stock that we designate in the future.
PREFERRED STOCK
The board of directors is authorized, without stockholder approval, to
issue up to an aggregate of 10,000,000 shares of preferred stock, $0.001 par
value per share, in one or more series. Each series will have the rights and
preferences as are determined by the board of directors, including:
- voting rights;
- dividend rights;
- conversion rights;
- redemption privileges; and
- liquidation preferences.
Preferred stock will have voting, dividend and liquidation rights superior
to the common stock which may adversely affect the rights of holders of common
stock.
45
<PAGE> 47
WARRANTS
As of May 3, 1999, BigStar had outstanding warrants to purchase 1,790,384
shares of common stock at a weighted average exercise price of $2.03 per share.
Some of these warrants have net exercise provisions under which the holder may,
in lieu of payment of the exercise price in cash, surrender the warrant and
receive a net amount of shares, based on the fair market value of BigStar's
common stock at the time of the exercise of the warrant, after deducting the
exercise price. These warrants expire on dates ranging from December 1999 to
April 2003.
REGISTRATION RIGHTS
As part of the private placement of common stock that we consummated from
January through April 1999, BigStar entered into registration rights agreements
with the private placement investors. In January 1999, BigStar also entered into
registration rights agreements with David Friedensohn and David Levitsky.
According to the terms of the registration rights agreements, holders of
10,454,080 registrable shares of common stock, including warrants exercisable
for common stock, will be entitled to piggyback registration rights in
connection with any registration by BigStar of its securities for its own
account or the account of other securityholders. In the event that BigStar
proposes to register any shares of common stock under the Securities Act, the
holders of the piggyback registration rights are entitled to receive notice and
are entitled to include their shares in the registration statement. Holders of
our common stock with piggyback registration rights will not be able to
participate in this offering.
In addition, holders of the registrable shares (10,454,080 shares), which
includes shares of common stock issuable upon the exercise of warrants and
options that have been granted registration rights, are entitled to demand that
BigStar file a registration statement with respect to the registration of the
shares under the Securities Act. BigStar is required to notify all holders of
the registrable shares in the event that holders of at least 25% of the then
outstanding registrable shares notify BigStar that they intend to offer or cause
to be offered for public sale at least 25% of the then outstanding registrable
shares. BigStar is not required to effect:
- more than two demand registrations or one registration;
- a demand registration until 180 days after the effectiveness of the
registration statement filed in connection with this offering;
- a demand registration for up to 180 days following a good faith
determination by the board that it would be detrimental to BigStar; and
- a demand registration for up to 180 days following the effectiveness of
any registration statement (other than on Form S-8) covering BigStar
capital stock.
At any time after BigStar becomes eligible to file a registration statement
on Form S-3, which is expected to be one year after this offering, the holders
of registrable securities may require BigStar to file one registration statement
on Form S-3 covering their shares during any given 12 month period or more than
four registrations in total on Form S-3. However, BigStar is not required to
file a Form S-3 registration statement if the market value of the registrable
shares to be sold by the holders in any Form S-3 registration is less than
$1,000,000.
46
<PAGE> 48
These registration rights terminate five years following the consummation
of this offering. In addition, holders may not exercise registration rights once
they can sell their shares in the public market without registration.
DELAWARE LAW AND CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
BigStar is subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. This section prevents BigStar from engaging,
under some circumstances, in a business combination, which includes a merger or
sale of more than 10% of its assets, with any interested stockholder, defined as
a stockholder who owns 15% or more of its outstanding voting stock, as well as
affiliates and associates of any such persons, for three years following the
date such stockholder became an interested stockholder unless:
- the transaction in which the stockholder became an interested stockholder
is approved by the board of directors prior to the date the interested
stockholder attained that status;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of BigStar's voting stock outstanding at the time the
transaction commenced, excluding shares owned by persons who are
directors or officers and shares owned by employee stock plans; or
- the business combination is approved by the board of directors and
authorized by the affirmative vote of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Some of the provisions of our certificate of incorporation and bylaws could
discourage, delay or prevent an acquisition of BigStar at a premium price. Our
certificate of incorporation provides that any vacancy on the board of directors
may be filled by a majority of the directors then in office, even if less than a
quorum, or by a plurality of the votes cast at a meeting of stockholders. Our
bylaws provide that special meetings of stockholders may be called only by a
majority of the directors of our board or by a designated committee of the board
of directors. Stockholders are not permitted to call a special meeting or to
require that the board call a special meeting of stockholders.
In addition, the certificate of incorporation also authorizes the board of
directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of BigStar.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company, New York, New York.
47
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
The market price of our common stock could drop due to sales of a large number
of shares of our common stock or the perception that such sales could occur.
These factors could also make it more difficult to raise funds through future
offerings of common stock.
After this offering, shares of common stock will be
outstanding, shares if the underwriters exercise their
over-allotment option in full. Of these shares, the shares sold in this offering
will be freely tradeable without restriction under the Securities Act except for
any shares purchased by affiliates of BigStar. The remaining
shares are restricted securities under the Securities Act and generally may not
be sold unless they are registered under the Securities Act or are sold pursuant
to an exemption from registration, such as the exemption provided by Rule 144
under the Securities Act.
Our officers, directors and principal stockholders have entered into
lock-up agreements pursuant to which they have agreed not to offer or sell any
shares of common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Prudential Securities, on behalf
of the underwriters. Prudential Securities may, at any time and without notice,
waive any of the terms of those lock-up agreements specified in the underwriting
agreement. Following the lock-up period, these shares will not be eligible for
sale in the public market without registration under the Securities Act unless
such sales meet the conditions and restriction of Rule 144 as described below.
In general, under Rule 144 as currently in effect, any person, including an
affiliate, who has beneficially owned shares for a period of at least one year
is entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) 1% of the then-outstanding shares of common stock
and (ii) the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of such sale
on Form 144 is filed with the Securities and Exchange Commission. In addition, a
person who has not been an affiliate of BigStar at any time during the 90 days
immediately preceding a sale and who has beneficially owned the shares for at
least two years, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations and other conditions described above. The
foregoing summary of Rule 144 is not a complete description.
As soon as practicable following the consummation of this offering, BigStar
intends to file a registration statement under the Securities Act to register
the shares of common stock available for issuance pursuant to its stock option
and incentive plans. See "Management -- Stock Option Plans." Shares issued
pursuant to these plans after the effective date of that registration statement
will be available for sale in the open market subject to the lock-up period and,
for affiliates of BigStar, subject to Rule 144.
48
<PAGE> 50
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated and are
acting as representatives. We are obligated to sell, and the underwriters are
obligated to purchase, all of the shares offered on the cover page of this
prospectus, if any are purchased. Subject to the conditions of the underwriting
agreement, each underwriter has severally agreed to purchase the shares
indicated opposite its name:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
Prudential Securities Incorporated..........................
--------
Total..................................................
========
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to additional shares from us. If any additional shares are purchased,
the underwriters will severally purchase the shares in the same proportion as
provided in the table above.
The representatives of the underwriters have advised us that the shares
will be offered to the public at the offering price indicated on the cover page
of this prospectus. The underwriters may allow to selected dealers a concession
not in excess of $ per share and these dealers may reallow a concession not
in excess of $ per share to other dealers. After the shares are released for
sale to the public, the representatives may change the offering price and the
concessions.
We have agreed to pay to the underwriters the following fees, assuming both
no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares:
<TABLE>
<CAPTION>
TOTAL FEES
---------------------------------------------
FEE WITHOUT EXERCISE OF FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by BigStar........... $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $ in
expenses for this offering. We have agreed to indemnify the underwriters against
some liabilities, including liabilities under the Securities Act, or contribute
to payments that the underwriters may make in respect of these liabilities.
We, our officers, directors and our principal stockholders have entered
into lock-up agreements under which we and they have agreed not to offer or sell
any shares of common stock or securities convertible into or exchangeable or
exercisable for shares of common stock for a period of 180 days from the date of
this prospectus without the prior written consent of Prudential Securities, on
behalf of the underwriters. Prudential Securities may, at any time and without
notice, waive the terms of those lock-up agreements specified in the
underwriting agreement.
49
<PAGE> 51
Before this offering, there has been no public market for the common stock
of BigStar. The public offering price, negotiated between BigStar and the
representatives, is based upon various factors such as BigStar's financial and
operating history and condition, its prospects, the prospects for the industry
we are in and prevailing market conditions.
Prudential Securities, on behalf of the underwriters, may engage in the
following activities in accordance with applicable securities rules:
- Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment option.
- Stabilizing and short covering; stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
- Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing of short
covering transactions.
These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or on
any trading market.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995,
- the Financial Services Act 1986, and
- the Financial Services Act 1986 (Investment Advertisements)(Exemptions)
Order 1996 (as amended).
We have asked the underwriters to reserve share for sale at the same
offering price directly to our officers, directors, employees and other business
affiliates or related third parties. The number of shares available for sale to
the general public in the offering will be reduced to the extent these persons
purchase the reserved shares.
LEGAL MATTERS
Orrick, Herrington & Sutcliffe LLP, New York, New York, will pass upon
various legal matters for us with respect to the validity of the shares of
common stock offered in this offering. Orrick, Herrington & Sutcliffe LLP
beneficially owns 40,000 shares of common stock. Schulte Roth & Zabel LLP, New
York, New York, will pass upon various legal matters for the underwriters.
50
<PAGE> 52
EXPERTS
The audited financial statements of BigStar as of December 31, 1998 and for
the period from March 10, 1998 (date of inception) to December 31, 1998 included
in this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
BigStar has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
shares of common stock being offered. This prospectus does not contain all of
the information shown in the registration statement or in the exhibits to the
registration statement. For further information with respect to BigStar and the
shares to be sold in this offering, reference is made to the registration
statement. You should not assume that the information in this prospectus and the
applicable supplement is accurate as of any date other than the date on the
front cover of this document.
You may read and copy any document BigStar files at the Securities and
Exchange Commission's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the Securities and Exchange Commission
at 1-800-SEC-0300 for further information on the operation of its public
reference rooms. In addition, we are required to file electronic versions of any
document we file with the Securities and Exchange Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) System. These documents are available
at the Securities and Exchange Commission's Internet site at http://www.sec.gov.
As a result of the offering, the information and reporting requirements of
the Securities Exchange Act of 1934, will apply to us. Therefore, under the
Securities Exchange Act, we will file periodic reports, proxy statements and
other information with the Securities and Exchange Commission. We intend to
furnish to our stockholders annual reports containing audited financial
information for each of our fiscal years.
51
<PAGE> 53
BIGSTAR ENTERTAINMENT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
PAGE
---
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... F-2
FINANCIAL STATEMENTS:
Balance Sheet as of December 31, 1998..................... F-3
Statement of Operations for the Period March 10, 1998
(date of inception) to December 31, 1998............... F-4
Statement of Stockholders' Deficit for the Period March
10, 1998 (date of inception) to December 31, 1998...... F-5
Statement of Cash Flows for the Period March 10, 1998
(date of inception) to December 31, 1998............... F-6
NOTES TO FINANCIAL STATEMENTS............................... F-7
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BigStar Entertainment, Inc.:
We have audited the accompanying balance sheet of BigStar Entertainment,
Inc. (a Delaware corporation) as of December 31, 1998, and the related
statements of operations, stockholders' deficit and cash flows for the period
from March 10, 1998 (date of inception) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BigStar Entertainment, Inc.
as of December 31, 1998, and the results of its operations and its cash flows
for the period from March 10, 1998 (date of inception) to December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
May 5, 1999
F-2
<PAGE> 55
BIGSTAR ENTERTAINMENT, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
ASSETS:
Current assets --
Cash................................................... $ 816,124
Accounts receivable, net of allowance of $5,000........ 61,121
Other current assets................................... 8,711
-----------
Total current assets................................. 885,956
Property and equipment, net............................... 452,134
-----------
Total assets......................................... $ 1,338,090
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Current liabilities --
Accounts payable....................................... $ 380,540
Accrued payroll costs.................................. 243,240
Accrued expenses....................................... 1,197,776
Current portion of capital lease obligation............ 2,226
-----------
Total current liabilities............................ 1,823,782
-----------
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATION............... 8,805
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value; 10,000,000 shares
authorized, no shares issued and outstanding........... --
Common stock, $.001 par value; 40,000,000 shares
authorized 6,231,560 issued and outstanding............ 6,232
Additional paid-in capital................................ 2,352,356
Subscribed stock.......................................... 453,000
Deferred compensation..................................... (64,414)
Accumulated deficit....................................... (3,241,671)
-----------
Total stockholders' deficit.......................... (494,497)
-----------
Total liabilities and stockholders' deficit.......... $ 1,338,090
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE> 56
BIGSTAR ENTERTAINMENT, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 10, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
NET SALES................................................... $ 789,107
COST OF SALES............................................... 693,831
-----------
Gross profit.............................................. 95,276
OPERATING EXPENSES:
Sales and marketing....................................... 1,429,867
General and administrative................................ 963,081
Web site and software development......................... 951,153
-----------
Total operating expenses............................. 3,344,101
-----------
Loss from operations................................. (3,248,825)
INTEREST INCOME............................................. 7,154
-----------
Net loss.................................................. $(3,241,671)
===========
PER SHARE INFORMATION:
Net loss per share --
Basic and diluted...................................... $ (0.60)
===========
Weighted average common shares outstanding --
Basic and diluted...................................... 5,366,564
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 57
BIGSTAR ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM MARCH 10, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN SUBSCRIBED DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK COMPENSATION DEFICIT DEFICIT
--------- ------ ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 10, 1998 (date
of inception)................ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock to
founders................... 4,000,000 4,000 6,000 -- -- -- 10,000
Issuance of common stock for
services................... 40,000 40 60 -- -- -- 100
Issuance of common stock, net
of $23,000 of issuance
costs...................... 1,937,560 1,938 1,946,270 -- -- -- 1,948,208
Subscribed stock............. -- -- -- 453,000 -- -- 453,000
Issuance of stock options for
services................... -- -- 117,000 -- -- -- 117,000
Issuance of warrants for
services................... -- -- 54,300 -- -- -- 54,300
Employee stock option
compensation............... -- -- 14,706 -- -- -- 14,706
Deferred employee stock
option compensation........ -- -- 64,414 -- (64,414) -- --
Exercise of warrants......... 254,000 254 149,606 -- -- -- 149,860
Net loss..................... -- -- -- -- -- (3,241,671) (3,241,671)
--------- ------ ---------- -------- -------- ----------- -----------
BALANCE, December 31, 1998..... 6,231,560 $6,232 $2,352,356 $453,000 $(64,414) $(3,241,671) $ (494,497)
========= ====== ========== ======== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 58
BIGSTAR ENTERTAINMENT, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 10, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(3,241,671)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization............................. 30,208
Allowance for doubtful accounts........................... 5,000
Non-cash common stock option and warrant expenses......... 186,006
Changes in assets and liabilities --
Accounts receivable.................................... (66,121)
Other current assets................................... (8,711)
Accounts payable, accrued payroll costs and accrued
expenses.............................................. 1,821,556
-----------
Net cash used in operating activities................ (1,273,733)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (470,342)
-----------
Net cash used in investing activities................ (470,342)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 2,108,168
Proceeds from subscribed stock............................ 453,000
Repayment of capital lease obligations.................... (969)
-----------
Net cash provided by financing activities............ 2,560,199
-----------
Net increase in cash................................. 816,124
CASH, beginning of period................................... --
-----------
CASH, end of period......................................... $ 816,124
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................. $ 2,300
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Capital lease obligations incurred........................ $ 12,000
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 59
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
BigStar Entertainment, Inc. ("the Company") is an online filmed
entertainment superstore that sells video cassettes, digital video discs, or
DVDs, and laserdiscs. The Company has four web sites that target purchasers of
filmed entertainment products. The Company's main web site, BigStar.com, offers
approximately 34,000 filmed entertainment products, including feature films and
educational, health and fitness and instructional videos. The Company's other
web sites are abcBigStar.com, which targets the children's filmed entertainment
market, BigStarDVD.com, which focuses on DVD enthusiasts, and Astrophile.com, a
content-only web site designed to attract customers to the Company's product web
sites.
The Company operates in the online retail industry, which is new, rapidly
evolving and intensely competitive. The Company competes primarily with
traditional retail outlets and other entities that maintain similar commercial
web sites.
Cash
At December 31, 1998, $453,000 is included in the Company's cash balance
representing cash held in escrow for shares of the Company's Common Stock which
were issued in January 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Online revenue consists of sales of filmed entertainment in popular
formats, primarily video cassettes and DVDs, over the Company's web sites. The
Company recognizes revenue from its web sites when the products are shipped to
customers. Outbound shipping and handling charges are also included in net
sales. Revenue from gift certificates is recognized upon product shipment
following redemption. Provision is made for the estimated effect of sales
returns where right-of-return privileges exist. Returns of product from
customers are accepted in accordance with standard industry practice. The
Company provides an allowance for sales returns based on standard industry
practice.
F-7
<PAGE> 60
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cost of Sales
Cost of sales includes the cost of the filmed entertainment, as well as
related shipping and handling costs.
Dependence on Supplier
The Company's primary provider of filmed entertainment and related order
fulfillment services is Baker & Taylor, Inc. ("B&T"). Although the Company has
agreements with several order fulfillment providers, it has no fulfillment
operation or warehouse facility of its own and, accordingly, is dependent on
maintaining its existing fulfillment relationships. There can be no assurance
that the Company will maintain its relationship with B&T beyond the term of its
existing strategic marketing agreement. Further, should the Company terminate
its relationship with B&T, or its other providers of filmed entertainment
products and related fulfillment services, it may not be able to find an
alternative, comparable vendor capable of providing fulfillment services on
satisfactory terms to the Company.
Web Site and Software Development
Web site and software development expenses consist primarily of payroll and
related expenses for web site development, systems and telecommunications
operations personnel and consultants, systems and telecommunications
infrastructure related to the web sites. To date, all web site and software
development costs have been expensed as incurred.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the estimated useful
lives of those assets. Computer equipment, office equipment and furniture are
depreciated over estimated useful lives of 3 years. Leasehold improvements and
equipment held under capital lease are amortized utilizing the straight-line
method over the lesser of the estimated useful life of the asset or the term of
the lease.
Accounting for Long-Lived Assets
The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement establishes financial accounting and reporting standards for
the impairment of long-lived assets and for long-lived assets to be disposed of.
Management has performed a review of all long-lived assets and has determined
that no impairment of the respective carrying value has occurred as of December
31, 1998.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax
F-8
<PAGE> 61
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in results of operations in the period that
includes the enactment date. Because of the uncertainty regarding the Company's
future profitability, the future tax benefits of its losses have been fully
reserved for. Therefore, no benefit for the net operating loss has been recorded
in the accompanying financial statements.
Advertising Expense
Advertising and promotional costs are expensed as incurred and include the
costs, both product costs and shipping and handling charges, of promotional
items. These promotional items are primarily video cassettes distributed to
customers who agree to receive notification of future promotions. Advertising
expense was approximately $619,000 for the period from March 10, 1998 (date of
inception) to December 31, 1998 and is included in sales and marketing expense
in the accompanying statement of operations.
Stock-Based Compensation
The Company accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Compensation expense related to employee stock options is recorded only if, on
the date of grant, the fair value of the underlying stock exceeds the exercise
price. The Company adopted the disclosure-only requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," which allows entities to continue to
apply the provisions of APB Opinion No. 25 for transactions with employees and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock options as if the fair value based method of accounting in SFAS
No. 123 had been applied to these transactions.
The Company accounts for nonemployee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more readily determinable.
Basic and Diluted Net Loss Per Common Share
The Company accounts for net loss per common share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share." In accordance with SFAS No.
128 and the Securities and Exchange Commission Staff Accounting Bulletin No. 98,
basic earnings per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period. Common
equivalent shares consist of the incremental common shares issuable upon
F-9
<PAGE> 62
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the exercise of stock options and warrants (using the Treasury Stock method);
common equivalent shares are excluded from the calculation if their effect is
anti-dilutive. Diluted loss per share does not include the impact of common
stock options and warrants then outstanding, as the effect of their inclusion
would be anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1998, the Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. The adoption of this standard has had no impact on the
Company's financial statements. Accordingly, the Company's comprehensive net
loss is equal to its net loss for the period from March 10, 1998 (date of
inception) to December 31, 1998.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information,"
which establishes standards for the way that a public enterprise reports
information about operating segments in annual financial statements, and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years must be restated. Management has
determined that it does not have any separately reportable business segments.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company does not expect the adoption
of SOP 98-1 to have a material effect on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. This
statement is not expected to affect the Company since it does not currently
engage in derivative instruments or hedging activities.
2. BUSINESS AND CREDIT CONCENTRATIONS
Financial instruments, which subject the Company to concentrations of
credit risk, consist primarily of cash, accounts receivable, accounts payable
and accrued liabilities.
F-10
<PAGE> 63
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts of these instruments approximate fair value. The carrying
amount of the Company's capital lease approximates the fair value of this
instrument based upon management's best estimate of interest rates.
The Company maintains cash with a domestic financial institution. The
Company performs periodic evaluations of the relative credit standing of this
institution. From time to time, the Company's cash balances with this financial
institution may exceed Federal Deposit Insurance Corporation insurance limits.
The Company's customers are primarily concentrated in the United States.
The Company performs credit card authorizations before products are shipped to
reduce the risk of fraudulent credit card use.
For the period from March 10, 1998 (date of inception) to December 31,
1998, there were no customers that accounted for over 10% of total revenues
generated by the Company, or of gross accounts receivable at December 31, 1998.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Computer equipment.......................................... $449,548
Office equipment and furniture.............................. 32,794
--------
482,342
Less -- Accumulated depreciation and amortization........... 30,208
--------
$452,134
========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Accrued video purchase costs............................... $ 449,548
Web advertising............................................ 364,586
Site hardware costs........................................ 141,794
Consulting costs........................................... 78,025
Other...................................................... 163,823
----------
Total............................................ $1,197,776
==========
</TABLE>
5. INCOME TAXES
No provision for U.S. federal or state income taxes has been recorded for
the period from March 10, 1998 (date of inception) to December 31, 1998 as the
Company has incurred an operating loss.
F-11
<PAGE> 64
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows:
<TABLE>
<S> <C>
Deferred tax assets, net:
Net operating loss carryforwards........................ $ 1,102,000
Allowance for sales returns and bad debt................ 10,200
Deferred compensation................................... 5,000
Less -- Valuation allowance............................. (1,117,200)
-----------
Deferred tax assets, net............................. $ --
===========
</TABLE>
Realization of deferred tax assets is dependent upon available future
earnings. The Company has recorded a full valuation allowance against its
deferred tax assets since management believes that it is not more likely than
not that these assets will be realized. No income tax benefit has been recorded
for all periods presented because of the valuation allowance.
As of December 31, 1998, the Company had net operating loss carryforwards
("NOLs") for federal income tax purposes of approximately $3,242,000. There can
be no assurance that the Company will realize the benefit of the NOLs. The
federal NOLs are available to offset future taxable income and expire in 2019 if
not utilized. Under Section 382 of the Internal Revenue Code, these NOLs may be
limited due to ownership changes.
6. CAPITAL LEASE OBLIGATIONS
At December 31, 1998 the Company was committed under a capital lease
agreement for office equipment. The asset and liability under the capital lease
is recorded at the lower of the present value of minimum lease payments or the
fair market value of the asset. The interest rate on the capital lease was 8% at
December 31, 1998.
F-12
<PAGE> 65
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under the capital lease agreements are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $ 3,011
2000...................................................... 3,011
2001...................................................... 3,011
2002...................................................... 3,011
2003...................................................... 753
-------
Total minimum lease payments...................... 12,797
Less --
Amounts representing interest.......................... 1,766
-------
Total minimum lease payments excluding interest........ $11,031
=======
Current portion........................................ $ 2,226
=======
Long-term portion...................................... $ 8,805
=======
</TABLE>
7. STOCKHOLDERS' DEFICIT
Upon incorporation in March 1998, the Company issued 4,000,000 shares of
its Common Stock to its founders at $0.0025 per share. In addition, 40,000
shares of Common Stock were issued for legal services, which the Company valued
at $0.0025 per share.
From March through May 1998, the Company entered into Stock Purchase
Agreements with several investors pursuant to which the Company sold 974,592
shares of its Common Stock at $0.59 per share for net proceeds of $575,008.
From July through October 1998, the Company entered into Stock Purchase
Agreements with several investors pursuant to which the Company sold 962,968
shares of its Common Stock at $1.45 per share for net proceeds of $1,373,200. In
addition, warrants to purchase 94,320 shares of the Company's Common stock at
$1.45 per share were issued for investment advisory services.
Warrants
During 1998, in connection with certain stock purchase agreements, the
Company issued an aggregate of 399,200 warrants, each to purchase one share of
Common Stock at an exercise price of $0.59.
During April 1998, a director of the Company provided investment advisory
services to the Company and received 100,000 warrants to purchase common stock,
exercisable at $0.59 per share. In addition, the Company issued 420,000 warrants
to purchase common stock at purchase prices between $1.45 and $1.81 for services
rendered in lieu of cash payments. As such, the Company recorded a charge of
$54,300 in the accompanying statement of operations based upon a valuation of
the fair market value of the warrants on the date of grant.
F-13
<PAGE> 66
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of all warrants granted for the period from
March 10, 1998 (date of inception) to December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WARRANTS EXERCISE
GRANTED PRICE
--------- --------
<S> <C> <C>
Outstanding at March 10, 1998............................ -- $ --
Granted................................................ 1,013,520 1.07
Exercised.............................................. (254,000) 0.59
Canceled............................................... -- --
--------- -----
Outstanding at December 31, 1998......................... 759,520 $1.22
========= =====
</TABLE>
All warrants were vested upon issuance and have expiration dates ranging
from 7 to 51 months from the date of grant. As of December 31, 1998, the
following number of warrants to purchase common stock remain outstanding:
285,200 warrants at $0.59 per share; 274,320 warrants at $1.45 per share and
200,000 warrants at $1.81 per share. Subsequent to December 31, 1998, an
additional 145,200 warrants were exercised at a purchase price of $0.59 per
share.
8. STOCK OPTION PLANS
In 1998, the Company adopted the 1998 Stock Option and Incentive Plan
("1998 Plan") pursuant to which an aggregate of 1,000,000 shares of Common Stock
was reserved for issuance to directors, officers, employees and consultants of
the Company. The 1998 Plan provides for awards of both non-qualified stock
options and incentive stock options within the meaning of Section 422A of the
Internal Revenue Code, stock appreciation rights, restricted stock subject to
forfeiture and restrictions on transfer, and performance awards entitling the
recipient to receive cash or Common Stock in the future following the attainment
of performance goals determined by the board of directors.
The 1998 Plan is administered by the Board of Directors, which has the sole
discretion to select the employees, officers and consultants to whom awards are
made, to determine the nature and amounts of such awards and to interpret,
construe and implement the 1998 Plan. As of December 31, 1998, options to
purchase 992,200 shares of the Company's Common Stock have been granted under
the 1998 Plan.
In October 1998, the Company adopted the 1999 Stock Option and Incentive
Plan ("1999 Plan") pursuant to which an aggregate of 600,000 shares of Common
Stock were reserved for issuance to directors, officers, employees and
consultants of the Company. This number of shares was increased to 2,000,000
shares in March 1999. The 1999 Plan provides for awards of both non-qualified
stock options and incentive stock options within the meaning of Section 422A of
the Internal Revenue Code, stock appreciation rights, restricted stock subject
to forfeiture and restrictions on transfer, and performance awards entitling the
recipient to receive cash or common
F-14
<PAGE> 67
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock in the future following the attainment of performance goals determined by
the Board of Directors. The 1999 Plan is administered by the Board of Directors,
which has the sole discretion to select the employees, officers and consultants
to whom awards are made, to determine the nature and amounts of such awards and
to interpret, construe and implement the 1999 Plan. Incentive options granted to
stockholders who own more than 10% of the outstanding stock of the Company must
be issued at 110% of the fair market value of the stock on the date that the
options are granted. As of December 31, 1998, options to purchase 166,000 of the
Company's Common Stock have been granted to employees under the 1999 Plan.
Had compensation under the 1998 and 1999 Stock Option Plans been determined
consistent with the provisions of SFAS No. 123, the effect on the Company's net
loss and basic and diluted loss per share would have been changed to the
following pro forma amounts for the period from March 10, 1998 (date of
inception) to December 31, 1998:
<TABLE>
<S> <C>
Net loss, as reported..................................... $(3,241,671)
Net loss, pro forma....................................... (3,274,424)
Basic and diluted loss per share, as reported............. (0.60)
Basic and diluted loss per share, pro forma............... (0.61)
</TABLE>
Stock option activity under the 1998 and 1999 Plans during the periods
indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
GRANTED EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding at March 10, 1998................. -- $ --
Granted............................................. 1,158,200 0.71
Canceled and Exercised.............................. -- --
--------- -----
Outstanding at December 31, 1998...................... 1,158,200 $0.71
========= =====
Exerciseable at December 31, 1998..................... 889,008 $0.59
========= =====
</TABLE>
The fair market value of each option grant has been estimated on the date
of grant using the Black-Scholes option pricing model based upon expected option
lives of 5 years; risk free interest rate of between 4.49% and 5.49%; expected
volatility of 0% and a dividend yield of 0%.
The weighted-average remaining life of the options outstanding at December
31, 1998 is 5.67 years.
For the period from March 10, 1998 (date of inception) to December 31,
1998, the Company recorded compensation expense and deferred compensation
expense of $14,706 and $64,414, respectively, in connection with the grant of
92,000 options to employees, representing the difference between the fair value
of the Company's Common Stock at the date of grant and the exercise price of the
related options.
F-15
<PAGE> 68
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred compensation is presented as a reduction of stockholders' deficit and
amortized over the vesting period, typically two years, of the applicable
options.
9. COMMITMENTS AND CONTINGENCIES
Effective February 1, 1999, the Company entered into a lease for its
facilities, which expires on September 30, 2002. In addition, the Company
maintains operating leases on certain equipment. Future minimum obligations
under noncancellable operating leases at December 31, 1998 are as follows:
<TABLE>
<S> <C>
For the year ending:
1999...................................................... $165,550
2000...................................................... 180,600
2001...................................................... 180,600
2002...................................................... 135,450
--------
$662,200
========
</TABLE>
Rent expense under its operating lease for its facilities for the period
from March 10, 1998 (date of inception) to December 31, 1998 was $8,000 and
includes the fair market value of warrants issued to purchase 40,000 shares of
the Company's Common Stock at $0.59 per share in lieu of cash payments.
As of December 31, 1998, the Company had entered into various marketing
agreements with third parties whereby the third parties provide advertising
services and database links to the Company's web sites. Fees to be paid by the
Company under these agreements, which are generally cancellable with 60 days
notice, are determined as fixed monthly payments, or are calculated on a per
"click-through" basis, or as a percentage of net revenues, as defined in the
related agreements. As of December 31, 1998, the Company had committed to
approximately $456,000 in minimum payments under these agreements.
Employment Agreement
During 1999 the Company entered into an employment agreement with its
Chairman and Chief Executive Officer. The agreement obligates the Company to pay
an annual salary of $160,000 in 1999, $200,000 in 2000 and $250,000 in 2001. The
Company will also pay a guaranteed bonus of $90,000 in 1999, $20,000 in 2000
($40,000 if the Company has publicly traded shares) and $75,000 in 2001
($150,000 if the Company has publicly traded shares). In addition, the Chairman
and Chief Executive Officer was granted options to purchase 400,000 shares of
Common Stock at an exercise price of $2.00 per share pursuant to the 1999 Plan.
The shares vest in equal installment over 48 months and are exercisable until
the earlier of five years or 90 days from the Chairman and Chief Executive
Officer's termination of employment with the Company.
F-16
<PAGE> 69
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Legal Proceedings
From time to time, the Company may be involved in various legal proceedings
and other matters arising in the normal course of business. The Company
currently has no outstanding legal proceedings.
10. SUBSEQUENT EVENTS
Initial Public Offering
The Company is pursuing an initial public offering of its Common Stock. The
offering contemplates the sale of shares of Common Stock at an offering price to
be determined before underwriting commissions and offering expenses.
Facility Lease
As discussed in Note 9, effective February 1, 1999, the Company entered
into a 44 month lease for office space. Pursuant to the terms of the lease, the
Company entered into a Standby Letter of Credit for $180,600 and deposited funds
of $180,600 in a Certificate of Deposit as collateral. The Company's Chief
Executive Officer is a partial guarantor for the lease.
Issuance of Common Stock
In January and February 1999, the Company sold 3,205,788 shares of its
Common Stock at $1.81 per share for total proceeds of $5,395,000, net of
issuance costs of $415,000. In addition, warrants to purchase 292,064 shares of
the Company's Common Stock at $1.81 per share were issued to placement agents as
part of these transactions.
During April 1999, the Company sold 1,655,172 shares of common stock at a
price of $1.81 per share for total proceeds of $2,850,000, net of issuance costs
of $150,000. In addition, warrants to purchase 144,000 shares of the Company's
Common Stock at $3.13 per share were distributed to the placement agent.
In addition, during April 1999, the Company sold 1,220,656 shares of Common
Stock at a price of $3.00 per share for total proceeds of $3,361,968.
Stock Split
On May 3, 1999, the Company enacted a four-for-one stock split of its
Common Stock. Accordingly, all share and per share information in the
accompanying financial statements has been retroactively restated to reflect the
effect of the stock split.
F-17
<PAGE> 70
BIGSTAR ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Supplier Agreement
In May 1999, the Company entered into a Strategic Marketing Agreement
("Supplier Agreement") with B&T. The Supplier Agreement expires in December
2000, but has an automatic renewal option for 24 months unless cancelled in
writing by either party with ninety days notice prior to the end of the
preceding term, and includes specific credit terms as defined in the agreement.
In addition, the Company issued warrants to purchase 60,000 shares of the
Company's Common Stock at a price of $4.00 per share, exercisable at any time
over the next three years.
F-18
<PAGE> 71
- --------------------------------------------------------------------------------
Until , 1999, all dealers effecting transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
BIGSTAR.COM LOGO
PRUDENTIAL SECURITIES
- --------------------------------------------------------------------------------
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by BigStar in connection with
the sale of the securities being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq/NMS listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $12,788
NASD Filing Fee............................................. 5,100
Nasdaq/NMS Listing Fee...................................... *
Printing Expenses........................................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Transfer Agent and Registrar Fees........................... *
Miscellaneous............................................... *
Total....................................................... $ *
=======
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant.
The Delaware General Corporation Law provides that Section 145 is not
exclusive of other rights to which those seeking indemnification may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise. The Registrant's Bylaws provides for indemnification by the
Registrant of its directors, officers and employees in connection with any
proceeding to the fullest extent permitted by the Delaware General Corporation
Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which
II-1
<PAGE> 73
the director derived an improper personal benefit. The Registrant's certificate
of incorporation provides for such limitation of liability.
The Registrant intends to obtain directors and officers, insurance
providing indemnification for the Registrant's directors, officers and employees
for certain liabilities.
Reference is also made to the underwriting agreement to be filed as Exhibit
1.1 to the registration statement for information concerning the underwriters'
obligation to indemnify the Registrant and its officers and directors in certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of the transactions by the Registrant during the
past three years involving sales of the Registrant's securities that were not
registered under the Securities Act:
1. In March 1998, in connection with our formation, we issued and sold (i)
2,200,000 shares of common stock at a purchase price of $0.0025 per
share to David Friedensohn, (ii) 1,800,000 shares of common stock at a
purchase price of $0.0025 per share to David Levitsky and (iii) 40,000
shares of common stock to Orrick, Herrington & Sutcliffe LLP for legal
services performed in connection with our formation and $100.00 in
consideration.
2. In March 1998, we issued and sold 325,200 shares of common stock to
CounterPoint Capital Management, L.L.C. ("CounterPoint Capital
Management"), CounterPoint Master L.L.C. and AJD Ventures, L.L.C.
("AJD") at a purchase price of $0.59 per share.
3. In March 1998, we issued a warrant to each of CounterPoint Capital
Management and AJD to purchase 100,000 and 45,200 shares of common
stock, respectively, at a price per share of $0.59, exercisable at any
time prior to January 31, 1999.
4. In March 1998, we issued and sold 254,000 shares of common stock at a
purchase price of $0.59 per share to Morton H. Meyerson. We also issued
a warrant to Mr. Meyerson to purchase 254,000 shares of common stock at
a price per share of $0.59, exercisable at any time prior to December
31, 1998.
5. In March 1998, we issued a warrant to Andrew J. Pickup to purchase
40,000 shares of common stock at a price per share of $0.59,
exercisable at any time prior to December 31, 1999.
6. In March 1998, we issued and sold 243,392 shares of common stock at a
purchase price of $0.59 per share to the following entities: Oscar
Friedensohn Revocable Trust, Adele Friedensohn Revocable Trust, Richard
A. Horsch, Jane Friedensohn and Herbert Levitsky.
7. In April 1998, we issued a warrant to D. Jonathan Merriman to purchase
100,000 shares of common stock at a price per share of $0.59,
exercisable at any time prior to January 31, 2000.
8. In May 1998, we issued and sold 152,000 shares of common stock at a
purchase price of $0.59 per share to Morton H. Meyerson.
II-2
<PAGE> 74
9. In July 1998, we issued a warrant to Paul Kagan to purchase 40,000
shares of common stock at a price per share of $1.45, exercisable at
any time prior to December 31, 1999.
10. In July and August 1998, we issued and sold 894,968 shares of common
stock at a purchase price of $1.45 per share to the following
entities: Paul Kagan, Trinkaus & Burkhardt, B.F. & W. Realty Company,
The Levitin Family Charitable Trust, Marshall M. Becker, IRA f/b/o
Stanley S. Becker, DLJSC as Custodian, Kenneth R. Levine, BT Holdings,
Inc., Howard Balter and Rachel Ben Simon.
11. In September 1998, we issued a warrant to each of Kenneth R. Levine
and Marshall M. Becker to purchase 56,592 and 37,728 shares of common
stock, respectively, at a price per share of $1.45.
12. In September 1998, we issued a warrant to purchase 140,000 shares of
common stock to MovieFone, Inc. at a price per share of $1.45,
exercisable at any time prior to September 22, 2001 and a warrant to
purchase 200,000 shares of common stock at a price per share of $1.81,
exercisable at any time prior to September 22, 2001.
13. In October 1998, we issued and sold 68,000 shares of common stock at a
purchase price of $1.45 per share to Stephen J. Clearman.
14. In December 1998, we issued and sold 254,000 shares of common stock at
a purchase price of $0.59 per share to Morton H. Meyerson upon Mr.
Meyerson's exercise of his warrant to purchase common stock.
15. In January 1999, we issued a warrant to D. Jonathan Merriman to
purchase 100,000 shares of common stock at a price per share of $1.81,
exercisable at any time prior to January 1, 2002.
16. In January 1999, we issued and sold 100,000 and 45,200 shares of
common stock at a purchase price of $0.59 per share to CounterPoint
Capital Management and AJD, respectively, upon each entity's exercise
of a warrant to purchase common stock.
17. In January 1999, we issued and sold 623,672 shares of common stock at
a purchase price of $1.81 per share to the following entities: The
Arel Company, Profit Sharing Plan & Trust of Samuel E. Benjamin, MD,
Four Square Investments, LLC, Rentrak, Jeffrey Greenberg, Robert H.
Kriessman, James G. Kreissman, Douglas M. McGraime, James R. Eddings,
Kiam Interests, Ltd., Steven Stickler, Roger C. Dickinson, David G.
Sandelovsky, Dryden Advisory Group LLC, Brivis Investments, Ltd.,
Andrew Gershon, Ted. M. Goldberg, Jonathan Merriman, David G. Catlin,
John A. Johnson IRA, Nazareth Festekjian and Andrew Fleiss.
18. In January 1999, we issued a warrant to Andrew J. Pickup to purchase
40,000 shares of common stock at a price per share of $1.81,
exercisable at any time prior to January 1, 2002.
19. In January 1999, we issued warrants to purchase 53,068 shares of
common stock for services rendered at a price per share of $1.81,
exercisable at any time prior to January 29, 2003 to the following
entities: First Equity
II-3
<PAGE> 75
Capital Securities, Inc. ("First Equity"), Kenneth R. Levine and
Marshall M. Becker.
20. In February 1999, we issued warrants to purchase 238,996 shares of
common stock for services rendered at a price per share of $1.81,
exercisable at any time prior to February 18, 2003 to the following
entities: First Equity, Kenneth R. Levine, Marshall M. Becker, Van
Kasper & Company and Yee Desmond Schroeder & Allen, Inc.
21. In February 1999, we issued and sold 2,582,116 shares of common stock
at a purchase price of $1.81 per share to the following entities:
Steven Glassman, Harald A. Kennedy, Barry Plost, George Furla, Thomas
A. Biebel Living Trust U/A/O 7/1/92 as amended, Herbert B. Weaver Jr.,
Paul Kagan, Magnus J. Le'Vicki, John O. Harry, Gabelli Funds, Inc.,
Hans Ullmark & Marie-Louise Ullmark, Mats H. Nilsson, Beth Glassman
IRA Delaware Charter Custodian, Emerging Technology Limited, Howard
Schraub, Herman O. Haenert IRA Delaware Charter Trust, Thomas N.
Barreca, Thomas Glendahl, Nordiska Fondkommission AB, Mans
Palmstierna, Michael Texido, Brian Kucich, Jack Malinow, Talisman
Capital Inc., Talisman Capital Opportunity Fund Ltd., Ronald Altbach &
Elka Altbach, Global Undervalued Securities Fund, L.P., Guarantee &
Trust Co. TTEE FBO Brian M. Kucich, Todd Jadwin, Global Strategic
Holdings Limited, Ocean Strategic Holdings Limited, Wangary Associates
S.A., Zebra Strategic Holdings Limited, Barbara Miller, Gem Management
Limited, Gary Najarian, CommVest LLC, John Mitnick, Herbert Levitsky,
Joseph F. Wayland, Michael V. DeFelice, Scot Powell French, Vanderlip
Children's 1998 Trust, Henrik N. Vanderlip, Ibra B. Morales, Peter N.
Friedensohn, MD, Lance Stuart Korman, I. Douglas Sherman, DLJ & P
Limited Partnership, Lars Enochson, Successway Holdings Ltd., Ronald
Nash, Herbert Lapidus, Gaynor Limited, Marvin S. Rosen, Charles Schwab
& Co. Inc. FBO Carolyn Scanlan IRA, Stephen Besen, Chatterjee Fund
Management L.P., Gem Singapore Pte. Ltd., Richard Cohen and Michael
Groveman.
22. In April 1999, we issued a warrant to Icon International, Inc. to
purchase 250,000 shares of common stock at a price per share of $2.50,
exercisable at any time prior to March 31, 2001.
23. In April 1999, we issued and sold 1,655,172 shares of common stock at
a purchase price of $1.81 per share to Storie Partners, L.P.
("Storie") and issued a warrant to Storie to purchase an additional
240,000 shares of common stock at a price per share of $2.50,
exercisable anytime prior to April 1, 2003.
24. In April 1999, we issued a warrant to William Lansing to purchase
50,000 shares of common stock at a price per share of $2.00,
exercisable at any time prior to April 20, 2003.
25. In April 1999, we issued and sold 1,220,656 shares of common stock at
a purchase price of $3.00 per share to the following entities: JJJ
Investment Company, Jan Carlzon, Stephen Cyrus Freidheim, Carl
Palmstierna, Randi
II-4
<PAGE> 76
Slifka, Paul Kagan, Jih-Forg Kao, Robert London, Dennis Mykytyn and
Peter Tornquist.
26. In April 1999, we issued a warrant to First Security Van Kasper &
Company to purchase 144,000 shares of common stock at a price per
share of $3.125, exercisable at any time prior to April 20, 2002.
27. In May 1999, we issued a warrant to Baker & Taylor, Inc. to purchase
60,000 shares of common stock at a price per share of $4.00,
exercisable at any time prior to May 3, 2002.
28. In May 1999, we issued to Earthlink Network, Inc. warrants to purchase
70,000 shares of common stock at a price per share of $10.00.
Exemption from registration for the transactions described above was
claimed pursuant to Section 4(2) of the Securities Act of 1933, as amended,
regarding transactions by the issuer not involving a public offering, in that
these transactions were made, without general solicitation or advertising, to
sophisticated investors with access to all relevant information necessary to
evaluate these investments and who represented the Registrant to that the shares
were being acquired for investment.
ITEM 16. EXHIBITS.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment to Certificate of Incorporation.
3.3 Bylaws of the Registrant.
4.1 Form of Registrant's Common Stock Certificate.*
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP.*
10.1 Form of Indemnification Agreement.
10.2 1998 Stock Option and Incentive Plan.
10.3 1999 Stock Option and Incentive Plan.
10.4 Employment Agreement, dated March 15, 1999 by and between
David Friedensohn and the Registrant.
10.5 Distribution Agreement dated February 18, 1998 by and
between Baker & Taylor and the Registrant.+
10.6 Strategic Marketing Agreement dated as of May 1999 by and
between Baker & Taylor and the Registrant.+
10.7 Rights Agreement among the Registrant and each of the
stockholders identified therein.
</TABLE>
II-5
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.8 Agreement of Lease dated February, 1999 between Seaport
Associates, LP and the Registrant.
23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5).*
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants.
24 Power of Attorney (included on page II-7).
27 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions of these
exhibits. Omitted portions have been filed separately with the Commission.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be shown therein is not applicable or is shown in the financial
statements or notes.
II-6
<PAGE> 78
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering.
(3) It will provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
II-7
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 6th day of May 1999.
BIGSTAR ENTERTAINMENT, INC.
By: /s/ DAVID FRIEDENSOHN
-----------------------------------
David Friedensohn
Chairman of the Board and
Chief Executive Officer
II-8
<PAGE> 80
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below each severally constitutes and appoints David Friedensohn and David
Levitsky, and each of them, as true and lawful attorneys-in-fact and agents,
with full powers of substitution and resubstitution, for them in their name,
place and stead, in any and all capacities, to sign any and all amendments
(including pre-effective and post-effective amendments) to this registration
statement and to sign any registration statement (and any post-effective
amendments) relating to the same offering as this registration statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same, with all exhibits, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as they might or
could do in person, hereby ratifying and confirming all which said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do, or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<C> <S> <C>
/s/ DAVID FRIEDENSOHN Chairman and Chief Executive May 6, 1999
- --------------------------------------------------- Officer (principal executive
David Friedensohn officer)
/s/ DAVID LEVITSKY Executive Vice President, General May 6, 1999
- --------------------------------------------------- Manager and Director
David Levitsky
/s/ ROBERT YINGLING Chief Financial Officer May 6, 1999
- --------------------------------------------------- (principal accounting officer)
Robert Yingling
/s/ D. JONATHAN MERRIMAN Director May 6, 1999
- ---------------------------------------------------
D. Jonathan Merriman
/s/ WILLIAM LANSING Director May 6, 1999
- ---------------------------------------------------
William Lansing
/s/ STEVEN A. LEDGER Director May 6, 1999
- ---------------------------------------------------
Steven A. Ledger
</TABLE>
II-9
<PAGE> 81
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE I
To BigStar Entertainment, Inc:
We have audited, in accordance with generally accepted auditing standards,
the financial statements of BigStar Entertainment, Inc. included in this
registration statement and have issued our report thereon dated May 5, 1999. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. This schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR
ANDERSEN LLP
New York, New York
May 5, 1999
S-1
<PAGE> 82
SCHEDULE II
BIGSTAR ENTERTAINMENT, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
For the period March 10, 1998
(date of inception) to
December 31, 1998
Allowance for sales
returns................. $ -- $25,000 $ -- $ -- $25,000
======= ======= ======= ======= =======
Allowance for bad debt..... $ -- $ 5,000 $ -- $ -- $ 5,000
======= ======= ======= ======= =======
</TABLE>
S-2
<PAGE> 83
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment to Certificate of Incorporation.
3.3 Bylaws of the Registrant.
4.1 Form of Registrant's Common Stock Certificate.*
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP.*
10.1 Form of Indemnification Agreement.
10.2 1998 Stock Option and Incentive Plan
10.3 1999 Stock Option and Incentive Plan.
10.4 Employment Agreement, dated March 15, 1999 by and between
David Friedensohn and the Registrant.
10.5 Distribution Agreement by and between Baker & Taylor and the
Registrant.+
10.6 Strategic Marketing Agreement dated as of May 1999 by and
between Baker & Taylor and the Registrant.+
10.7 Rights Agreement among the Registrant and each of the
stockholders identified therein.
10.8 Agreement of Lease dated February, 1999 between Seaport
Associates, LP and the Registrant.
23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5).*
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants.
24 Power of Attorney (included on page II-9).
27 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions of these
exhibits. Omitted portions have been filed separately with the Commission.
S-3
<PAGE> 1
BIGSTAR ENTERTAINMENT, INC.
_______Shares(1)
Common Stock
FORM OF UNDERWRITING AGREEMENT
__________ __, 1999
PRUDENTIAL SECURITIES INCORPORATED
[insert names of any co-managers]
As Representative[s] of the several Underwriters
[c/o Prudential Securities Incorporated]
One New York Plaza
New York, New York 10292
Dear Sirs:
BigStar Entertainment, Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement with the several underwriters named in Schedule 1
hereto (the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth below.
If you are the only Underwriters, all references herein to the Representatives
shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the several Underwriters an aggregate
of ___ shares (the "Firm Securities") of the Company's Common Stock, par value
$.001 per share ("Common Stock"). The Company also proposes to issue and sell to
the several Underwriters not more than _______________ additional shares of
Common Stock if requested by the Representatives as provided in Section 3 of
this Agreement. Any and all shares of Common Stock to be purchased by the
Underwriters pursuant to such option are referred to herein as the "Option
Securities", and the Firm Securities and any Option Securities are collectively
referred to herein as the "Securities".
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the several Underwriters
that:
(a) A registration statement on Form S-1 (File No. 333-_________) with
respect to
- --------
(1) Plus an option to purchase from BigStar Entertainment, Inc. up to
_____________ additional shares to cover over-allotments.
<PAGE> 2
the Securities, including a prospectus subject to completion, has been filed by
the Company with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), and one or more amendments
to such registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, either (A) if the Company relies on
Rule 434 under the Act, a Term Sheet (as hereinafter defined) relating to the
Securities, that shall identify the Preliminary Prospectus (as hereinafter
defined) that it supplements containing such information as is required or
permitted by Rules 434, 430A and 424(b) under the Act or (B) if the Company does
not rely on Rule 434 under the Act, a prospectus in the form most recently
included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act, and in the case of either clause (i)(A) or (i)(B) of
this sentence as have been provided to and approved by the Representatives prior
to the execution of this Agreement, or (ii) if such registration statement, as
it may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement, including
a form of prospectus, a copy of which amendment has been furnished to and
approved by the Representatives prior to the execution of this Agreement. The
Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering certain
additional Securities, which registration shall be effective upon filing with
the Commission. As used in this Agreement, the term "Original Registration
Statement" means the registration statement initially filed relating to the
Securities, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined); the term "Rule 462(b) Registration
Statement" means any registration statement filed with the Commission pursuant
to Rule 462(b) under the Act (including the Registration Statement and any
Preliminary Prospectus or Prospectus incorporated therein at the time such
Registration Statement becomes effective); the term "Registration Statement"
includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:
(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus
identified therein that such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act, the
prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act; or
(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the
Act, the prospectus included in the Registration Statement;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
2
<PAGE> 3
(b) The Commission has not issued any order preventing or suspending
use of any Preliminary Prospectus. When any Preliminary Prospectus was filed
with the Commission it (i) contained all statements required to be stated
therein in accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto was or is
declared effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the Prospectus or
any Term Sheet that is a part thereof or any amendment or supplement to the
Prospectus is filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or part thereof or such amendment or supplement is not required to be
so filed, when the Registration Statement or the amendment thereto containing
such amendment or supplement to the Prospectus was or is declared effective) and
on the Firm Closing Date and any Option Closing Date (both as hereinafter
defined), the Prospectus, as amended or supplemented at any such time, (i)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the Rule
462(b) Registration Statement has not been declared effective (i) the Company
has filed a Rule 462(b) Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has received confirmation of
its receipt and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated
under the Act or the Commission has received payment of such filing fee.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware and is duly
qualified to transact business as a foreign corporation and is in good standing
under the laws of all other jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), management,
business prospects, net worth or results of operations of the Company (a
"Material Adverse Effect"). The Company does not have any subsidiaries.
(e) The Company has full power (corporate and other) to own or lease
its properties and conduct its business as described in the Registration
Statement and the Prospectus or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus; and the Company has full power (corporate and
other) to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it.
3
<PAGE> 4
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. The Firm Securities and the Option Securities
have been duly authorized and at the Firm Closing Date or the related Option
Closing Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. No holders of
outstanding shares of capital stock of the Company are entitled as such to any
preemptive or other rights to subscribe for any of the Securities, and no holder
of securities of the Company has any right which has not been fully exercised or
waived to require the Company to register the offer or sale of any securities
owned by such holder under the Act in the public offering contemplated by this
agreement.
(g) The capital stock of the Company conforms to the description
thereof contained in the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(h) Except as disclosed in the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), there are no outstanding
(i) securities or obligations of the Company convertible into or exchangeable
for any capital stock of the Company, (ii) warrants, rights or options to
subscribe for or purchase from the Company any such capital stock or any such
convertible or exchangeable securities or obligations, or (iii) obligations of
the Company to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or options.
(i) The financial statements and schedules of the Company included in
the Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company and the results of operations and changes in financial
condition as of the dates and periods therein specified. Such financial
statements and schedules have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved (except as otherwise noted therein). The selected financial data set
forth under the caption "Selected Financial Data" in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present, on the basis stated in the Prospectus (or such Preliminary Prospectus),
the information included therein.
(j) Arthur Andersen LLP ("Andersen"), who have certified certain
financial statements of the Company and delivered their report with respect to
the audited financial statements and schedules included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence the most
recent Preliminary Prospectus) are independent public accountants as required by
the Act and the applicable rules and regulations thereunder.
(k) The execution and delivery of this Agreement have been duly
authorized by the Company and this Agreement has been duly executed and
delivered by the Company, and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(l) No legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject that is
required to be described in the Registration Statement or the Prospectus and is
not described therein (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and no such proceedings have been threatened
against the Company with respect to any of its properties; and no contract or
other
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<PAGE> 5
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that is
not described therein (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or filed as required.
(m) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained, such as may be required under
state securities or blue sky laws and, if the registration statement filed with
respect to the Securities (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, or (ii) conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other agreement
or instrument to which the Company is a party or by which the Company or any of
its properties are bound, or the charter documents or by-laws of the Company, or
any statute or any judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to the Company.
(n) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), the Company has not
sustained any material loss or interference with its business or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding and
there has not been any Material Adverse Effect, except in each case as described
in or contemplated by the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(o) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(p) The Company has not distributed and, prior to the later of (i) the
Closing Date and (ii) the completion of the distribution of the Securities, will
not distribute any offering material in connection with the offering and sale of
the Securities other than the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or other materials, if any permitted by the Act.
(q) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), (i) the Company has not
incurred any material liability or obligation, direct or contingent, nor entered
into any material transaction not in the ordinary course of business; (ii) the
Company has not purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its capital
stock; and (iii) there has not been any material change in the capital stock,
short-term debt or long-term debt of the Company, except in each case as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
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<PAGE> 6
(r) The Company has good and marketable title to all items of real
property and marketable title to all personal property owned by it, in each case
free and clear of any security interests, liens, encumbrances, equities, claims
and other defects, except such as do not materially and adversely affect the
value of such property and do not interfere with the use made or proposed to be
made of such property by the Company, and any real property and buildings held
under lease by the Company are held under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not interfere with the
use made or proposed to be made of such property and buildings by the Company,
in each case except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(s) No labor dispute with the employees of the Company exists or is
threatened or imminent that could result in a Material Adverse Effect, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(t) The Company owns and has the unrestricted right to use all material
patents, patent applications, trademarks, service marks, trade names, licenses,
copyrights, trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or conditional information, systems or procedures),
inventions, designs, processes, works of authorship, computer programs and
technical data and information (collectively herein "intellectual property")
that are necessary for the development, manufacture, operation, sale or use of
products or services sold or provided or proposed to be sold or provided by the
Company, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees, and the
Company has not received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect, except as described in or contemplated by
the Prospectus and any Integrated Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the business in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect, except as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(v) The Company will conduct its operations in a manner that will not
subject it to registration as an investment company under the Investment Company
Act of 1940, as amended, and this transaction will not cause the Company to
become an investment company subject to registration under such Act.
(w) The Company possesses all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct its business, and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect, except as described in or contemplated by the (or, if the
Prospectus is not in
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<PAGE> 7
existence, the most recent Preliminary Prospectus).
(x) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a Material
Adverse Effect on the Company) and has paid all taxes required to be paid by it
and any other assessment, fine or penalty levied against it, to the extent that
any of the foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith or as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(y) The statistical and market-related data included in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) are derived from sources which the Company believes to be reliable
and accurate in all material respects or represents the Company's good faith
estimates that are made on the basis of data derived from such sources.
(z) Each certificate signed by any officer of the Company and delivered
to the Representatives or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
(aa) The Company does not own any shares of stock or any other equity
securities of any corporation or has any equity interest in any firm,
partnership, association or other entity, except as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(bb) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are executed in
accordance with management's general or specific authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (3) access to assets is permitted only in
accordance with management's general or specific authorization; and (4) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(cc) No default exists, and no event has occurred which, with notice or
lapse of time or both, would constitute a default in the due performance of any
indenture, mortgage, deed of trust, lease or other agreement or instrument to
which the Company is a party or by which the Company or any of its properties
are bound or may be affected.
3. Purchase, Sale and Delivery of the Securities. (a) On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $________ per share, the number of Firm Securities set forth opposite
the name of such Underwriter in Schedule 1 hereto. One or more certificates in
definitive form for the Firm Securities that the several Underwriters have
agreed to purchase hereunder, and in such denomination or denominations and
registered in such name or names as the Representatives request upon notice to
the Company at least 48 hours prior to the Firm Closing Date, shall be delivered
by or on behalf of the Company to the Representatives for the respective
accounts of the Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by wire transfer in same-day funds
(the "Wired Funds") to the
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<PAGE> 8
account of the Company. Such delivery of and payment for the Firm Securities
shall be made at the offices of Schulte Roth & Zabel LLP, 900 Third Avenue, New
York, New York 10022 at 9:30 A.M., New York time, on __________, 1999, or at
such other place, time or date as the Representatives and the Company may agree
upon or as the Representatives may determine pursuant to Section 9 hereof, such
time and date of delivery against payment being herein referred to as the "Firm
Closing Date". The Company will make such certificate or certificates for the
Firm Securities available for checking and packaging by the Representatives at
the offices in New York, New York of the Company's transfer agent or registrar
or of Prudential Securities Incorporated at least 24 hours prior to the Firm
Closing Date.
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of this
Section 3. The option granted hereby may be exercised as to all or any part of
the Option Securities from time to time within thirty (30) days after the date
of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading). The Underwriters shall not be under any obligation to
purchase any of the Option Securities prior to the exercise of such option. The
Representatives may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate number of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than two business
days or later than five business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing Date. The time and date
set forth in such notice, or such other time on such other date as the
Representatives and Company may agree upon or as the Representatives may
determine pursuant to Section 9 hereof, is herein called the "Option Closing
Date" with respect to such Option Securities. Upon exercise of the option as
provided herein, the Company shall become obligated to sell to each of the
several Underwriters, and, subject to the terms and conditions herein set forth,
each of the Underwriters (severally and not jointly) shall become obligated to
purchase from the Company, the same percentage of the total number of the Option
Securities as to which the several Underwriters are then exercising the option
as such Underwriter is obligated to purchase of the aggregate number of Firm
Securities, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares. If the option is exercised as to all or
any portion of the Option Securities, one or more certificates in definitive
form for such Option Securities, and payment therefor, shall be delivered on the
related Option Closing Date in the manner, and upon the terms and conditions,
set forth in paragraph (a) of this Section 3, except that reference therein to
the Firm Securities and the Firm Closing Date shall be deemed, for purposes of
this paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively.
(c) The Company hereby acknowledges that the wire transfer by or on
behalf of the Underwriters of the purchase price for any Shares does not
constitute closing of a purchase and sale of the Shares. Only execution and
delivery of a receipt for Shares by the Underwriters indicates completion of the
closing of a purchase of the Shares from the Company. Furthermore, in the event
that the Underwriters wire funds to the Company prior to the completion of the
closing of a purchase of Shares, the Company hereby acknowledges that until the
Underwriters execute and deliver a receipt for the Shares, by facsimile or
otherwise, the Company will not be entitled to the wired funds and shall return
the wired funds to the
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<PAGE> 9
Underwriters as soon as practicable (by wire transfer of same-day funds) upon
demand. In the event that the closing of a purchase of Shares is not completed
and the wire funds are not returned by the Company to the Underwriters on the
same day the wired funds were received by the Company, the Company agrees to pay
to the Underwriters in respect of each day the wire funds are not returned by
it, in same-day funds, interest on the amount of such wire funds in an amount
representing the Underwriters' cost of financing as reasonably determined by
Prudential Securities Incorporated.
(d) It is understood that any of you, individually and not as one of
the Representatives, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such Underwriter
or Underwriters from any of its or their obligations hereunder.
4. Offering by the Underwriters. Upon your authorization of the release
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
5. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required, the
Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. During any time when a prospectus relating to the Securities is required to
be delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission the prospectus, Term Sheet or the amendment referred to in the second
sentence of Section 2(a) hereof, any amendment or supplement to such Prospectus,
Term Sheet or any amendment to the Registration Statement or any Rule 462(b)
Registration Statement of which the Representatives previously have been advised
and furnished with a copy for a reasonable period of time prior to the proposed
filing and as to which filing the Representatives shall not have given their
consent. The Company will prepare and file with the Commission, in accordance
with the rules and regulations of the Commission, promptly upon request by the
Representatives or counsel for the Underwriters, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be necessary or advisable in connection with the distribution of the Securities
by the several Underwriters, and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective by the
Commission as promptly as possible. The Company will advise the Representatives,
promptly after receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and will
provide evidence satisfactory to the Representatives of each such filing or
effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b)
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<PAGE> 10
Registration Statement or any amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, (ii) the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, (iii) the institution,
threatening or contemplation of any proceeding for any such purpose or (iv) any
request made by the Commission for amending the Original Registration Statement
or any Rule 462(b) Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its best efforts
to prevent the issuance of any such stop order and, if any such stop order is
issued, to obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the Securities
for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities, provided, however, that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify the
Representatives thereof and, subject to Section 5(a) hereof, will prepare and
file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) a conformed copy of
the registration statement originally filed with respect to the Securities and
each amendment thereto (in each case including exhibits thereto) or any Rule
462(b) Registration Statement, certified by the Secretary or an Assistant
Secretary of the Company to be true and complete copies thereof as filed with
the Commission by electronic transmission, (ii) to each other Underwriter, a
conformed copy of such registration statement or any Rule 462(b) Registration
Statement and each amendment thereto (in each case without exhibits thereto) and
(iii) so long as a prospectus relating to the Securities is required to be
delivered under the Act, as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as the Representatives may
reasonably request; without limiting the application of clause (iii) of this
sentence, the Company, not later than (A) 6:00 PM, New York City time, on the
date of determination of the public offering price, if such determination
occurred at or prior to 10:00 A.M., New York City time, on such date or (B) 2:00
PM, New York City time, on the business day following the date of determination
of the public offering price, if such determination occurred after 10:00 A.M.,
New York City time, on such date, will deliver to the Underwriters, without
charge, as many copies of the Prospectus and any amendment or supplement thereto
as the Representatives may reasonably request for purposes of confirming orders
that are expected to settle on the Firm Closing Date.
(f) The Company, as soon as practicable, will make generally available
to its
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securityholders and to the Representatives a consolidated earnings statement of
the Company that satisfies the provisions of Section 11(a) of the Act and Rule
158 thereunder.
(g) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will not, directly or indirectly, without the prior
written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock for
a period of 180 days after the date hereof, except (i) pursuant to this
Agreement, (ii) for issuances pursuant to the exercise of employee stock options
outstanding on the date hereof, (iii) pursuant to the Company's dividend
reinvestment plan or (iv) pursuant to the terms of convertible securities of the
Company outstanding on the date hereof.
(i) The Company will not, directly or indirectly, (i) take any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.
(j) The Company will obtain the agreements described in Section 7(f)
hereof prior to the Firm Closing Date.
(k) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning the
substance of, and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) and pay the applicable fees in accordance with Rule 111
promulgated under the Act by the earlier of (i) 10:00 P.M. Eastern time on the
date of this Agreement and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
(m) The Company will cause the Securities to be duly included for
quotation on the Nasdaq Stock Market's National Market (the "Nasdaq National
Market") prior to the Firm Closing Date. The Company will ensure that the
Securities remain included for quotation on the Nasdaq National Market
following the Firm Closing Date.
6. Expenses. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11
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hereof, including all costs and expenses incident to (i) the printing or other
production of documents with respect to the transactions, including any costs of
printing the registration statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b) Registration Statement,
any Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, this Agreement and any blue sky memoranda, (ii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by the Company, (iv) preparation,
issuance and delivery to the Underwriters of any certificates evidencing the
Securities, including transfer agent's and registrar's fees, (v) the
qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Securities, (vii) any
quotation of the Securities on the Nasdaq National Market, (viii) any meetings
with prospective investors in the Securities (other than as shall have been
specifically approved by the Representatives to be paid for by the Underwriters)
and (ix) advertising relating to the offering of the Securities (other than as
shall have been specifically approved by the Representatives to be paid for by
the Underwriters). If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 7 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 11 hereof or because of any failure, refusal or inability on
the part of the Company to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including counsel fees and
disbursements) that shall have been incurred by them in connection with the
proposed purchase and sale of the Securities. The Company shall not in any event
be liable to any of the Underwriters for the loss of anticipated profits from
the transactions covered by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing
Date, to the accuracy of the statements of the Company's officers made pursuant
to the provisions hereof, to the performance by the Company of its covenants and
agreements hereunder and to the following additional conditions:
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, the Original Registration Statement or such amendment
and, if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have been declared effective not later than the
earlier of (i) 11:00 A.M., New York time, on the date on which the amendment to
the registration statement originally filed with respect to the Securities or to
the Registration Statement, as the case may be, containing information regarding
the initial public offering price of the Securities has been filed with the
Commission and (ii) the time confirmations are sent or given as specified by
Rule 462(b)(2), or with respect to the Original Registration Statement, or such
later time and date as shall have been consented to by the Representatives; if
required, the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rules 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the
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knowledge of the Company or the Representatives, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Orrick, Herrington & Sutcliffe, LLP, counsel for the Company,
to the effect that:
(i) the Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified does not amount to a Material Adverse
Effect;
(ii) the Company has corporate power to own or lease its
properties and conduct its business as described in the Registration
Statement and the Prospectus, and the Company has the corporate power
to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it;
(iii) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued shares
of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in
compliance with all applicable federal and state securities laws and
were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities; the Firm
Securities have been duly authorized by all necessary corporate action
of the Company and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be validly issued, fully
paid and nonassessable; the Securities have been duly included for
trading on the Nasdaq National Market; no holders of outstanding shares
of capital stock of the Company are entitled as such to any preemptive
or other rights to subscribe for any of the Securities; and no holders
of securities of the Company are entitled to have such securities
registered under the Registration Statement;
(iv) the statements set forth under the headings "Description
of Capital Stock" and "Shares Eligible for Future Sale" in the
Prospectus, insofar as such statements purport to summarize certain
provisions of the capital stock of the Company, provide a fair summary
of such provisions; and the statements set forth under the headings
"Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," "Management,"
"Certain Transactions," "Principal Stockholders" and "Legal
Proceedings" in the Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, provide a fair summary of such legal matters, documents and
proceedings;
(v) the execution and delivery of this Agreement have been
duly authorized by all necessary corporate action of the Company and
this Agreement has been duly executed and delivered by the Company;
(vi) (A) no legal or governmental proceedings are pending to
which the Company is a party or to which the property of the Company is
subject that are required to be described in the Registration Statement
or the Prospectus and are not described
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<PAGE> 14
therein, and, to the best knowledge of such counsel, no such
proceedings have been threatened against the Company or with respect to
any of its properties and (B) no contract or other document is required
to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not
described therein or filed as required;
(vii) the issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance
by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as
have been obtained and such as may be required under the Federal
securities laws, state securities or blue sky laws, or (B) conflict
with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, lease or other agreement or instrument, known to such
counsel, to which the Company is a party or by which the Company or any
of its properties are bound, or the charter documents or by-laws of the
Company, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator known to such counsel and applicable to the Company;
(viii) the Registration Statement is effective under the Act;
any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, pursuant to Rules 434 and 424(b) has been
made in the manner and within the time period required by Rules 434 and
424(b); and no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to
the best knowledge of such counsel, are contemplated by the Commission;
(ix) the Registration Statement originally filed with respect
to the Securities and each amendment thereto, any Rule 462(b)
Registration Statement and the Prospectus (in each case, other than the
financial statements and other financial information contained therein,
as to which such counsel need express no opinion) comply as to form in
all material respects with the applicable requirements of the Act and
the rules and regulations of the Commission thereunder;
(x) if the Company elects to rely on Rule 434, the Prospectus
is not "materially different", as such term is used in Rule 434, from
the prospectus included in the Registration Statement at the time of
its effectiveness or an effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant to
Rule 430A);
(xi) the Company is not an investment company, as such term is
defined in the Investment Company Act of 1940, as amended, and this
transaction will not cause the Company to become an investment company,
subject to registration under such Act;
(xii) the form of stock certificate for the Company's Firm
Securities conforms to the requirements of the Delaware General
Corporation Law, the Company's Certificate of Incorporation and ByLaws
and applicable Nasdaq requirements and has been duly authorized and
approved by the Board of Directors of the Company.
Such counsel shall also state that they have no reason to believe that
the Registration
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<PAGE> 15
Statement, as of its effective date, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or the date of such opinion, included or includes any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Schulte Roth & Zabel LLP, counsel for the Underwriters, with
respect to the issuance and sale of the Firm Securities, the Registration
Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(d) The Representatives shall have received from Andersen a letter or
letters dated, respectively, the date hereof and the Firm Closing Date, in form
and substance satisfactory to the Representatives, to the effect that:
(i) they are independent accountants with respect to the
Company within the meaning of the Act and the applicable rules and
regulations thereunder;
(ii) in their opinion, the audited financial statements and
schedules examined by them and included in the Registration Statement
and the Prospectus comply in form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(iii) on the basis of carrying out certain specified
procedures (which do not constitute an examination made in accordance
with generally accepted auditing standards) that would not necessarily
reveal matters of significance with respect to the comments set forth
in this paragraph (iii), a reading of the minute books of the
shareholders, the board of directors and any committees thereof of the
Company and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters, nothing came to
their attention that caused them to believe that (a) at a specific date
not more than five business days prior to the date of such letter,
there was any change in the capital stock, increase in long-term debt
or decrease in net current assets or stockholders' equity of the
Company, in each case compared with amounts shown on the December 31,
1998 balance sheet included in the Registration Statement and the
Prospectus, or for the period from January 1, 1999 to such specified
date there were any decreases, as compared with the corresponding
period in the prior year, in revenues, net income, net income before
income taxes or total or per share amounts of net income of the
Company, except in all instances for changes, decreases or increases
set forth in such letter; and
(iv) they have carried out certain specified procedures, not
constituting an
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<PAGE> 16
audit, with respect to certain amounts, percentages and financial
information that are derived from the general accounting records of the
Company and are included in the Registration Statement and the
Prospectus under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Capitalization," "Dilution," "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," "Management," "Principal
Stockholders," "Certain Transactions," and "Shares Eligible for Future
Sale" and have compared such amounts, percentages and financial
information with such records of the Company and with information
derived from such records and have found them to be in agreement,
excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(e) The Representatives shall have received a certificate, dated the
Firm Closing Date, of David Friedensohn and Robert Yingling, to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing
Date, does not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented as of the
Firm Closing Date, does not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and the Company has performed all covenants
and agreements and satisfied all conditions on its part to be performed
or satisfied at or prior to the Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to
the best of the Company's knowledge, are contemplated by the
Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
the Company has not sustained any material loss or interference with
its business or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding, and there has not been
any Material Adverse Effect, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or
supplement thereto).
(f) The Representatives shall have received from each person who is a
director or
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<PAGE> 17
officer of the Company or who owns outstanding shares of Common Stock an
agreement to the effect that such person will not, directly or indirectly,
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant of an option to
purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of 180 days after the date of this Agreement.
(g) On or before the Firm Closing Date, the Representatives and counsel
for the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
(h) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934 (the "Exchange Act"), against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by
the Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or (B) any application or other
document, or any amendment or supplement thereto, executed by the
Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to qualify the
Securities under the securities or blue sky laws thereof or filed with
the Commission or any securities association or securities exchange
(each an "Application"),
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any
17
<PAGE> 18
amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements
therein not misleading or
(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials provided by
the Company or based upon written information furnished by or on behalf
of the Company including, without limitation, slides, videos, films,
tape recordings, used in connection with the marketing of the
Securities, including without limitation, statements communicated to
securities analysts employed by the Underwriters,
and will reimburse, as incurred, each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Application in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein; and
provided, further, that the Company will not be liable to any Underwriter or any
person controlling such Underwriter with respect to any such untrue statement or
omission made in any Preliminary Prospectus that is corrected in the Prospectus
(or any amendment or supplement thereto) if the person asserting any such loss,
claim, damage or liability purchased Securities from such Underwriter but was
not sent or given a copy of the Prospectus (as amended or supplemented) at or
prior to the written confirmation of the sale of such Securities to such person
in any case where such delivery of the Prospectus (as amended or supplemented)
is required by the Act, unless such failure to deliver the Prospectus (as
amended or supplemented) was a result of noncompliance by the Company with
Section 5(d) and (e) of this Agreement. This indemnity agreement will be in
addition to any liability which the Company may otherwise have. The Company will
not, without the prior written consent of the Underwriter or Underwriters
purchasing, in the aggregate, more than fifty percent (50%) of the Securities,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not any such Underwriter or any person who
controls any such Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling persons
from all liability arising out of such claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
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<PAGE> 19
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein: and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company or any such director, officer
or controlling person in connection with investigating or defending any such
loss, claim, damage, liability or any action in respect thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representatives in the case of
paragraph (a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the consent
of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses,
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<PAGE> 20
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Securities or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the Underwriters. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters, the parties' relative intents,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to above in this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (d), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall
have the same rights to contribution as the Company.
9. Default of Underwriters. If one or more Underwriters default in
their obligations to purchase Firm Securities or Option Securities hereunder and
the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time
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<PAGE> 21
hereunder, and if arrangements satisfactory to the Representatives are not made
within 36 hours after such default for the purchase by other persons (who may
include one or more of the non-defaulting Underwriters, including the
Representatives) of the Securities with respect to which such default occurs,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company other than as provided in Section 10
hereof. In the event of any default by one or more Underwriters as described in
this Section 9, the Representatives shall have the right to postpone the Firm
Closing Date or the Option Closing Date, as the case may be, established as
provided in Section 3 hereof for not more than seven business days in order that
any necessary changes may be made in the arrangements or documents for the
purchase and delivery of the Firm Securities or Option Securities, as the case
may be. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 9. Nothing herein shall
relieve any defaulting Underwriter from liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers and the
several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (i) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated with respect to
the Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing Date or such Option Closing Date,
respectively,
(i) the Company shall have, in the sole judgment of the
Representatives, sustained any material loss or interference with its
business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding or there shall have
been any material adverse change, or any development involving a
prospective material adverse change (including without limitation a
change in management or control of the Company), in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(ii) trading in the Common Stock shall have been suspended by
the Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or Nasdaq National Market
shall have been suspended or minimum or maximum prices shall have been
established on either such exchange or market system;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between
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<PAGE> 22
the United States and any foreign power, (B) an outbreak or escalation
of any other insurrection or armed conflict involving the United States
or (C) any other calamity or crisis or material adverse change in
general economic, political or financial conditions having an effect on
the U.S. financial markets that, in the sole judgment of the
Representatives, makes it impractical or inadvisable to proceed with
the public offering or the delivery of the Securities as contemplated
by the Registration Statement, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
12. Information Supplied by Underwriters. The statements set forth
under the heading "Underwriting" in any Preliminary Prospectus or the Prospectus
(to the extent such statements relate to the Underwriters) constitute the only
information furnished by any Underwriter through the Representatives to the
Company for the purposes of Sections 2(b) and 8 hereof. The Underwriters confirm
that such statements (to such extent) are correct.
13. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; and if sent to the Company, shall be delivered or sent by
mail, telex or facsimile transmission and confirmed in writing to the Company at
19 Fulton Street, 5th Floor, New York, New York 10038, Attention: Robert
Yingling.
14. Successors. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company contained in Section 8 of this Agreement shall
also be for the benefit of any person or persons who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
and (ii) the indemnities of the Underwriters contained in Section 8 of this
Agreement shall also be for the benefit of the directors of the Company, the
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act. No purchaser of Securities from any
Underwriter shall be deemed a successor because of such purchase.
15. Applicable Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, the Company accepts for itself and
in connection with its properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non conveniens and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. The Company designates and appoints
____________, 19
22
<PAGE> 23
Fulton Street, 5th Floor, New York, New York 10038, and such other persons as
may hereafter be selected by the Company irrevocably agreeing in writing to so
serve, as its agent to receive on its behalf, service of all process in any such
proceedings, in any such court, such service being hereby acknowledged by the
Company to be effective and binding service in every respect. A copy of any such
process so served shall be mailed by registered mail to the Company at its
address provided in Section 13 hereof; provided, however, that, unless otherwise
provided by applicable law, any failure to mail such copy shall not affect the
validity of service of such process. If any agent appointed by the Company
refuses to accept service, the Company hereby agrees that service of process
sufficient for personal jurisdiction in any action against the Company in the
State of New York may be made by registered or certified mail, return receipt
requested, to the Company at its address provided in Section 13 hereof, and the
Company hereby acknowledges that such service shall be effective and binding in
every respect. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of any Underwriter to
bring proceedings against the Company in the courts of any other jurisdiction.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and each
of the several Underwriters.
Very truly yours,
BIGSTAR ENTERTAINMENT INC.
By
Name:
Title:
23
<PAGE> 24
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
[Insert names of any co-managers]
By PRUDENTIAL SECURITIES INCORPORATED
By
Name: Jean-Claude Canfin
Title: Managing Director
For itself and on behalf of the Representatives.
24
<PAGE> 25
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Underwriter Number of Firm
Securities to
be Purchased
------------
<S> <C>
Prudential Securities Incorporated.......
[insert names of other Underwriters]
---------------
Total ..............
</TABLE>
25
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
BIGSTAR ENTERTAINMENT, INC.
ARTICLE I
The name of the corporation is BigStar Entertainment, Inc.
ARTICLE II
The address of the registered office of the corporation in the
State of Delaware is 15 East North Street, Dover, Delaware 19901. The name of
its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the
corporation has authority to issue is Fifteen Million (15,000,000) shares,
consisting of two classes: Ten Million (10,000,000) shares of Common Stock,
$0.001 par value per share, and Five Million (5,000,000) shares of Preferred
Stock, $0.001 par value per share.
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article IV, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series and the voting
powers thereof, full or limited, and to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights to priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
<PAGE> 2
(d) Whether that series shall have conversion privileges, and if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and
if so, the terms and conditions of such redemption, including the date or date
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(h) Any other relative rights, preferences and limitations of that
series.
Except as otherwise expressly provided in any Certificate of
Designation designating any series of Preferred Stock pursuant to the foregoing
provisions of this Article IV, any new series of Preferred Stock may be
designated, fixed and determined as provided herein by the Board of Directors
without approval of the holders of Common Stock or the holders of Preferred
Stock, or any series thereof, and any such new series may have powers,
preferences and rights, including, without limitation, voting rights, dividend
rights, liquidation rights, redemption rights and conversion rights, senior to,
junior to or pari passu with the rights of the Common Stock, the Preferred
Stock, or any future class or series of Preferred Stock or Common Stock.
ARTICLE V
The Board of Directors of the corporation shall have the power
to adopt, amend or repeal Bylaws of the corporation, but the stockholders may
make additional Bylaws and may alter or repeal any Bylaw whether adopted by them
or otherwise.
ARTICLE VI
Election of directors need not be by written ballot except and
to the extent the Bylaws of the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the
corporation shall be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director. Without
limiting the effect of the preceding sentence, if the Delaware General
Corporation Law is hereafter amended to authorized the further elimination or
limitation of the liability of a director, then the liability of a director of
the corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law, as so amended.
2
<PAGE> 3
Neither any amendment nor repeal of this Article VII, nor the
adoption of any provision of this Certificate of Incorporation inconsistent with
this Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
The name and mailing address of the incorporator is as
follows:
Mr. David Friedensohn
201 West 92nd Street, Apt. 3B
New York, NY 10025
The undersigned incorporator hereby acknowledges that the
foregoing certificate is his act and deed and that the facts stated herein are
true.
Dated: February 26, 1998
/s/ David Friedensohn
---------------------------------
David Friedensohn, Incorporator
3
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BIGSTAR ENTERTAINMENT, INC.
The undersigned, for the purpose of increasing the authorized capital
stock of BIGSTAR ENTERTAINMENT, INC., a Delaware corporation (the
"Corporation"), and effectuating a four-for-one stock split of the capital stock
of the Corporation, does hereby certify that this Certificate of Amendment of
Certificate of Incorporation has been made and effected in accordance with
Section 242 of the General Corporation Law of the State of Delaware and that:
FIRST: The name of the corporation is BIGSTAR ENTERTAINMENT, INC.
SECOND: Effective immediately, the first paragraph of Article IV of the
Corporation's Certificate of Incorporation is hereby amended and restated as
follows:
The total number of shares of stock which the corporation has
authorized to issue is 50,000,000 shares, consisting of two classes:
40,000,000 shares of Common Stock, $0.001 par value per share, and
10,000,000 shares of Preferred Stock, $0.001 par value per share. Upon
amendment of this article to read as herein set forth, each outstanding
share is split and converted into four (4) shares.
* * * * *
<PAGE> 2
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed as of the 30th day of
April, 1999, by its Chief Executive Officer, who hereby affirms and
acknowledges, under penalty of perjury, that this Certificate is the act and
deed of the Corporation and that the facts stated herein are true.
BIGSTAR ENTERTAINMENT, INC.
By: /s/ David Friedensohn
--------------------------
David Friedensohn
Chief Executive Officer
<PAGE> 3
CERTIFICATION OF BYLAWS
OF
BIGSTAR ENTERTAINMENT, INC.
(A DELAWARE CORPORATION)
KNOW ALL BY THESE PRESENTS:
I, David Levitsky, certify that I am Secretary of BigStar
Entertainment, Inc., a Delaware corporation (the "Company"), that I am duly
authorized to make and deliver this certification, that the attached Bylaws are
a true and correct copy of the Bylaws of the Company in effect as of the date of
this certificate.
Dated: March 3, 1998
/s/ David Levitsky
--------------------------------
David Levitsky, Secretary
<PAGE> 1
BYLAWS
OF
BIGSTAR ENTERTAINMENT, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1.1 Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
SECTION 1.2 Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors, or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority include the power to call such
meetings, but such special meetings may not be called by any other person or
persons.
SECTION 1.3 Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by applicable law or the Certificate of
Incorporation, the written notice of any meeting shall be given not less than
ten (10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
Corporation.
SECTION 1.4 Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
SECTION 1.5 Quorum. At each meeting of stockholders, except where
otherwise provided by law or the Certificate of Incorporation or these Bylaws,
the holders of a majority of the outstanding shares of stock entitled to vote at
the meeting, present in person or by proxy, shall constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 1.4 of these
Bylaws until a quorum shall attend. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of any corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
<PAGE> 2
SECTION 1.6 Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in the absence of such person, the
President, or in his or her absence by a Vice President, or in the absence of
the foregoing persons, by a chairman designated by the Board of Directors, or in
the absence of such designation, by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 1.7 Voting; Proxies. Unless otherwise provided by law or the
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. Unless otherwise required by
law, voting at meetings of stockholders need not be by written ballot and need
not be conducted by inspectors unless the Board of Directors, or holders of a
majority of the outstanding shares of all classes of stock entitled to vote
thereon present in person or by proxy at such meeting shall so determine. At all
meetings of stockholders for the election of directors a plurality of the votes
cast shall be sufficient to elect. All other elections and questions shall,
unless otherwise provided by law or by the Certificate of Incorporation or these
Bylaws, be decided by the vote of the holders of a majority of the outstanding
shares of stock entitled to vote thereon present in person or by proxy at the
meeting.
SECTION 1.8 Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date such record date is fixed and shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action. If no record date is fixed,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given. The record date for any other
purpose other than stockholder action by written consent shall be at the close
of business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent shall, by
written notice to the Secretary, request the Board of Directors to fix a record
date.
2
<PAGE> 3
The Board of Directors shall promptly, but in all events within ten (10) days
after the date on which such a request is received, adopt a resolution fixing
the record date. If no record date has been fixed by the Board of Directors
within ten (10) days of the date on which such a request is received, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
SECTION 1.9 List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. The stock ledger
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list of stockholders or the books of the Corporation, or
to vote in person or by proxy at any meeting of stockholders.
SECTION 1.10 Inspectors of Elections; Opening and Closing the Polls.
(a) If required by the Delaware General Corporation Law, the
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at the meeting and make a written
report thereof. The procedures, oath, duties, and determinations with respect to
inspectors shall be as provided under the Delaware General Corporation Law.
(b) The chairman of any meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
SECTION 1.11 Action by Written Consent of Stockholders. Unless
otherwise restricted by the Certificate of Incorporation, any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
3
<PAGE> 4
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 Number; Qualifications. The Board of Directors shall
consist of one or more members, the number thereof to be determined from time to
time by resolution of the Board of Directors. The initial number of directors
shall be three (3), and thereafter shall be fixed from time to time by
resolution of the Board of Directors. Directors need not be stockholders.
SECTION 2.2 Election; Resignation; Removal; Vacancies. The Board of
Directors shall initially consist of the persons elected as such by the
incorporator or named in the Corporation's Certificate of Incorporation. At the
first annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect Directors to replace those Directors whose terms then
expire. Any Director may resign at any time upon written notice to the
Corporation. Any vacancy occurring in the Board of Directors may be filled by
the affirmative vote of a majority of the Board, although such majority is less
than a quorum, or by a plurality of the votes cast at a meeting of stockholders,
and each Director so elected shall hold office until the expiration of the term
of office of the Director whom he or she has replaced.
SECTION 2.3 Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine. Notice
of regular meetings need not be given if the date, times and places thereof are
fixed by resolution of the Board of Directors.
SECTION 2.4 Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or a
majority of the members of the Board of Directors then in office and may be held
at any time, date or place, within or without the State of Delaware, as the
person or persons calling the meeting shall fix. Notice of the time, date and
place of such meeting shall be given, orally or in writing, by the person or
persons calling the meeting to all directors at least four (4) days before the
meeting if the notice is mailed, or at least twenty-four (24) hours before the
meeting if such notice is given by telephone, hand delivery, telegram, telex,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
SECTION 2.5 Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
bylaw shall constitute presence in person at such meeting.
SECTION 2.6 Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the whole Board shall constitute a quorum for
the transaction of business. Except as otherwise provided in these Bylaws, or in
the Certificate of Incorporation or required by law, the vote of a majority of
the directors present shall be the act of the Board of Directors.
SECTION 2.7 Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his or her absence by
the Vice Chairman of the Board, if any, or in his or her absence by the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
4
<PAGE> 5
SECTION 2.8 Written Action by Directors. Unless otherwise restricted by
the Certificate of Incorporation, any action required or permitted to be taken
at any meeting of the Board of Directors, or of any committee thereof, may be
taken without a meeting if all members of the Board or such committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
SECTION 2.9 Powers. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
SECTION 2.10 Compensation of Directors. Directors, as such, may
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation their
services as members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
SECTION 3.1 Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in Section 151(a) of the
General Corporation Law, fix any of the preferences or rights of such shares,
except voting rights of the shares), adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of
dissolution, or amending these Bylaws; and, unless the resolution expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
SECTION 3.2 Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for conduct of its business. In the absence of such rules each committee
shall conduct its business in the same manner as the Board of Directors conducts
its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
SECTION 4.1 Executive Officers; Election; Qualifications; Term of
Office; Resignation; Removal; Vacancies. The Board of Directors shall choose a
President and Secretary, and it may, if it
5
<PAGE> 6
so determines, choose a Chairman of the Board and a Vice Chairman of the Board
from among its members. The Board of Directors may also choose one or more Vice
Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers. Each such officer shall hold office until the first
meeting of the Board of Directors after the annual meeting of stockholders next
succeeding this election, and until his or her successor is elected and
qualified or until his or her earlier resignation or removal. Any officer may
resign at any time upon written notice to the Corporation. The Board of
Directors may remove any officer with or without cause at any time, but such
removal shall be without prejudice to the contractual rights of such officer, if
any, with the Corporation. Any number of offices may be held by the same person.
Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled for the unexpired portion of the term by the
Board of Directors at any regular or special meeting.
SECTION 4.2 Powers and Duties of Executive Officers. The officers of
the Corporation shall have such powers and duties in the management of the
Corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective offices, subject to
the control of the Board of Directors. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
or her duties.
SECTION 4.3 Compensation. The salaries of all officers and agents of
the Corporation shall be fixed from time to time by the Board of Directors or by
a committee appointed or officer designated for such purpose, and no officer
shall be prevented from receiving such compensation by reason of the fact that
he is also a director of the Corporation.
ARTICLE V
STOCK
SECTION 5.1 Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by him or her in the Corporation. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent, or registrar at
the date of issue.
SECTION 5.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or his or her legal representative, to agree to
indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
SECTION 5.3 Other Regulations. The issue, transfer, conversion and
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1 Right to Indemnification. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended in a manner more favorable to
indemnitees, any person (an "Indemnitee") who was or is made or is threatened to
be made a party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "proceeding"), by
reason of the fact that he, she, or a person for whom he or she is the legal
representative, is or was a director or officer of the Corporation or, while a
director or officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against all liability
and loss suffered and expenses (including attorneys' fees) reasonably incurred
by such Indemnitee. Notwithstanding the preceding sentence, except as otherwise
provided in Section 6.3, the Corporation shall be required to indemnify an
Indemnitee in connection with a proceeding (or part thereof) commenced by such
Indemnitee only if the commencement of such proceeding (or part thereof) by the
Indemnitee was authorized by the Board of Directors of the Corporation.
SECTION 6.2 Prepayment of Expenses. The Corporation shall pay the
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should ultimately be
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise; and provided, further, that the Corporation shall not
be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
SECTION 6.3 Claims. If a claim for indemnification or payment of
expenses under this Article VI is not paid in full within sixty (60) days after
a written claim therefor by the Indemnitee has been received by the Corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
SECTION 6.4 Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
SECTION 6.5 Other Sources. The Corporation's obligation, if any, to
indemnify or to advance expenses to any Indemnitee who was or is serving at its
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit
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entity shall be reduced by any amount such Indemnitee may collect as
indemnification or advancement of expenses from such other corporation,
partnership, joint venture, trust, enterprise or nonprofit enterprise.
SECTION 6.6 Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
SECTION 6.7 Other Indemnification and Prepayment of Expenses. This
Article VI shall not limit the right of the Corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by appropriate corporate action.
SECTION 6.8 Indemnification Contracts. The Board of Directors is
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
SECTION 6.9 Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
SECTION 6.10 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her and incurred by him or her or
on his or her behalf in any such capacity, or arising out of his or her status
as such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Article VI.
SECTION 6.11 Savings Clause. If this Article VI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director and officer of the
Corporation as to costs, charges and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article VI that shall not have been
invalidated and to the full extent permitted by applicable law.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
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SECTION 7.2 Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
SECTION 7.3 Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
SECTION 7.4 Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof which authorizes
the contract or transaction, or solely because his or her or their votes are
counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof,
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
SECTION 7.5 Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of any information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
SECTION 7.6 Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
SECTION 7.7 Certification of Incorporation Governs. In the event of any
conflict between the provisions of the Corporation's Certificate of
Incorporation and these Bylaws, the provisions of the Certificate of
Incorporation shall govern.
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SECTION 7.8 Severability. If any provision of these Bylaws shall be
held to be invalid, illegal, unenforceable or in conflict with the provisions of
the Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall remain
in full force and effect.
SECTION 7.9 Amendments. Stockholders of the Corporation holding a
majority of the Corporation's outstanding voting stock shall have power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
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BIGSTAR ENTERTAINMENT, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of this --
day of ---------, 1999, by and between BigStar Entertainment, Inc., a Delaware
corporation (the "Company") and ----------------------- ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for its directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, the Indemnitee, as a director of the Company, does not regard
the current protection available as adequate under the present circumstances,
and the Indemnitee and other directors, officers, employees, agents and
fiduciaries of the Company may not be willing to continue to serve in such
capacities without additional protection;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company, wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify Indemnitee
to the fullest extent provided under the provisions of the Company's Certificate
of Incorporation, the Company's Bylaws, and to the fullest extent permitted by
law if Indemnitee was or is or becomes a party to or witness or other
participant in, or is threatened to be made a party to or witness or other
participant in, any threatened, pending or completed action, suit, claim,
hearing, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that Indemnitee in good faith believes might lead to
the institution of any such action, suit, claim, hearing, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a ""Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of
<PAGE> 2
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity (hereinafter an "Indemnifiable Event") against any and all
expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "Expenses"), including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than thirty (30) days after written
demand by Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Indemnitee shall initially be presumed in all
cases to be entitled to indemnification pursuant to the terms hereof, and
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty or
perjury that such fact is true and that, unless the Reviewing Party shall
deliver to Indemnitee, in accordance with the provisions of this Section 1(b),
written notice that Indemnitee is not entitled to indemnification within twenty
(20) calendar days of the Company's receipt of Indemnitee's initial request for
Indemnification, such determination shall conclusively be deemed to have been
made in favor of the Indemnitee's request for indemnification. Notwithstanding
the foregoing, (i) the obligations of the Company under Section 1(a) shall be
subject to the condition that the Reviewing Party (as described in Section 10(f)
hereof) shall not have determined (in a written opinion, in any case in which
the Independent Legal Counsel referred to in Section 1(c) hereof is involved)
that Indemnitee would not be permitted to be indemnified under applicable law,
and (ii) the obligation of the Company to make an advance payment of Expenses to
Indemnitee pursuant to Section 2(a) (an "Expense Advance") shall be subject to
the condition that, if, when and to the extent that the Reviewing Party
determines that Indemnitee would not be permitted to be so indemnified under
applicable law, the Company shall be entitled to be reimbursed by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for any Expense Advance shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control (as defined
in Section 10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel referred to in Section
1(c) hereof. If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be
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indemnified in whole or in part under applicable law, Indemnitee shall the right
to commence litigation seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
including the legal or factual bases therefor, and the Company hereby consents
to service of process and to appear in any such proceeding. Any determination by
the Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
the Company shall seek legal advice only from Independent Legal Counsel (as
defined in Section 10(d) hereof) selected by Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld). Such counsel, among
other things, shall render its written opinion to the Company and Indemnitee as
to whether and to what extent Indemnitee would be permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of any
Independent Legal Counsel referred to above and to fully indemnify such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
(d) Establishment of Trust. In the event of a Potential Change in Control
(as defined in Section 10(e) hereof), the Company shall, upon written request by
Indemnitee, create a trust for the benefit of Indemnitee and, from time to time
upon written request of Indemnitee, shall fund such trust in an amount
sufficient to satisfy any and all Expenses reasonably anticipated at the time of
each such request to be incurred in connection with investigating, preparing for
and defending any Claim relating to an Indemnifiable Event, and any and all
judgments, fines, penalties and settlement amounts of any and all Claims
relating to an Indemnifiable Event from time to time actually paid or claimed,
reasonably anticipated or proposed to be paid. The amount or amounts to be
deposited in the trust pursuant to the foregoing funding obligation shall be
determined by the Reviewing Party, in any case in which the Independent Legal
Counsel referred to above is involved. The terms of the trust shall provide that
upon a Change in Control (i) the trust shall not be revoked or the principal
thereof invaded, without the written consent of Indemnitee, (ii) the trustee
shall advance, within five (5) business days of a request by Indemnitee, any and
all Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the trust
under the circumstances under which Indemnitee would be required to reimburse
the Company under Section 1(b) of this Agreement), (iii) the trust shall
continue to be funded by the Company in accordance with the funding obligation
set forth above, (iv) the trustee shall promptly pay to Indemnitee all amounts
for which Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise, and (v) all unexpended funds in such trust shall revert
to the Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that Indemnitee has been fully
indemnified under the terms of this Agreement. The trustee shall be chosen by
Indemnitee. Nothing in this Section 1(d) shall relieve the Company of any of its
obligations under this Agreement.
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(e) Mandatory Payment of Expenses. Notwithstanding any other provision
of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise,
including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suit, proceeding, inquiry or
investigation referred to in Section (1)(a) hereof or in the
defense of any claim, issue or matter therein, Indemnitee shall be
indemnified against all Expenses incurred by Indemnitee in
connection therewith.
(f) Written Assurance. Notwithstanding anything to the contrary
contained herein, the Company shall not effect any Change in
Control of the Company, unless the surviving entity agrees in
writing to assume all of the Company's obligations under this
Agreement.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than
five (5) days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to Indemnitee's right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
the termination of any claim, action, suit or proceeding, by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure of the Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief. In connection with
any determination by the Reviewing Party or otherwise as to whether the
Indemnitee is entitled to be indemnified hereunder, the burden of proof shall
be on the Company to establish that Indemnitee is not so entitled.
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(d) Notice to Insurers. If, at the time of the receipt by the Company of a
notice of a Claim pursuant to Section 2(b) hereof, the Company has liability
insurance in effect which may cover such Claim, the Company shall give prompt
notice of the commencement of such Claim to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be obligated
hereunder to pay the Expenses of any action, suit, proceeding, inquiry or
investigation, the Company, if appropriate, shall be entitled to assume the
defense of such action, suit, proceeding, inquiry or investigation with counsel
approved by Indemnitee, upon the delivery to Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same action, suit,
proceeding, inquiry or investigation; provided that, (i) Indemnitee shall have
the right to employ Indemnitee's counsel in any such action, suit, proceeding,
inquiry or investigation at Indemnitee's expense and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
action, suit, proceeding, inquiry or investigation, then the fees and expenses
of Indemnitee's counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary,
it is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statue or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement shall be
in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though Indemnitee may have ceased
to serve in such capacity.
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4. No Duplication of Payments.
The Company shall not be liable under this Agreement to make any payment in
connection with any action, suit, proceeding, inquiry or investigation made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any Company insurance policy, the Company's Certificate of
Incorporation, its Bylaw or otherwise from a Company source) of the amounts
otherwise indemnifiable hereunder.
5. Partial Indemnification.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of Expenses in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit, proceeding, inquiry or investigation, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgement.
Both the Company and Indemnitee acknowledge that in certain instances,
Federal law or applicable public policy may prohibit the Company from
indemnifying its directors, officers, employees, agents or fiduciaries under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
7. Liability Insurance.
To the extent the Company maintains liability insurance applicable to
directors, officers, employees, agents or fiduciaries, Indemnitee shall be
covered by such policies in such a manner as to provide Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if Indemnitee is a director; or of the Company's officers,
if Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
8. Exceptions.
Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect to
proceedings brought to establish or enforce
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a right to indemnification under this Agreement or any other agreement or
insurance policy or under the Company's Certificate of Incorporation or Bylaws
now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in
specific cases if the Board of Directors has approved the initiation or bringing
of such suit, or (iii) as otherwise as required under Section 145 of the General
Corporation Law of the State of Delaware, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advance expense
payment or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of
1934, as amended, or any similar successor statute.
9. Period of Limitations.
No legal action shall be brought and no cause of action shall be asserted
by or in the right of the Company against Indemnitee, Indemnitee's estate,
spouse, heirs, executors or personal or legal representatives after the
expiration of one year from the date of accrual of such cause of action, and
any claim or cause of action of the Company shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
one-year period; provided, however, that if any shorter period of limitations
is otherwise applicable to any such cause of action, such shorter period shall
govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting
or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the
7
<PAGE> 8
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries.
(c) For purposes of this Agreement a "Change in Control" shall be deemed to
have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the Company representing
more than 20% of the total voting power represented by the Company's then
outstanding Voting Securities, (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all of substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall mean
an attorney or firm of attorneys, selected in accordance with the provisions of
Section 1(c) hereof, who shall not have otherwise performed services for the
Company or Indemnitee within the last three years (other than with respect to
matters concerning the rights of Indemnitee under this Agreement, or of other
indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Potential Change in Control" shall
be deemed to have occurred if: (i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in Control,
(ii) any person (including the Company) publicly announces an intention to take
or to consider taking actions which, if consummated, would constitute a Change
in Control, or (iii) any person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such capacity
or a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company, who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 9.5% or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his or her
beneficial ownership of such securities by five percentage points (5%) or more
over the percentage so owned by such person; or (iv) the Board of Directors
adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
8
<PAGE> 9
(f) For purposes of this Agreement, a "Reviewing Party" shall mean any
appropriate person or body consisting of a member or members of the Company's
Board of Directors or any other person or body appointed by the Board of
Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.
(g) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, assigns,
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company
shall require and cause any successor (whether direct or indirect by purchase,
merger, consolidation or otherwise) to all, substantially all, or a substantial
part, of the business and/or assets of the Company, by written agreement in form
and substance satisfactory to Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. This
Agreement shall continue in effect regardless of whether Indemnitee continues to
serve as a director or officer of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees.
In the event that any action is instituted by Indemnitee under this
Agreement or under any liability insurance policies maintained by the Company
to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be
entitled to be paid all Expenses incurred by Indemnitee with respect to such
action, regardless of whether Indemnitee is ultimately successful in such
action, and shall be entitled to the advancement of Expenses with respect to
such action, unless as a part of such action the court of competent
jurisdiction over such action determines that each of the material assertions
made by Indemnitee as a basis for such action were not made in good faith or
were frivolous. In the event of an action instituted by or in the name of the
Company under this Agreement to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred
with respect to Indemnitee's counterclaims and cross-claims made in such
action), and shall be entitled to the advancement Expenses with respect to such
action, unless as a part of such action the court having jurisdiction over such
action determines that each of Indemnitee's material defenses to such action
were made in bad faith or were frivolous.
14. Notice.
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered
by hand and receipted for by
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<PAGE> 10
the party addressee, on the date of such receipt, or (ii) if mailed by domestic
certified or registered mail with postage prepaid, on the third business day
after the date postmarked. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.
15. Consent to Jurisdiction.
The Company and Indemnitee each hereby irrevocably consent to the
jurisdiction of the courts of the State of Delaware for all purposes in
connection with any action or proceeding which arises out of or relates to this
Agreement and agree that any action instituted under this Agreement shall be
commenced, prosecuted and continued only in the courts of the State of
Delaware, which shall be the exclusive and only proper forum for adjudicating
such a claim.
16. Severability.
The provisions of this Agreement shall be severable in the event that any
of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including, without
limitations, each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
17. Choice of Law.
This Agreement shall be governed by and its provisions construed and
enforced in accordance with the laws of the State of Delaware, as applied to
contracts between Delaware residents, entered into and to be performed entirely
within the State of Delaware, without regard to the conflict of laws principles
thereof.
18. Subrogation.
In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company effectively to
bring suit to enforce such rights.
19. Amendment and Termination.
No amendment, modification, termination or cancellation of this Agreement
shall be effective unless it is in writing signed by both the parties hereto.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
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<PAGE> 11
20. Integration and Entire Agreement.
This Agreement sets forth the entire understanding between the parties
hereto and supercedes and merges all previous written and oral negotiations,
commitments, understandings and agreements relating to the subject matter hereof
between the parties hereto.
21. No Construction as Employment Agreement.
Nothing contained in this Agreement shall be construed as giving Indemnitee
any right to be retained in the employ of the Company or any of its
subsidiaries.
22. Specific Performance
The Company and Indemnitee agree that a monetary remedy for breach of this
Agreement, at some later date, will be inadequate, impracticable and difficult
to prove, and the Company and the Indemnitee further agree that such breach
would cause Indemnitee irreparable harm. Accordingly, the Company and Indemnitee
agree that Indemnitee shall be entitled to temporary and permanent injunctive
relief to enforce this Agreement without the necessity of proving actual damages
or irreparable harm. The Company and Indemnitee further agree that Indemnitee
shall be entitled to such injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions, without the necessity
of posting bond or other undertaking in connection therewith. The Company hereby
waives any such requirement of bond or undertaking.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
BIGSTAR ENTERTAINMENT, INC.
By:____________________________
Title:_________________________
19 Fulton Street
New York, New York 10038
AGREED TO AND ACCEPTED
INDEMNITEE:____________________
12
<PAGE> 1
BIGSTAR ENTERTAINMENT, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Purposes of this Plan................................................................................... 1
2. Definitions............................................................................................. 1
3. Stock Subject to this Plan.............................................................................. 4
4. Administration of this Plan............................................................................. 4
5. Eligibility............................................................................................. 5
6. Term of Plan............................................................................................ 6
7. Exercise Price and Consideration........................................................................ 6
8. Options................................................................................................. 8
9. Stock Purchase Rights................................................................................... 10
10. Stock Appreciation Rights............................................................................... 10
11. Restricted Shares....................................................................................... 11
12. Performance Units and Performance Shares................................................................ 12
13. Non-Transferability of Options and Stock Purchase Rights................................................ 13
14. Adjustments Upon Changes in Capitalization, Merger or Other Events...................................... 13
15. Time of Grant........................................................................................... 14
16. Amendment and Termination............................................................................... 14
17. Conditions Upon Issuance of Shares...................................................................... 15
18. Reservation of Shares................................................................................... 15
19. Option, Stock Purchase and Stock Bonus Agreements....................................................... 16
20. Shareholder Approval.................................................................................... 16
21. Information to Optionees and Purchasers................................................................. 16
22. Right of Company to Terminate Employment or Consulting Services......................................... 16
23. Rights of First Refusal and Repurchase.................................................................. 17
24. Withholding............................................................................................. 17
25. Separability............................................................................................ 17
26. Non-Exclusivity of this Plan............................................................................ 18
27. Governing Law........................................................................................... 18
28. Cancellation of and Substitution for Nonstatutory Options............................................... 18
29. Market Standoff......................................................................................... 18
Exhibit 1 - Form of Stock Option Agreement
</TABLE>
-i-
<PAGE> 3
BIGSTAR ENTERTAINMENT, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
1. Purposes of this Plan. The general purpose of this 1998 Stock
Option and Incentive Plan is to promote the interests of the Company and its
shareholders by (i) providing certain Employees of and Consultants to the
Company with additional incentives to continue and increase their efforts with
respect to achieving success in the business of the Company, its Affiliates and
its Subsidiaries, and (ii) attracting and retaining the best available personnel
to participate in the ongoing business operations of the Company and its
Subsidiaries.
Options granted under this Plan may be either Incentive Stock
Options or Nonstatutory Stock Options, as determined at the discretion of the
Board and as reflected in the terms of the written option agreements. The Board
may also grant Stock Purchase Rights hereunder.
2. Definitions. As used in this Plan, the following definitions
shall apply:
"Affiliates" means any other entity directly or indirectly
controlling, controlled by, or under common control, with the Company.
"Affiliated SAR" means a SAR that is granted in connection
with a related Option, and which will be deemed to automatically be exercised
simultaneous with the exercise of the related Option.
"Award" means, individually or collectively, a grant under
this Plan, including any Nonqualified Stock Options, Incentive Stock Options,
SARs, Restricted Stock, Performance Units, or Performance Shares.
"Award Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and provisions applicable
to Awards granted to Participants under the Plan.
"Board" shall mean the Committee, if one has been appointed,
or the Board of Directors of the Company, if no Committee is appointed.
"Board of Directors" means the full Board of Directors of the
Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute or statutes thereto.
Reference to any particular Code section shall include any successor section.
"Committee" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of this Plan, if one is appointed, or
if no Committee is appointed, the Board of Directors.
<PAGE> 4
"Common Stock" shall mean the Common Stock of the Company.
"Company" shall mean BigStar Entertainment, Inc., a Delaware
corporation.
"Consultant" shall mean any person who is engaged by the
Company or by any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not.
"Continuous Status as an Employee" shall mean the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board; provided
that such leave is for a period of not more than 90 days or reemployment upon
the expiration of such leave is guaranteed by contract or statute.
"Disinterested Person" shall mean a member of the Board of
Directors of the Company: (i) who was not during the one year prior to service
as an administrator of this Plan granted or awarded equity securities pursuant
to this Plan, or any other plan of the Company or any of its affiliates
entitling the participants therein to acquire equity securities of the Company
or any of its affiliates except as permitted by Rule 16b-3(c)(2)(i) promulgated
under the Exchange Act ("Rule 16b-3(c)(2)(i)"); or (ii) who is otherwise
considered to be a "disinterested person" in accordance with Rule
16b-3(c)(2)(i), or any other applicable rules, regulations or interpretations of
the Securities and Exchange Commission.
"Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company as
a common-law employee. The payment of a director's fee by the Company shall not
be sufficient to constitute "employment" by the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Freestanding SAR" means a SAR that is granted independently
of any Options.
"Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
"Major Event" shall be deemed to have occurred if (i) there
shall be consummated any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's common stock would be converted into cash, securities or
other property, other than a merger of the Company in which the holders of the
Company's common stock immediately prior to the merger generally have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger; (ii) there shall be consummated any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company; (iii) proceedings or actions
for the liquidation or dissolution of the Company are initiated by the Company;
or (iv) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange
Act) (other than persons who beneficially own more than 30% of the capital stock
of the Company on a fully diluted and as converted basis outstanding as of the
date of adoption of
2
<PAGE> 5
this Plan by the Board of Directors) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of
the Company's outstanding capital stock on a fully diluted and as converted
basis at such time; provided, however, that a "Major Event" shall not be deemed
to have occurred solely by reason of the consummation of a public offering by
the Company of common stock registered under the Securities Act.
"Nonstatutory Stock Option" shall mean an Option which is not
intended to qualify as an Incentive Stock Option.
"Option" shall mean a stock option granted pursuant to this
Plan.
"Optioned Stock" shall mean the Common Stock subject to an
Option.
"Optionee" shall mean an Employee or Consultant who receives
an Option.
"Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
"Participant" means an Employee of the Company who has
outstanding an Award granted under the Plan.
"Performance Unit" means an Award granted to an Employee
pursuant to Section 12.
"Performance Share" means an Award granted to an Employee,
pursuant to Section 12 herein.
"Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance goals, or upon the occurrence of
other events as determined by the Committee, in its discretion), and the Shares
are subject to a substantial risk of forfeiture, as provided in Section 11.
"Plan" shall mean this 1998 Stock Option and Incentive Plan.
"Purchaser" shall mean an Employee or Consultant who exercises
a Stock Purchase Right.
"Restricted Stock" means an Award granted to a Participant
pursuant to Section 11.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 14 of this Plan.
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<PAGE> 6
"Stock Appreciation Right" or "SAR" means an Award, granted
alone or in connection with a related Option, designated as a SAR, pursuant to
the terms of Section 10.
"Stock Purchase Right" shall mean a right to purchase Common
Stock pursuant to this Plan or the right to receive a bonus of Common Stock for
past services.
"Subsidiary" shall mean a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.
"Tandem SAR" means a SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase a Share under the related Option (and when a Share is purchased under
the Option, a SAR shall similarly be cancelled).
3. Stock Subject to this Plan. Subject to the provisions of
Section 14 of this Plan, the maximum aggregate number of Shares under this Plan
is 250,000. The Shares may be authorized but unissued, or reacquired Common
Stock, or both. If an Option or Stock Purchase Right should expire, terminate,
be cancelled or become unexercisable for any reason without having been
exercised in full, then the unpurchased Shares which were subject thereto shall,
unless this Plan shall have been terminated, become available for future grant
or sale under this Plan. In addition, Shares issued under this Plan and later
repurchased or otherwise reacquired by the Company shall, unless this Plan shall
have been terminated, become available for future grant or sale under this Plan.
4. Administration of this Plan.
(a) Procedure. This Plan shall be administered by the
Board of Directors of the Company unless and until the Board of Directors
delegates administration to a Committee, as provided in this Section 4(a).
(i) Subject to Section 4(a)(ii), the Board of
Directors may appoint a Committee consisting of not less than two persons (who
need not be members of the Board of Directors) to administer this Plan on behalf
of the Board of Directors, subject to such terms and conditions not inconsistent
with this Plan as the Board of Directors may prescribe. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board of
Directors. Members of the Board who are either eligible for Options and/or Stock
Purchase Rights or have been granted Options and/or Stock Purchase Rights may
vote on any matters affecting the administration of this Plan or the grant of
any Options and/or Stock Purchase Rights pursuant to this Plan, except that no
such member shall act upon the granting of an option to such member, but any
such member may be counted in determining the existence of a quorum at any
meeting of the Board during which action is taken with respect to the granting
of Options and/or Stock Purchase Rights to such member.
(ii) Notwithstanding the foregoing Section
4(a)(i), if the Company registers any class of any equity security pursuant to
Section 12 of the Exchange Act, from the effective date of such registration
until six months after the termination of such registration, any grants of
Options and/or Stock Purchase Rights to directors or officers who are subject to
Section 16 of the Exchange Act shall be made only by a Committee consisting of
two or more persons,
4
<PAGE> 7
each of whom shall be a Disinterested Person (if necessary to meet the
requirements of Rule 16b-3 promulgated under the Exchange Act). The Board shall
otherwise comply with the requirements of Rule 16b-3 promulgated under the
Exchange Act, as from time to time in effect, unless the Board expressly
declares that any such requirement shall not apply.
(iii) Subject to the foregoing Sections 4(a)(i)
and 4(a)(ii), from time to time the Board of Directors may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer this Plan. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board of Directors.
(b) Powers of the Board. Subject to the provisions of
this Plan, the Board shall have plenary authority, in its discretion and without
limitation, to do the following: (i) to grant Incentive Stock Options,
Nonstatutory Stock Options or Stock Purchase Rights; (ii) to determine, upon
review of relevant information and in accordance with Section 7 of this Plan,
the fair market value of the Common Stock; (iii) to determine the exercise price
per share of Options or Stock Purchase Rights to be granted, which exercise
price shall be determined in accordance with Section 7 hereof; (iv) to determine
the Employees or Consultants to whom, and the time or times at which, Options or
Stock Purchase Rights shall be granted and the number of Shares to be
represented by each Option or Stock Purchase Right; (v) to interpret this Plan;
(vi) to prescribe, amend and rescind rules and regulations relating to this
Plan, and in the exercise of this power, to correct any defect, omission or
inconsistency in this Plan or in any agreement relating to an Option or Stock
Purchase Right, in a manner and to the extent the Board shall deem necessary or
expedient to make this Plan fully effective; (vii) to determine the terms and
provisions of each Option or Stock Purchase Right granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option or Stock Purchase Right; (viii) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option or Stock Purchase Right previously granted by the Board; and (ix) to make
all other determinations deemed necessary or advisable for the administration of
this Plan.
(c) Board Determinations. In making determinations under
this Plan, the Board may take into account the nature of the services rendered
by the respective Employees, their present and potential contributions to the
success of the Company, or its Subsidiaries, as the case may be, and such other
factors as the Board in its discretion shall deem relevant. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionees, Purchasers and any other holders of any Options and/or Stock
Purchase Rights granted under this Plan.
5. Eligibility.
(a) Options and Stock Purchase Rights may be granted to
Employees, provided that Incentive Stock Options may only be granted to
Employees. An Employee who has been granted an Option or Stock Purchase Right
may, if such Employee is otherwise eligible, be granted additional Option(s) or
Stock Purchase Right(s).
5
<PAGE> 8
(b) No Incentive Stock Option may be granted to an
Employee which, when aggregated with all other Incentive Stock Options granted
to such Employee by the Company or by any Parent or Subsidiary, would result in
Shares having an aggregate fair market value (determined for each Share as of
the date of grant of the Option covering such Share) in excess of $100,000 (or
such different amount as provided for under the Code requirements for Incentive
Stock Options) becoming first available for purchase upon exercise of one or
more incentive stock options during any calendar year.
(c) Section 5(b) of this Plan shall apply only to an
Incentive Stock Option evidenced by a stock option agreement which sets forth
the intention of the Company and the Optionee that such Option shall qualify as
an Incentive Stock Option. Section 5(b) of this Plan shall not apply to any
Option evidenced by a stock option agreement which sets forth the intention of
the Company and the Optionee that such Option shall be a Nonstatutory Stock
Option.
(d) On and after the effective date of the registration
of any class of equity security of the Company pursuant to Section 12 of the
Exchange Act, a member of the Board of Directors who is not an Employee shall
not be eligible for the benefits of this Plan unless at the time an Option or
Stock Purchase Right is granted to such member, the Board expressly declares
that such exclusion will not apply.
6. Term of Plan. This Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
vote of the holders of a majority of the outstanding shares of the Company
entitled to vote on the adoption of this Plan. It shall continue in effect for a
term of ten (10) years unless sooner terminated under Section 16 of this Plan.
7. Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be
issued pursuant to exercise of an Option or Stock Purchase Right shall be such
price as is determined by the Board, but shall be subject to the following
provisions:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the
time of the grant of such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per share exercise price shall be no
less than 110% of the fair market value per share on the date of grant.
(B) granted to any Employee other than
an Employee described in Section 7(a)(i)(A), the per share exercise price shall
be no less than 100% of the fair market value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option:
(A) granted to an Employee or
Consultant who, at the time of the grant of such Option, owns stock representing
more than ten percent (10%) of the voting
6
<PAGE> 9
power of all classes of stock of the Company or any Parent or Subsidiary, the
per share exercise price shall be no less than 110% of the fair market value per
share on the date of the grant.
(B) granted to any Employee or
Consultant, other than an Employee or Consultant described in Section
7(a)(ii)(A), the per share exercise price shall be no less than 85% of the fair
market value per share on the date of grant.
(iii) In the case of a Stock Purchase Right
granted to any person, the per share exercise price shall be no less than 85% of
the fair market value per share on the date of grant; provided, however, that if
such person at the time of the grant of such Stock Purchase Right, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per share exercise price
shall be no less than 100% of the fair market value per share on the date of the
grant.
(b) Fair market value shall be determined by the Board in
its discretion; provided, however, that where there is an active public market
for the Common Stock, the fair market value per share shall be determined as
follows:
(i) If the Company's Common Stock is traded on
an exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System, then the closing or last
sale price, respectively, on the date of grant, as reported in the Wall Street
Journal (or, if not so reported, as otherwise reported by the NASDAQ System).
(ii) If the Company's Common Stock is not traded
on an exchange or on the NASDAQ National Market System but is traded in the
over-the-counter market, then the mean of the closing bid and asked prices on
the date of grant as reported in the Wall Street Journal (or, if not so
reported, as otherwise reported by the NASDAQ System).
(c) The consideration to be paid for the Shares to be
issued upon exercise of an Option or Stock Purchase Right, including the method
of payment, shall be determined by the Board and may consist entirely of cash,
check, promissory note or other deferred payment arrangement, other Shares of
Common Stock having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option or Stock Purchase
Right shall be exercised, or any combination of such methods of payment, or such
other consideration and method of payment for the issuance of Shares to the
extent permitted under applicable law. In making its determination as to the
type of consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
8. Options.
(a) Term of Option. The term of each Option shall be ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the stock option agreement relating to such Option; provided that
the term of a Nonstatutory Stock Option may, as provided in Section 8(b)(iv), be
extended for a period of up to six (6) months. However, in the case of an Option
granted to an Employee who, at the time the Option is granted, owns stock
representing
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<PAGE> 10
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the stock option agreement relating to such Option.
(b) Exercise of Option.
(i) Procedure for Exercise; Rights as a
Shareholder. Any Option granted under this Plan shall be exercisable at such
times and under such conditions as determined by the Board, such as vesting
conditions and/or performance criteria with respect to the Company and/or the
Optionee, and as shall be permissible under the terms of this Plan.
Notwithstanding anything herein to the contrary, no Option granted hereunder
shall have a vesting period in excess of five (5) years.
An Option may, but need not, include a provision
whereby at any time prior to termination of the Optionee's Continuous Status as
an Employee, the Optionee may elect to exercise the Option as to all or any part
of the Shares subject to the Option prior to the stated vesting date of the
Option or of any vesting installment or installments specified in the Option.
Any shares so purchased from any unvested installment or Option may be subject
to a repurchase right in favor of the Company or to any restriction the Board
determines to be appropriate.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. An Option may not be exercised for a fraction of a
Share. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 7 of this Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of this Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of this Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(ii) Termination of Status as an Employee. In the
event of termination of an Optionee's Continuous Status as an Employee (as the
case may be), such Optionee may, but only within thirty (30) days after the date
of such termination (but in no event later than the date of expiration of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent that such Employee was entitled to exercise it at the date of such
termination. To the extent that such Employee was not entitled to exercise the
Option at the date of such termination, or if such Employee does not exercise
such Option (which such Employee was entitled to exercise) within such thirty
(30) day time period, the Option shall terminate.
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(iii) Disability of Optionee. Notwithstanding the
provisions of Section 8(b)(ii) above, in the event of termination of an
Optionee's Continuous Status as an Employee as a result of such Employee's
disability, such Employee may, but only within six (6) months from the date of
such termination (but in no event later than the date of expiration of the term
of such option as set forth in the Option Agreement), exercise the Option to the
extent such Employee was entitled to exercise it at the date of such
termination; provided however, that if the Option is an Incentive Stock Option
and the disability is not a total and permanent disability (as defined in
Section 422(c)(6) of the Code), then if the Optionee does not exercise the
Option within three months after such termination, such Option shall
automatically convert into a Nonstatutory Stock Option; and provided, further,
that if the termination is as a result of a total and permanent disability (as
defined in Section 422(c)(6) of the Code), such Employee may within one (1) year
from the date of such termination, but in no event later than the date of
expiration of the term of such option as set forth in the Option Agreement),
exercise the Option to the extent such Employee was entitled to exercise it at
the date of such termination. To the extent that such Employee was not entitled
to exercise the Option at the date of termination, or if such Employee does not
exercise such Option (which such Employee was entitled to exercise) within the
time periods specified above, as the case may be, the Option shall terminate.
(iv) Death of Optionee. In the event of the death
of an Optionee: (A) while the Optionee is an Employee or Consultant, (B) during
the thirty (30) day period described in Section 8(b)(ii), or (C) during the one
(1) year period described in Section 8(b)(iii), the Option may be exercised, at
any time within one (1) year following the date of death (but, in the case of an
Incentive Stock Option, in no event later than the date of expiration of the
term of such Incentive Stock Option as set forth in the Option Agreement), by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the time of death of the Optionee. To the extent
that such Employee or Consultant was not entitled to exercise the Option at the
date of death, or if such Employee or Consultant, estate or other person does
not exercise such Option (which such Employee or Consultant, estate or person
was entitled to exercise) within the one (1) year time period specified in this
Plan, the Option shall terminate.
9. Stock Purchase Rights.
(a) Rights to Purchase. After the Board determines that
it will offer an Employee or Consultant a Stock Purchase Right, it shall deliver
to the offeree a stock purchase agreement or stock bonus agreement, as the case
may be, setting forth the terms, conditions and restrictions relating to the
offer, including the number of Shares which such person shall be entitled to
purchase, and the time within which such person must accept such offer, which
shall in no event exceed six (6) months from the date upon which the Board made
the determination to grant the Stock Purchase Right. The offer shall be accepted
by execution of a stock purchase agreement or stock bonus agreement in the form
approved by the Board.
(b) Issuance of Shares. Forthwith after payment therefor,
the Shares purchased shall be duly issued; provided, however, that the Board may
require that the Purchaser make adequate provision for any federal and state
withholding obligations of the Company as a condition to the Purchaser
purchasing such Shares.
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<PAGE> 12
(c) Other Provisions. The stock purchase agreement or
stock bonus agreement shall contain such other terms, provisions and conditions
not inconsistent with this Plan as may be determined by the Board, including
rights of first refusal as set forth in Section 20 hereof.
10. Stock Appreciation Rights.
(a) Grants of SARs. Tandem SARs may be awarded by the
Committee in connection with any Option granted under the Plan, either on the
Date of Grant of the Option or thereafter at any time prior to the exercise,
termination or expiration of the Option Nontandem SARs may also be granted by
the Committee at any time. On the Date of Grant of a Nontandem SAR, the
Committee shall specify the number of shares of Common Stock covered by such
right and the base price of shares of Common Stock to be used in connection with
the calculation described in Section 10(c) below. SARs shall be subject to such
terms and conditions not inconsistent with the other provisions of this Plan as
the Committee shall determine.
(b) Exercise of Tandem SARs. A Tandem SAR shall be
exercisable only to the extent that the related Option is exercisable and shall
be exercisable only for such period as the Committee may determine (which period
may expire prior to the expiration date of the related Option). Upon the
exercise of all or a portion of a Tandem SAR, the related Option shall be
canceled with respect to an equal number of shares of Common Stock. A Tandem SAR
shall entitle the Grantee to surrender to the Corporation unexercised the
related Option, or any portion thereof, and to receive from the Corporation in
exchange therefor that number of shares of Common Stock having an aggregate fair
market value equal to (A) the excess of (i) the fair market value of one (1)
share of Common Stock as of the date the Tandem SAR is exercised over (ii) the
Option price per share specified in such Option, multiplied by (B) the number of
shares of Common Stock subject to the Option, or portion thereof, which is
surrendered. Cash shall be delivered in lieu of any fractional shares.
(c) Exercise of Nontandem SARs. A Nontandem SAR shall be
exercisable during such period as the Committee shall determine prior to the
Date of Grant. The exercise of a Nontandem SAR shall entitle the Grantee to
receive from the Corporation that number of shares of Common Stock having an
aggregate fair market value equal to (A) the excess of (i) the fair market value
of one (1) share of Common Stock as of the date on which the Nontandem SAR is
exercised over (ii) the base price of the shares covered by the Nontandem SAR,
multiplied by (B) the number of shares of Common Stock covered by the Nontandem
SAR, or the portion thereof being exercised. Cash shall be delivered in lieu of
any fractional shares.
(d) Settlement of SARs. As soon as is reasonably
practicable after the exercise of a SAR, the Corporation shall (i) issue, in the
name of the Grantee, stock certificates representing the total number of full
shares of Common Stock to which the Grantee is entitled pursuant to Section
10(b) or 10(c) hereof and cash in an amount equal to the fair market value, as
of the date of exercise, of any resulting fractional shares, and (ii) if the
Committee causes the Corporation to elect to settle all or part of its
obligations arising out of the exercise of the SAR in cash pursuant to Section
10(e), deliver to the Grantee an amount in cash equal to the fair market
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<PAGE> 13
value, as of the date of exercise, of the shares of Common Stock it would
otherwise be obligated to deliver.
(e) Cash Settlement. The Committee, in its discretion,
may cause the Corporation to settle all or any part of its obligation arising
out of the exercise of a SAR by the payment of cash in lieu of all or part of
the shares of Common Stock it would otherwise be obligated to deliver in an
amount equal to the fair market value of such shares on the date of exercise.
11. Restricted Shares.
(a) Grant of Restricted Shares. The Committee may from
time to time cause the Corporation to issue Restricted Shares under the Plan,
subject to such restrictions, conditions and other terms as the Committee may
determine in addition to those set forth herein.
(b) Restrictions. At the time a grant of Restricted
Shares is made, the Committee shall establish a period of time (the "Restricted
Period") applicable to such Restricted Shares. Each grant of Restricted Shares
may be subject to a different Restricted Period. The Committee may, in its sole
discretion, at the time a grant is made, prescribe restrictions in addition to
or other than the expiration of the Restricted Period, including the
satisfaction of corporate or individual performance objectives, which shall be
applicable to all or any portion of the Restricted Shares. Except with respect
to grants of Restricted Shares intended to qualify as performance based
compensation for purposes of Section 162(m) of the Code, the Committee may also,
in its sole discretion, shorten or terminate the Restricted Period or waive any
other restrictions applicable to all or a portion of such Restricted Shares.
None of the Restricted Shares may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of prior to the date on which such Restricted
Shares vest in accordance with Section 11(c).
(c) Restricted Stock Certificates. The Corporation shall
issue, in the name of each Grantee, stock certificates with proper legends
representing the total number of Restricted Shares granted to the Grantee, as
soon as reasonably practicable after the Date of Grant. The Secretary of the
Corporation shall hold such certificates, properly endorsed for transfer, after
the Grantee's benefit until such time as the Restricted Shares are forfeited to
the Corporation or until the Restricted Shares vest. In lieu of the foregoing,
Restricted Shares awarded to a Grantee may be held under the Grantee's name in a
book entry account maintained by or on behalf of the Corporation.
(d) Rights of Holders of Restricted Shares. Except as
otherwise determined by the Committee either at the time Restricted Shares are
awarded or at any time thereafter prior to the lapse of the restrictions,
holders of Restricted Shares shall not have the right to vote such shares or the
right to receive any dividends with respect to such shares. All distributions,
if any, received by an employee or consultant with respect to Restricted Shares
as a result of any stock split-up, stock distribution, combination of shares, or
other similar transaction shall be subject to the restrictions of this Section
11.
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(e) Termination of Employment Relationship. Any
Restricted Shares granted pursuant to the Plan shall be forfeited if the Grantee
terminates employment or consultant relationship with the Corporation or its
subsidiaries for reasons other than death or disability prior to the expiration
or termination of the Period of Restriction and the satisfaction of any other
conditions applicable to such Restricted Shares. Upon such forfeiture, the
Secretary of the Corporation shall either cancel or retain in its treasury the
Restricted Shares that are forfeited to the Corporation. Upon the death of a
Grantee prior to his termination of employment or service as a consultant, or
upon a Grantee's termination of employment as a result of disability, all
Restricted Shares previously awarded to such Grantee which have not previously
vested shall be forfeited unless the Committee in its sole discretion shall
determine otherwise.
(f) Delivery of Restricted Shares. Subject to the
provisions of this Section, at such time as the Grantee shall become vested in
his Restricted Shares, the restrictions applicable to the Restricted Shares
shall lapse and a stock certificate for the number of Restricted Shares with
respect to which the restrictions have lapsed shall be delivered, free of all
such restrictions, to the Grantee or the Grantee's beneficiary or estate, as the
case may be.
12. Performance Units and Performance Shares.
(a) Grant of Performance Units/Shares. Subject to the
terms of the Plan, Performance Units and Performance Shares may be granted to
eligible Employees and Consultants at any time and from time to time, as shall
be determined by the Committee, in its sole discretion. The Committee shall have
complete discretion in determining the number of Performance Units and
Performance Shares granted to each Participant.
(b) Value of Performance Units/Shares. Each Performance
Unit shall have an initial value that is established by the Committee at the
time of the grant. Each Performance Share shall have an initial value equal to
the Fair Market Value of a Share on the date of grant. The Committee shall set
performance goals in its discretion which, depending on the extent to which they
are met, will determine the number and/or value of Performance Units/Shares that
will be paid out to the Participants. The time period during which the
performance goals must be met shall be called a "Performance Period."
Performance Periods of Awards granted to Insiders shall, in all cases, exceed
six (6) months in length.
(c) Earning of Performance Units/Shares. After the
applicable Performance Period has ended, the holder of Performance Units/Shares
shall be entitled to receive a payout of the number of Performance Unit/Shares
earned by the Participant over the Performance Period, to be determined as a
function of the extent to which the corresponding performance goals have been
achieved. Notwithstanding the preceding sentence, after the grant of a
Performance Unit/Share, the Committee, in its sole discretion, may waive the
achievement of any performance goals for such Performance Unit/Share.
(d) Form and Timing of Payment of Performance
Units/Shares. Payment of earned Performance Units/Shares shall be made in a
single lump sum, within forty-five (45) calendar days following the close of the
applicable Performance Period. The Committee, in its sole discretion, may pay
earned Performance Units/Shares in the form of cash, in Shares (which
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<PAGE> 15
have an aggregate Fair Market Value equal to the value of the earned Performance
Units/Shares at the close of the applicable Performance Period) or in
combination thereof.
Prior to the beginning of each Performance Period,
Participants may, in the discretion of the Committee, elect to defer the receipt
of any Performance Unit/Share payout upon such terms as the Committee shall
determine.
(e) Cancellation of Performance Units/Shares. Subject to
the applicable Award Agreement, upon the earlier of (a) the Participant's
termination of employment, or (b) the date set forth in the Award Agreement, all
remaining Performance Units/Shares shall be forfeited by the Participant to the
Company, the Shares subject thereto shall again be available for grant under the
Plan.
(f) Nontransferability. Performance Units/Shares may not
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further a
Participant's rights under the Plan shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's legal
representative.
13. Non-Transferability of Options and Stock Purchase Rights.
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee or Purchaser, only by the Optionee or Purchaser.
14. Adjustments Upon Changes in Capitalization, Merger or Other
Events. Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock covered by each outstanding Option and Stock
Purchase Right, and the number of shares of Common Stock which have been
authorized for issuance under this Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to this Plan
upon cancellation or expiration of an Option or Stock Purchase Right, or
repurchase of Shares from a Purchaser or Optionee upon termination of employment
or otherwise, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock of the Company or the
payment of a stock dividend with respect to the Common Stock. Such adjustment
shall be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Rights.
In the event of the dissolution or liquidation of the Company,
all Options and Stock Purchase Rights will terminate immediately prior to the
consummation of such proposed action if not previously exercised. The Board, at
its option, may provide for one or more of the following from time to time or in
any stock option agreement or stock purchase agreement that,
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<PAGE> 16
in the event of a Major Event, then (A) all Options and Stock Purchase Rights
will be assumed or equivalent options or stock purchase rights will be
substituted by such surviving corporation (or other entity) or a parent or
subsidiary of such surviving corporation (or other entity), (B) all Options and
Stock Purchase Rights will continue in full force and effect, or (C) all Options
and Stock Purchase Rights will terminate if not exercised prior to the
consummation of the transaction.
The foregoing adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
The grant of an Option or Stock Purchase Right pursuant to
this Plan shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or any part of its business or assets.
15. Time of Grant. The date of grant of an Option or Stock
Purchase Right shall, for all purposes, be the date on which the Board makes the
determination granting such Option or Stock Purchase Right. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. Amendment and Termination.
(a) Amendment. The Board may amend this Plan from time to
time in such respects as the Board may deem advisable; provided that the
shareholders of the Company must approve the following amendments or revisions
within 12 months before or after the adoption of such revision or amendment:
(i) any increase in the number of Shares subject
to this Plan, other than in connection with an adjustment under Section 14 of
this Plan;
(ii) any change in the designation of the class
of persons eligible to be granted Options (to the extent such modification
requires shareholder approval in order for the Plan to satisfy the requirements
of Section 422(b) of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act); or
(iii) any other revision or amendment if such
revision or amendment requires shareholder approval in order for this Plan to
satisfy the requirements of Section 422(b) of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act if applicable to
the Company.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 16(a) of this Plan is made subsequent to the
first registration of any class of equity securities by the Company under
Section 12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 20 of this Plan.
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<PAGE> 17
(c) Suspension and Termination. The Board may suspend or
terminate this Plan at any time. No Options or Stock Purchase Rights may be
granted while this Plan is suspended or after it is terminated.
(d) Effect of Amendment; Termination or Suspension. Any
such amendment, termination or suspension of this Plan shall not affect Options
or Stock Purchase Rights already granted and such Options or Stock Purchase
Rights shall remain in full force and effect as if this Plan had not been
amended, terminated or suspended, unless mutually agreed otherwise between the
Optionee or Purchaser (as the case may be) and the Company, which agreement must
be in writing and signed by the Optionee or Purchaser (as the case may be) and
the Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange or other stock trading system upon which the Shares may then be listed.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to make such representations and warranties at the time of any
such exercise as the Company may at that time determine, including without
limitation, representations and warranties that (i) the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares in violation of applicable federal or state securities
laws, and (ii) such person is knowledgeable and experienced in financial and
business matters and is capable of evaluating the merits and the risks
associated with purchasing the Shares.
18. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of this Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares under this
Plan, shall relieve the Company of any liability in respect of the failure to
issue or sell such Shares as to which such requisite authority shall not have
been obtained.
19. Option, Stock Purchase and Stock Bonus Agreements. Options
shall be evidenced by written stock option agreements in such form as the Board
shall approve. Upon the exercise of Stock Purchase Rights, the Purchaser shall
sign a stock purchase agreement or stock bonus agreement in such form as the
Board shall approve.
20. Shareholder Approval.
(a) The shareholders of the Company shall have approved
this Plan within 12 months before or after this Plan is adopted. Any shares
purchased before shareholder approval is obtained shall be rescinded if
shareholder approval is not obtained within 12 months before or
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<PAGE> 18
after this Plan is adopted. Such shares shall not be counted in determining
whether such approval is obtained.
(b) If the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act and if prior to such time
either (x) the shareholders of the Company did not approve this Plan or (y) the
Company did not solicit shareholder approval substantially in accordance with
Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder, then the Company shall take all necessary actions to qualify the
Plan under Rule 16(b)(3) promulgated under the Exchange Act at or prior to the
later of (A) the first annual meeting of shareholders held subsequent to the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (B) the granting of an Option hereunder to an
officer or director after such registration.
21. Information to Optionees and Purchasers. The Company shall
provide annually to each Optionee and Purchaser, during the period that such
Optionee or Purchaser has one or more Options or Stock Purchase Rights
outstanding, copies of the annual financial statements of the Company.
22. Right of Company to Terminate Employment or Consulting
Services. This Plan shall not confer upon any Optionee or holder of a Stock
Purchase Right any right with respect to continuation of employment by or the
rendition of consulting services to the Company, any of its Subsidiaries or its
Parent, nor shall it interfere in any way with his or her right or the
Company's, any of its Subsidiaries' or its Parent's right to terminate his or
her employment or services at any time, with or without cause.
23. Rights of First Refusal and Repurchase.
(a) The written agreements evidencing Options or Stock
Purchase Rights may contain such provisions as the Board shall determine (or
pursuant to a separate agreement) to the effect that if an Optionee or Purchaser
elects to sell all or any Shares that the Optionee or Purchaser acquired upon
the exercise of an Option or Stock Purchase Right, then any proposed sale of
such Shares by such Optionee or Purchaser shall be subject to a right of first
refusal in favor of the Company.
(b) The Board may require, at its option, that a stock
purchase agreement, stock option agreement, stock bonus agreement, or other
agreement pursuant to this Plan grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the Purchaser's
employment with the Company for any reason (including death or disability). The
repurchase price shall be at the higher of the original purchase price or fair
value of the Shares on the date of termination of employment. If the Board so
determines, the purchase price for shares repurchased may be paid by
cancellation of any indebtedness of the Purchaser to the
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<PAGE> 19
Company. The repurchase option must be exercised by the Company within 90 days
of termination of employment for cash or cancellation of money indebtedness for
the Shares and the right shall terminate when the Company's Common Stock becomes
publicly traded. The Board may require such a repurchase right in other events.
(c) Certificates representing shares issued upon exercise
of Options or Stock Purchase Rights shall bear a restrictive legend to the
effect that the transferability of such shares is subject to the restrictions
contained in this Plan and the applicable written agreement between the Optionee
or Purchaser and the Company.
24. Withholding. The Company's obligation to deliver shares of
Common Stock under this Plan shall be subject to applicable federal, state and
local tax withholding requirements. To the extent provided by the terms of the
stock option agreement relating to an Option, the Optionee may satisfy any
federal, state or local tax withholding obligation relating to the exercise of
such Option by any or a combination of the following means: (i) cash payment or
wage withholding; (ii) authorizing the Company to withhold from the Shares
otherwise issuable to the Optionee upon exercise of the Option the number of
Shares having a fair market value less than or equal to the amount of the
withholding tax obligation; or (iii) delivering to the Company unencumbered
shares of Common Stock owned by the Optionee having a fair market value less
than or equal to the amount of the withholding tax obligation; provided,
however, that with respect to clauses (ii) and (iii) above the Board in its sole
discretion may disapprove such payment and require that such taxes be paid in
cash.
25. Separability. At a time when the Company has a class of equity
securities registered pursuant to Section 12 of the Exchange Act, if any of the
terms or provisions of this Plan conflict with the requirements of Rule 16b-3
promulgated under the Exchange Act and/or Section 422 of the Code, then such
terms or provisions shall be deemed inoperative to the extent they so conflict
with the requirements of Rule 16b-3 promulgated under the Exchange Act, and/or
with respect to Incentive Stock Options, Section 422 of the Code. The foregoing
sentence shall not apply with respect to the requirements of Rule 16b-3
promulgated under the Exchange Act if the Board has expressly declared that such
requirements shall not apply. With respect to Incentive Stock Options, if this
Plan does not contain any provision required to be included herein under Section
422 of the Code, such provision shall be deemed to be incorporated herein with
the same force and effect as if such provision had been set out at length
herein. To the extent any Option that is intended to qualify as an Incentive
Stock Option cannot so qualify, such Option, to that extent, shall be deemed to
be a Nonstatutory Stock Option for all purposes of this Plan.
26. Non-Exclusivity of this Plan. The adoption of this Plan by the
Board shall not be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the awarding of
stock and cash otherwise than under this Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
27. Governing Law. This Plan shall be governed by, and construed
in accordance with the laws of the State of New York.
17
<PAGE> 20
28. Cancellation of and Substitution for Nonstatutory Options. The
Company shall have the right to cancel any Nonstatutory Stock Option at any time
before it otherwise would have expired by its terms and to grant to the same
Optionee in substitution therefor a new Nonstatutory Stock Option stating an
option price which is lower (but not higher) than the option price stated in the
cancelled Option. Any such substituted option shall contain all the terms and
conditions of the cancelled Option; provided, however, that such substituted
Option shall not be exercisable after the expiration of ten (10) years and one
day from the date of grant of the cancelled Option.
29. Market Standoff. Unless the Board determines otherwise, each
Optionee or Purchaser shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the Securities Act;
provided, however, that such restriction shall apply only to the first two
registration statements of the Company to become effective under the Securities
Act which includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such 180-day period.
18
<PAGE> 21
Exhibit 1
Form of Stock Option Agreement
<PAGE> 22
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered
into as of the date of grant set forth below (the "Date of Grant") by and
between BigStar Entertainment, Inc., a Delaware corporation (the "Company"), and
the optionee named below ("Optionee"). Capitalized terms not defined herein
shall have the meaning ascribed to them in the Company's 1998 Stock Option &
Incentive Plan (the "Plan").
Optionee: ________________________________________
Social Security Number: ________________________________________
Address: ________________________________________
________________________________________
________________________________________
Total Option Shares: ________________________________________
Exercise Price Per Share: ________________________________________
Date of Grant: ________________________________________
First Vesting Date: ________________________________________
Expiration Date for Exercise of Options:_____________________________
Type of Stock Option: ________________________________________
(Check one): [ ] Incentive Stock Option ("ISO")
[ ] Non-Statutory Stock Option
1. Grant of Option. The Company hereby grants to Optionee an
option (the "Option") to purchase the total number of shares of Common Stock of
the Company set forth above (the "Shares") at the Exercise Price Per Share set
forth above (the "Exercise Price"), subject to all of the terms and conditions
of this Agreement and the Plan. If designated as an Incentive Stock Option
above, the Option is intended to qualify as an "incentive stock option" ("ISO")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Only Employees of the Company shall receive ISOs.
<PAGE> 23
2. Exercise Price. The Exercise Price, is not less than the fair
market value per share of Common Stock on the date of grant, as determined by
the Board; provided, however, in the event Optionee is an Employee and owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its Parent or Subsidiary
corporations immediately before this Option is granted, said exercise price is
not less than one hundred ten percent (110%) of the fair market value per share
of Common Stock on the date of grant as determined by the Board.
3. Exercise of Option. This Option shall be exercisable during
its term in accordance with the provisions of Section 8 of the Plan as follows:
(i) Vesting
(a) This Option shall not become exercisable as
to any of the number of the Shares as follows (check one) :
[ ]: until the date that is one (1) year from the date of grant
of the Option (the "Anniversary Date"). On the Anniversary
Date, this Option may be exercised to the extent of 25% of the
Shares. Upon the expiration of each calendar month from the
Anniversary Date, this Option may be exercised to the extent
of the product of (a) the total number of Shares set forth at
the beginning of this Agreement and (b) the fraction the
numerator of which is one (1) and the denominator of which is
forty-eight (48) (the "Monthly Vesting Amount"), plus the
shares as to which the right to exercise the Option has
previously accrued but has not been exercised; provided,
however, that notwithstanding any of the above, the 25%
exercisable on the Anniversary Date and the Monthly Vesting
Amount with respect to any calendar month shall become
exercisable only if the Employee was an employee of the
Company or any Subsidiary of the Company as of the Anniversary
Date and the last day of such month, respectively.
[ ]: ____ % of the shares vesting over ____ months, pro rata for
each month of Optionee providing continued service to the
Company.
[ ]: _________________________________________________.
(b) This Option may not be exercised for a
fraction of a Share.
(c) In the event of Optionee's death, disability
or other termination of employment, the exercisability of the Option is governed
by Sections 7, 8 and 9 below, subject to the limitations contained in subsection
3(i)(d).
(d) In no event may this Option be exercised
after the date of expiration of the term of this Option as set forth in Section
11 below.
2
<PAGE> 24
(ii) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by Optionee and
shall be delivered in person or by certified mail to the President, Secretary or
Chief Financial Officer of the Company. The written notice shall be accompanied
by payment of the exercise price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(iii) Adjustments, Merger, etc. The number and class of the Shares
and/or the exercise price specified above are subject to appropriate adjustment
in the event of changes in the capital stock of the Company by reason of stock
dividends, split-ups or combinations of shares, reclassifications, mergers,
consolidations, reorganizations or liquidations. Subject to any required action
of the stockholders of the Company, if the Company shall be the surviving
corporation in any merger or consolidation, this Option (to the extent that it
is still outstanding) shall pertain to and apply to the securities to which a
holder of the same number of shares of Common Stock that are then subject to
this Option would have been entitled. A dissolution or liquidation of the
Company, or a merger or consolidation in which the Company is not the surviving
corporation, will cause this Option to terminate, unless the agreement or merger
or consolidation shall otherwise provide, provided that the Optionee shall, if
the Board expressly authorizes, in such event have the right immediately prior
to such dissolution or liquidation, or merger or consolidation, to exercise this
Option in whole or part. To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive. In
the event that (i) Optionee is an Employee, and (ii) the Company consummates a
merger resulting in a change in control of the Company, and (iii) the Employee
is terminated without cause, then any options remaining unvested hereunder shall
be deemed to automatically vest.
4. Optionee's Representations. By receipt of this Option, by its
execution, and by its exercise in whole or in part, Optionee represents to the
Company that Optionee understands that:
(i) both this Option and any Shares purchased upon its
exercise are securities, the issuance by the Company of which requires
compliance with federal and state securities laws;
(ii) these securities are made available to Optionee only
on the condition that Optionee makes the representations contained in this
Section 4 to the Company;
3
<PAGE> 25
(iii) Optionee has made a reasonable investigation of the
affairs of the Company sufficient to be well informed as to the rights and the
value of these securities;
(iv) Optionee understands that the securities have not
been registered under the Securities Act of 1933, as amended (the "Act") in
reliance upon one or more specific exemptions contained in the Act, which may
include reliance on Rule 701 promulgated under the Act, if available, or which
may depend upon (a) Optionee's bona fide investment intention in acquiring these
securities; (b) Optionee's intention to hold these securities in compliance with
federal and state securities laws; (c) Optionee having no present intention of
selling or transferring any part thereof (recognizing that the Option is not
transferable) in violation of applicable federal and state securities laws; and
(d) there being certain restrictions on transfer of the Shares subject to the
Option;
(v) Optionee understands that the Shares subject to this
Option, in addition to other restrictions on transfer, must be held indefinitely
unless subsequently registered under the Act, or unless an exemption from
registration is available; that Rule 144, the usual exemption from registration,
is only available after the satisfaction of certain holding periods and in the
presence of a public market for the Shares; that there is no certainty that a
public market for the Shares will exist, and that otherwise it will be necessary
that the Shares be sold pursuant to another exemption from registration which
may be difficult to satisfy; and
(vi) Optionee understands that the certificate
representing the Shares will bear a legend prohibiting their transfer in the
absence of their registration or the opinion of counsel for the Company that
registration is not required, and a legend prohibiting their transfer in
compliance with applicable state securities laws unless otherwise exempted.
5. Method of Payment. Payment of the purchase price shall be made
by cash, check or, in the sole discretion of the Board at the time of exercise,
promissory notes or other Shares of Common Stock having a fair market value on
the date of surrender equal to the aggregate purchase price of the Shares being
purchased.
6. Restrictions on Exercise. This Option may not be exercised if
the issuance of such Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
7. Termination of Status as an Employee. In the event of
termination of Optionee's Continuous Status as an Employee for any reason other
than death or disability, Optionee may, but only within thirty (30) days after
the date of such termination (but in no event later than the date of expiration
of the term of this Option as set forth in Section 11 below), exercise this
Option to the extent that Optionee was entitled to exercise it at the date of
such termination. To the extent that Optionee was not entitled to exercise this
Option at the date of such termination,
4
<PAGE> 26
or if Optionee does not exercise this Option within the time specified herein,
this Option shall terminate.
8. Disability of Optionee. In the event of termination of
Optionee's Continuous Status as an Employee as a result of Optionee's
disability, Optionee may, but only within six (6) months from the date of
termination of employment or consulting relationship (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise this Option to the extent Optionee was entitled to exercise it
at the date of such termination; provided, however that if the disability is not
total and permanent (as defined in Section 22(e)(3) of the Code) and the
Optionee exercises the option within the period provided above but more than
three months after the date of termination, this Option shall automatically be
deemed to be a Nonstatutory Stock Option and not an Incentive Stock Option; and
provided, further, that if the disability is total and permanent (as defined in
Section 22(e)(3) of the Code), then the Optionee may, but only within one (1)
year from the date of termination of employment or consulting relationship (but
in no event later than the date of expiration of the term of this Option as set
forth in Section 11 below), exercise this Option to the extent Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise this Option at the date of termination, or
if Optionee does not exercise such Option (which Optionee was entitled to
exercise) within the time periods specified herein, this Option shall terminate.
9. Death of Optionee. In the event of the death of Optionee:
(i) during the term of this Option while an Employee of
the Company and having been in Continuous Status as an Employee since the date
of grant of this Option, this Option may be exercised, at any time within one
(1) year following the date of death (but, in the case of an Incentive Stock
Option, in no event later than the date of expiration of the term of this Option
as set forth in Section 11 below), by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the time of death of the
Optionee. To the extent that such Employee was not entitled to exercise the
Option at the date of death, or if such Employee, estate or other person does
not exercise such Option (which such Employee, estate or person was entitled to
exercise) within the one (1) year time period specified herein, the Option shall
terminate; or
(ii) during the thirty (30) day period specified in
Section 7 or the one (1) year period specified in Section 8, after the
termination of Optionee's Continuous Status as an Employee, this Option may be
exercised, at any time within one (1) year following the date of death (but, in
the case of an Incentive Stock Option, in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below), by
Optionee's estate or by a person who acquired the right to exercise this Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination. To the extent that such Employee was not
entitled to exercise this Option at the date of death, or if such Employee,
estate or other person does not exercise such Option (which such Employee,
estate or person was entitled to exercise) within the one (1) year time period
specified herein, this Option shall terminate.
5
<PAGE> 27
10. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee, only by
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.
11. Term of Option. This Option may not be exercised more than
five (5) years from the date of grant of this Option, and may be exercised
during such term only in accordance with the Plan and terms of this Option;
provided, however, that the term of this option, if it is a Nonstatutory Stock
Option, may be extended for the period set forth in Section 9(i) or Section
9(ii) in the circumstances set forth in such Sections.
12. Early Disposition of Stock; Taxation Upon Exercise of Option.
If Optionee is an Employee and the Option qualifies as an ISO, Optionee
understands that, if Optionee disposes of any Shares received under this Option
within two (2) years after the date of this Agreement or within one (1) year
after such Shares were transferred to Optionee, Optionee will be treated for
federal income tax purposes as having received ordinary income at the time of
such disposition in any amount generally measured as the difference between the
price paid for the Shares and the lower of the fair market value of the Shares
at the date of exercise or the fair market value of the Shares at the of
disposition. Any gain recognized on such premature sale of the Shares in excess
of the amount treated as ordinary income will be characterized as capital gain.
Optionee hereby agrees to notify the Company in writing within thirty (30) days
after the date of any such disposition. Optionee understands that if Optionee
disposes of such Shares at any time after the expiration of such two-year and
one-year holding periods, any gain on such sale will be treated as long-term
capital gain laws subject to meeting various qualifications. If Optionee is a
Consultant or this is a Nonstatutory Stock Option, Optionee understands that,
upon exercise of this Option, Optionee will recognize income for tax purposes in
an amount equal to the excess of the then fair market value of the Shares over
the exercise price. Upon a resale of such shares by the Optionee, any difference
between the sale price and the fair market value of the Shares on the date of
exercise of the Option will be treated as capital gain or loss. Optionee
understands that the Company will be required to withhold tax from Optionee's
current compensation in some of the circumstances described above; to the extent
that Optionee's current compensation is insufficient to satisfy the withholding
tax liability, the Company may require the Optionee to make a cash payment to
cover such liability as a condition to exercise of this Option.
13. Tax Consequences. The Optionee understands that any of the
foregoing references to taxation are based on federal income tax laws and
regulations now in effect, and may not be applicable to the Optionee under
certain circumstances. The Optionee may also have adverse tax consequences under
state or local law. The Optionee has reviewed with the Optionee's own tax
advisors the federal, state, local and foreign tax consequences of the
transactions contemplated by this Agreement. The Optionee is relying solely on
such advisors and not on any statements or representations of the Company or any
of its agents. The Optionee understands that the Optionee (and not the Company)
shall be responsible for the Optionee's own tax liability that may arise as a
result of the transactions contemplated by this Agreement.
6
<PAGE> 28
14. Severability; Construction. In the event that any provision in
this Option shall be invalid or unenforceable, such provision shall be severable
from, and such invalidity or unenforceability shall not be construed to have any
effect on, the remaining provisions of this Option. This Option shall be
construed as to its fair meaning and not for or against either party.
15. Damages. The parties agree that any violation of this Option
(other than a default in the payment of money) cannot be compensated for by
damages, and any aggrieved party shall have the right, and is hereby granted the
privilege, of obtaining specific performance of this Option in any court of
competent jurisdiction in the event of any breach hereunder.
16. Governing Law. This Option shall be deemed to be made under
and governed by and construed in accordance with the laws of the State of New
York Jurisdiction for any disputes hereunder shall be solely in New York, New
York.
17. Delay. No delay or failure on the part of the Company or the
Optionee in the exercise of any right, power or remedy shall operate as a waiver
thereof, nor shall any single or partial exercise by any of them of any right,
power or remedy preclude other or further exercise thereof, or the exercise of
any other right, power or remedy.
18. Restrictions. Notwithstanding anything herein to the contrary,
Optionee understands and agrees that Optionee shall not dispose of any of the
Shares, whether by sale, exchange, assignment, transfer, gift, devise, bequest,
mortgage, pledge, encumbrance or otherwise, except in accordance with the terms
and conditions of this Section 18, and Optionee shall not take or omit any
action which will impair the absolute and unrestricted right, power, authority
and capacity of Optionee to sell Shares in accordance with the terms and
conditions hereof.
Any purported transfer of Shares by Optionee that violates any
provision of this Section 18 shall be wholly void and ineffectual and shall give
to the Company or its designee the right to purchase from Optionee all but not
less than all of the Shares then owned by Optionee for a period of 90 days from
the date the Company first learns of the purported transfer at the Agreement
Price and on the Agreement Terms (as those terms are defined in subsections
(b)(3) and (b)(4), respectively, of this Section 18). If the Shares are not
purchased by the Company or its designee, the purported transfer thereof shall
remain void and ineffectual and they shall continue to be subject to this
Agreement.
The Company shall not cause or permit the transfer of any
Shares to be made on its books except in accordance with the terms hereof.
(a)(1). Permitted Transfers.
(i) Optionee may sell, assign or transfer any Shares held
by the Optionee but only by complying with the provisions of subsection (b)(1)
of this Section 18.
7
<PAGE> 29
(ii) Optionee may sell, assign or transfer any Shares held
by the Optionee without complying with the provisions of subsection (b)(1) by
obtaining the prior written consent of the Company's shareholders owning 50% of
the then issued and outstanding shares of the Company's Common Stock (determined
on a fully diluted basis) or a majority of the members of the Board of Directors
of the Company, provided that the transferee agrees in writing to be bound by
the provisions of this Option and the transfer is made in accordance with any
other restrictions or conditions contained in the written consent and in
accordance with applicable federal and state securities laws.
(iii) Upon the death of Optionee, Shares held by the
Optionee may be transferred to the personal representative of the Optionee's
estate without complying with the provisions of subsection (b)(1). Shares so
transferred shall be subject to the other provisions of this Option, including
in particular subsection (b)(2).
(a)(2). No Pledge. Unless a majority of the members of the Board of
Directors consent, Shares may not be pledged, mortgaged or otherwise encumbered
to secure indebtedness for money borrowed or any other obligation for which the
Optionee is primarily or secondarily liable.
(a)(3). Stock Certificate Legend. Each stock certificate for Shares
issued to the Optionee shall have conspicuously written, printed, typed or
stamped upon the face thereof, or upon the reverse thereof with a conspicuous
reference on the face thereof, one or both of the following legend:
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE TRANSFERRED IN THE ABSENCE OF REGISTRATION THEREUNDER OR AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT. SUCH SHARES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN ANY MANNER
EXCEPT IN ACCORDANCE WITH AND SUBJECT TO THE TERMS OF THE STOCK OPTION
AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
UNLESS A MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS CONSENT, SUCH STOCK
OPTION AGREEMENT PROHIBITS ANY PLEDGE, MORTGAGE OR OTHER ENCUMBRANCE OF SUCH
SHARES TO SECURE ANY OBLIGATION OF THE HOLDER HEREOF. EVERY CREDITOR OF THE
HOLDER HEREOF AND ANY PERSON ACQUIRING OR PURPORTING TO ACQUIRE THIS CERTIFICATE
OR THE SHARES HEREBY EVIDENCED OR ANY INTEREST THEREIN IS HEREBY NOTIFIED OF THE
EXISTENCE OF SUCH STOCK OPTION AGREEMENT, AND ANY ACQUISITION OR PURPORTED
ACQUISITION OF THIS CERTIFICATE OR THE SHARES HEREBY EVIDENCED OR ANY INTEREST
THEREIN SHALL BE SUBJECT TO ALL RIGHTS AND OBLIGATIONS OF THE PARTIES TO SUCH
STOCK OPTION AGREEMENT AS THEREIN SET FORTH.
(ii) [any legend required by applicable state securities
laws]
8
<PAGE> 30
(b)(1). Sales of Shares.
(i) Company's Right of First Refusal. In the event that
the Optionee shall desire to sell, assign or transfer any Shares held by the
Optionee to any other person (the "Offered Shares") and shall be in receipt of a
bona fide offer to purchase the Offered Shares ("Offer"), the following
procedure shall apply. The Optionee shall give to the Company written notice
containing the terms and conditions of the Offer, including, but not limited to
(a) the number of Offered Shares; (b) the price per Share; (c) the method of
payment; and (d) the name(s) of the proposed purchaser(s).
An offer shall not be deemed bona fide unless the Optionee has
informed the prospective purchaser of the Optionee's obligation under this
Option and the prospective purchaser has agreed to become a party hereunder and
to be bound hereby. The Company is entitled to take such steps as it reasonably
may deem necessary to determine the validity and bona fide nature of the Offer.
Until 30 days after such notice is given, the Company or its
designee shall have the right to purchase all of the Offered Shares at the price
offered by the prospective purchaser and specified in such notice. Such purchase
shall be on the Agreement Terms, as defined in subsection (b)(4).
(ii) Failure of Company or its Designee to Purchase
Offered Shares. If all of the Offered Shares are not purchased by the Company
and/or its designee within the 30-day period granted for such purchases, then
any remaining Offered Shares may be sold, assigned or transferred pursuant to
the Offer; provided, that the Offered Shares are so transferred within 30 days
of the expiration of the 30-day period to the person or persons named in, and
under the terms and conditions of, the bona fide Offer described in the notice
to the Company; and provided further, that such persons agree to execute and
deliver to the Company a written agreement, in form and content satisfactory to
the Company, agreeing to be bound by the terms and conditions of this Option.
(b)(2). Manner of Exercise.
Any right to purchase hereunder shall be exercised by giving
written notice of election to the Optionee, the Optionee's personal
representative or any other selling person, as the case may be, prior to the
expiration of such right to purchase.
(b)(3). Agreement Price.
The "Agreement Price" shall be the higher of (A) the fair
market value of the Shares to be purchased determined in good faith by the Board
of Directors of the Company and (B) the original exercise price of the Shares to
be purchased.
(b)(4). Agreement Terms. "Agreement Terms" shall mean and include the
following:
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<PAGE> 31
(i) Delivery of Shares and Closing Date. At the closing,
the Optionee, the Optionee's personal representative or such other selling
person, as the case may be, shall deliver certificates representing the Shares,
properly endorsed for transfer, and with the necessary documentary and transfer
tax stamps, if any, affixed, to the purchaser of such Shares. Payment of the
purchase price therefor shall concurrently be made to the Optionee, the
Optionee's personal representative or such other selling person, as provided in
subsection (ii) of this subsection (b)(4). Such delivery and payment shall be
made at the principal office of the Company or at such other place as the
parties mutually agree.
(ii) Payment of Purchase Price. The Company shall pay the
purchase price to the Optionee at the closing.
(b)(5). Right to Purchase Upon Certain Other Events.
The Company or its designee shall have the right to purchase
all, but not less than all, of the Shares held by the Optionee at the Agreement
Price and on the Agreement Terms for a period of 90 days after any of the
following events:
(i) an attempt by a creditor to levy upon or sell any of
the Optionee's Shares;
(ii) the filing of a petition by the Optionee under the
U.S. Bankruptcy Code or any insolvency laws;
(iii) the filing of a petition against Optionee under any
insolvency or bankruptcy laws by any creditor of the Optionee if such petition
is not dismissed within 30 days of filing; or
(iv) the entry of a decree of divorce between the Optionee
and the Optionee's spouse.
The Optionee shall provide the Company written notice of the occurrence of any
such event within 30 days of such event.
(c)(1). Termination. The provisions of this Section 18 shall
terminate and all rights of each such party hereunder shall cease except for
those which shall have theretofore accrued upon the occurrence of any of the
following events:
(i) cessation of the Company's business;
(ii) bankruptcy, receivership or dissolution of the Company;
(iii) ownership of all of the issued and outstanding shares of
the Company by a single shareholder of the Company;
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<PAGE> 32
(iv) written consent or agreement of the shareholders of the
Company holding 50% of the then issued and outstanding shares of the
Company (determined on a fully diluted basis);
(v) consent or agreement of a majority of the members of the
Board of Directors of the Company; or
(vi) registration of any class of equity securities of the
Company pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended.
(c)(2). Amendment. This Section 18 may be modified or amended in whole
or in part by a written instrument signed by shareholders of the Company holding
50% of the outstanding shares of Common Stock (determined on a fully diluted
basis) or a majority of the members of the Board of Directors of the Company.
19. Market Standoff. Unless the Board of Directors otherwise
consents, Optionee agrees hereby not to sell or otherwise transfer any Shares or
other securities of the Company during the 180-day period following the
effective date of a registration statement of the Company filed under the Act;
provided, however, that such restriction shall apply only to the first two
registration statements of the Company to become effective under the Act which
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
20. Complete Agreement. This Agreement constitutes the entire
agreement between the parties with respect to its subject matter, and supersedes
all other prior or contemporaneous agreements and understandings both oral or
written; subject, however, that in the event of any conflict between this
Agreement and the Plan, the Plan shall govern. This Agreement may only be
amended in a writing signed by the Company and the Optionee.
21. Privileges of Stock Ownership. Participant shall not have any
of the rights of a shareholder with respect to any Shares until Optionee
exercises the Option and pay the Exercise Price.
22. Notices. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated above or to such other address as
such party may designate in writing from time to tome to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by rapifax or telecopier.
11
<PAGE> 33
DATE OF GRANT:______________
BIGSTAR ENTERTAINMENT, INC.
By:______________________________
Name:
Title:
12
<PAGE> 34
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS OPTION, THE COMPANY'S PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND
THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan, represents that
Optionee is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of this Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board or
of the Committee upon any questions arising under the Plan.
Dated:______________
______________________________
Optionee
13
<PAGE> 35
Consent of Spouse
The undersigned spouse of the Optionee to the foregoing Stock
Option Agreement acknowledges on his or her own behalf that: I have read the
foregoing Stock Option Agreement and I know its contents. I hereby consent to
and approve of the provisions of the Stock Option Agreement, and agree that the
Shares issued upon exercise of the options covered thereby and my interest in
them are subject to the provisions of the Stock Option Agreement and that I will
take no action at any time to hinder operation of the Stock Option Agreement on
those Shares or my interest in them.
______________________________
Signature of Spouse
______________________________
Address
14
<PAGE> 1
BIGSTAR ENTERTAINMENT, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. Purposes of this Plan....................................................1
2. Definitions..............................................................1
3. Stock Subject to this Plan...............................................3
4. Administration of this Plan..............................................4
5. Eligibility..............................................................5
6. Term of Plan.............................................................5
7. Exercise Price and Consideration.........................................6
8. Options..................................................................7
9. Stock Purchase Rights....................................................8
10. Stock Appreciation Rights................................................9
11. Restricted Shares.......................................................10
12. Performance Units and Performance Shares................................11
13. Non-Transferability of Options and Stock Purchase Rights................12
14. Adjustments Upon Changes in Capitalization, Merger or Other Events......12
15. Time of Grant...........................................................12
16. Amendment and Termination...............................................13
17. Conditions Upon Issuance of Shares......................................13
18. Reservation of Shares...................................................14
19. Option, Stock Purchase and Stock Bonus Agreements.......................14
20. Shareholder Approval....................................................14
21. Information to Optionees and Purchasers.................................14
22. Right of Company to Terminate Employment or Consulting Services.........14
23. Rights of First Refusal and Repurchase..................................15
24. Withholding.............................................................15
25. Separability............................................................15
26. Non-Exclusivity of this Plan............................................16
27. Governing Law...........................................................16
28. Cancellation of and Substitution for Nonstatutory Options...............16
29. Market Standoff.........................................................16
Exhibit 1 - Form of Stock Option Agreement
-i-
<PAGE> 3
BIGSTAR ENTERTAINMENT, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
1. Purposes of this Plan. The general purpose of this 1999 Stock Option
and Incentive Plan is to promote the interests of the Company and its
shareholders by (i) providing certain Employees of and Consultants to the
Company with additional incentives to continue and increase their efforts with
respect to achieving success in the business of the Company, its Affiliates and
its Subsidiaries, and (ii) attracting and retaining the best available personnel
to participate in the ongoing business operations of the Company and its
Subsidiaries.
Options granted under this Plan may be either Incentive Stock
Options or Nonstatutory Stock Options, as determined at the discretion of the
Board and as reflected in the terms of the written option agreements. The Board
may also grant Stock Purchase Rights hereunder.
2. Definitions. As used in this Plan, the following definitions shall
apply:
"Affiliates" means any other entity directly or indirectly
controlling, controlled by, or under common control, with the Company.
"Affiliated SAR" means a SAR that is granted in connection with a
related Option, and which will be deemed to automatically be exercised
simultaneous with the exercise of the related Option.
"Award" means, individually or collectively, a grant under this
Plan, including any Nonqualified Stock Options, Incentive Stock Options, SARs,
Restricted Stock, Performance Units, or Performance Shares.
"Award Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and provisions applicable
to Awards granted to Participants under the Plan.
"Board" shall mean the Committee, if one has been appointed, or the
Board of Directors of the Company, if no Committee is appointed.
"Board of Directors" means the full Board of Directors of the
Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute or statutes thereto. Reference to any
particular Code section shall include any successor section.
"Committee" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of this Plan, if one is appointed, or
if no Committee is appointed, the Board of Directors.
"Common Stock" shall mean the Common Stock of the Company.
"Company" shall mean BigStar Entertainment, Inc., a Delaware
corporation.
"Consultant" shall mean any person who is engaged by the Company or
by any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, and any director of the Company whether compensated
for such services or not.
<PAGE> 4
"Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board; provided that such
leave is for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
"Disinterested Person" shall mean a member of the Board of Directors
of the Company: (i) who was not during the one year prior to service as an
administrator of this Plan granted or awarded equity securities pursuant to this
Plan, or any other plan of the Company or any of its affiliates entitling the
participants therein to acquire equity securities of the Company or any of its
affiliates except as permitted by Rule 16b-3(c)(2)(i) promulgated under the
Exchange Act ("Rule 16b-3(c)(2)(i)"); or (ii) who is otherwise considered to be
a "disinterested person" in accordance with Rule 16b-3(c)(2)(i), or any other
applicable rules, regulations or interpretations of the Securities and Exchange
Commission.
"Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company as a
common-law employee. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Freestanding SAR" means a SAR that is granted independently of any
Options.
"Incentive Stock Option" shall mean an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
"Major Event" shall be deemed to have occurred if (i) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of the
Company's common stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's common stock immediately prior to the merger generally have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger; (ii) there shall be consummated any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company; (iii) proceedings or actions
for the liquidation or dissolution of the Company are initiated by the Company;
or (iv) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange
Act) (other than persons who beneficially own more than 30% of the capital stock
of the Company on a fully diluted and as converted basis outstanding as of the
date of adoption of this Plan by the Board of Directors) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 30% or more of the Company's outstanding capital stock on a fully
diluted and as converted basis at such time; provided, however, that a "Major
Event" shall not be deemed to have occurred solely by reason of the consummation
of a public offering by the Company of common stock registered under the
Securities Act.
"Nonstatutory Stock Option" shall mean an Option which is not
intended to qualify as an Incentive Stock Option.
"Option" shall mean a stock option granted pursuant to this Plan.
"Optioned Stock" shall mean the Common Stock subject to an Option.
"Optionee" shall mean an Employee or Consultant who receives an
Option.
"Parent" shall mean a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
2
<PAGE> 5
"Participant" means an Employee of the Company who has outstanding
an Award granted under the Plan.
"Performance Unit" means an Award granted to an Employee pursuant to
Section 12.
"Performance Share" means an Award granted to an Employee, pursuant
to Section 12 herein.
"Period of Restriction" means the period during which the transfer
of Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance goals, or upon the occurrence of other
events as determined by the Committee, in its discretion), and the Shares are
subject to a substantial risk of forfeiture, as provided in Section 11.
"Plan" shall mean this 1998 Stock Option and Incentive Plan.
"Purchaser" shall mean an Employee or Consultant who exercises a
Stock Purchase Right.
"Restricted Stock" means an Award granted to a Participant pursuant
to Section 11.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 14 of this Plan.
"Stock Appreciation Right" or "SAR" means an Award, granted alone or
in connection with a related Option, designated as a SAR, pursuant to the terms
of Section 10.
"Stock Purchase Right" shall mean a right to purchase Common Stock
pursuant to this Plan or the right to receive a bonus of Common Stock for past
services.
"Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
"Tandem SAR" means a SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase a Share under the related Option (and when a Share is purchased under
the Option, a SAR shall similarly be cancelled).
3. Stock Subject to this Plan. Subject to the provisions of Section 14
of this Plan, the maximum aggregate number of Shares under this Plan is 500,000.
The Shares may be authorized but unissued, or reacquired Common Stock, or both.
If an Option or Stock Purchase Right should expire, terminate, be cancelled or
become unexercisable for any reason without having been exercised in full, then
the unpurchased Shares which were subject thereto shall, unless this Plan shall
have been terminated, become available for future grant or sale under this Plan.
In addition, Shares issued under this Plan and later repurchased or otherwise
reacquired by the Company shall, unless this Plan shall have been terminated,
become available for future grant or sale under this Plan.
4. Administration of this Plan.
(a) Procedure. This Plan shall be administered by the Board of
Directors of the Company unless and until the Board of Directors delegates
administration to a Committee, as provided in this Section 4(a).
3
<PAGE> 6
(i) Subject to Section 4(a)(ii), the Board of Directors may
appoint a Committee consisting of not less than two persons (who need not be
members of the Board of Directors) to administer this Plan on behalf of the
Board of Directors, subject to such terms and conditions not inconsistent with
this Plan as the Board of Directors may prescribe. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board of Directors.
Members of the Board who are either eligible for Options and/or Stock Purchase
Rights or have been granted Options and/or Stock Purchase Rights may vote on any
matters affecting the administration of this Plan or the grant of any Options
and/or Stock Purchase Rights pursuant to this Plan, except that no such member
shall act upon the granting of an option to such member, but any such member may
be counted in determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting of Options and/or
Stock Purchase Rights to such member.
(ii) Notwithstanding the foregoing Section 4(a)(i), if the
Company registers any class of any equity security pursuant to Section 12 of the
Exchange Act, from the effective date of such registration until six months
after the termination of such registration, any grants of Options and/or Stock
Purchase Rights to directors or officers who are subject to Section 16 of the
Exchange Act shall be made only by a Committee consisting of two or more
persons, each of whom shall be a Disinterested Person (if necessary to meet the
requirements of Rule 16b-3 promulgated under the Exchange Act). The Board shall
otherwise comply with the requirements of Rule 16b-3 promulgated under the
Exchange Act, as from time to time in effect, unless the Board expressly
declares that any such requirement shall not apply.
(iii) Subject to the foregoing Sections 4(a)(i) and 4(a)(ii),
from time to time the Board of Directors may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused,
or remove all members of the Committee and thereafter directly administer this
Plan. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors.
(b) Powers of the Board. Subject to the provisions of this Plan, the
Board shall have plenary authority, in its discretion and without limitation, to
do the following: (i) to grant Incentive Stock Options, Nonstatutory Stock
Options or Stock Purchase Rights; (ii) to determine, upon review of relevant
information and in accordance with Section 7 of this Plan, the fair market value
of the Common Stock; (iii) to determine the exercise price per share of Options
or Stock Purchase Rights to be granted, which exercise price shall be determined
in accordance with Section 7 hereof; (iv) to determine the Employees or
Consultants to whom, and the time or times at which, Options or Stock Purchase
Rights shall be granted and the number of Shares to be represented by each
Option or Stock Purchase Right; (v) to interpret this Plan; (vi) to prescribe,
amend and rescind rules and regulations relating to this Plan, and in the
exercise of this power, to correct any defect, omission or inconsistency in this
Plan or in any agreement relating to an Option or Stock Purchase Right, in a
manner and to the extent the Board shall deem necessary or expedient to make
this Plan fully effective; (vii) to determine the terms and provisions of each
Option or Stock Purchase Right granted (which need not be identical) and, with
the consent of the holder thereof, modify or amend each Option or Stock Purchase
Right; (viii) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option or Stock Purchase Right
previously granted by the Board; and (ix) to make all other determinations
deemed necessary or advisable for the administration of this Plan.
(c) Board Determinations. In making determinations under this Plan,
the Board may take into account the nature of the services rendered by the
respective Employees, their present and potential contributions to the success
of the Company, or its Subsidiaries, as the case may be, and such other factors
as the Board in its discretion shall deem relevant. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionees, Purchasers and any other holders of any Options and/or Stock
Purchase Rights granted under this Plan.
5. Eligibility.
4
<PAGE> 7
(a) Options and Stock Purchase Rights may be granted to Employees,
provided that Incentive Stock Options may only be granted to Employees. An
Employee who has been granted an Option or Stock Purchase Right may, if such
Employee is otherwise eligible, be granted additional Option(s) or Stock
Purchase Right(s).
(b) No Incentive Stock Option may be granted to an Employee which,
when aggregated with all other Incentive Stock Options granted to such Employee
by the Company or by any Parent or Subsidiary, would result in Shares having an
aggregate fair market value (determined for each Share as of the date of grant
of the Option covering such Share) in excess of $100,000 (or such different
amount as provided for under the Code requirements for Incentive Stock Options)
becoming first available for purchase upon exercise of one or more incentive
stock options during any calendar year.
(c) Section 5(b) of this Plan shall apply only to an Incentive Stock
Option evidenced by a stock option agreement which sets forth the intention of
the Company and the Optionee that such Option shall qualify as an Incentive
Stock Option. Section 5(b) of this Plan shall not apply to any Option evidenced
by a stock option agreement which sets forth the intention of the Company and
the Optionee that such Option shall be a Nonstatutory Stock Option.
(d) On and after the effective date of the registration of any class
of equity security of the Company pursuant to Section 12 of the Exchange Act, a
member of the Board of Directors who is not an Employee shall not be eligible
for the benefits of this Plan unless at the time an Option or Stock Purchase
Right is granted to such member, the Board expressly declares that such
exclusion will not apply.
6. Term of Plan. This Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by vote of the
holders of a majority of the outstanding shares of the Company entitled to vote
on the adoption of this Plan. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 16 of this Plan.
7. Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option or Stock Purchase Right shall be such price as
is determined by the Board, but shall be subject to the following provisions:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per share exercise price shall be no less than 110% of the
fair market value per share on the date of grant.
(B) granted to any Employee other than an Employee
described in Section 7(a)(i)(A), the per share exercise price shall be no less
than 100% of the fair market value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option:
(A) granted to an Employee or Consultant who, at the
time of the grant of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per share exercise price shall be no less than 110% of the
fair market value per share on the date of the grant.
5
<PAGE> 8
(B) granted to any Employee or Consultant, other than an
Employee or Consultant described in Section 7(a)(ii)(A), the per share exercise
price shall be no less than 85% of the fair market value per share on the date
of grant.
(iii) In the case of a Stock Purchase Right granted to any
person, the per share exercise price shall be no less than 85% of the fair
market value per share on the date of grant; provided, however, that if such
person at the time of the grant of such Stock Purchase Right, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per share exercise price
shall be no less than 100% of the fair market value per share on the date of the
grant.
(b) Fair market value shall be determined by the Board in its
discretion; provided, however, that where there is an active public market for
the Common Stock, the fair market value per share shall be determined as
follows:
(i) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, then the closing or last sale
price, respectively, on the date of grant, as reported in the Wall Street
Journal (or, if not so reported, as otherwise reported by the NASDAQ System).
(ii) If the Company's Common Stock is not traded on an
exchange or on the NASDAQ National Market System but is traded in the
over-the-counter market, then the mean of the closing bid and asked prices on
the date of grant as reported in the Wall Street Journal (or, if not so
reported, as otherwise reported by the NASDAQ System).
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or Stock Purchase Right, including the method of payment,
shall be determined by the Board and may consist entirely of cash, check,
promissory note or other deferred payment arrangement, other Shares of Common
Stock having a fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option or Stock Purchase Right
shall be exercised, or any combination of such methods of payment, or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law. In making its determination as to the type of
consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
8. Options.
(a) Term of Option. The term of each Option shall be ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
stock option agreement relating to such Option; provided that the term of a
Nonstatutory Stock Option may, as provided in Section 8(b)(iv), be extended for
a period of up to six (6) months. However, in the case of an Option granted to
an Employee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the stock option agreement relating to such Option.
(b) Exercise of Option.
(i) Procedure for Exercise; Rights as a Shareholder. Any
Option granted under this Plan shall be exercisable at such times and under such
conditions as determined by the Board, such as vesting conditions and/or
performance criteria with respect to the Company and/or the Optionee, and as
shall be permissible under the terms of this Plan. Notwithstanding anything
herein to the contrary, no Option granted hereunder shall have a vesting period
in excess of five (5) years.
6
<PAGE> 9
An Option may, but need not, include a provision whereby at
any time prior to termination of the Optionee's Continuous Status as an
Employee, the Optionee may elect to exercise the Option as to all or any part of
the Shares subject to the Option prior to the stated vesting date of the Option
or of any vesting installment or installments specified in the Option. Any
shares so purchased from any unvested installment or Option may be subject to a
repurchase right in favor of the Company or to any restriction the Board
determines to be appropriate.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. An Option may not be exercised for a fraction of a Share. Full
payment may, as authorized by the Board, consist of any consideration and method
of payment allowable under Section 7 of this Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 11 of this
Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
this Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(ii) Termination of Status as an Employee. In the event of
termination of an Optionee's Continuous Status as an Employee (as the case may
be), such Optionee may, but only within thirty (30) days after the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent that such Employee was entitled to exercise it at the date of such
termination. To the extent that such Employee was not entitled to exercise the
Option at the date of such termination, or if such Employee does not exercise
such Option (which such Employee was entitled to exercise) within such thirty
(30) day time period, the Option shall terminate.
(iii) Disability of Optionee. Notwithstanding the provisions
of Section 8(b)(ii) above, in the event of termination of an Optionee's
Continuous Status as an Employee as a result of such Employee's disability, such
Employee may, but only within six (6) months from the date of such termination
(but in no event later than the date of expiration of the term of such option as
set forth in the Option Agreement), exercise the Option to the extent such
Employee was entitled to exercise it at the date of such termination; provided
however, that if the Option is an Incentive Stock Option and the disability is
not a total and permanent disability (as defined in Section 422(c)(6) of the
Code), then if the Optionee does not exercise the Option within three months
after such termination, such Option shall automatically convert into a
Nonstatutory Stock Option; and provided, further, that if the termination is as
a result of a total and permanent disability (as defined in Section 422(c)(6) of
the Code), such Employee may within one (1) year from the date of such
termination, but in no event later than the date of expiration of the term of
such option as set forth in the Option Agreement), exercise the Option to the
extent such Employee was entitled to exercise it at the date of such
termination. To the extent that such Employee was not entitled to exercise the
Option at the date of termination, or if such Employee does not exercise such
Option (which such Employee was entitled to exercise) within the time periods
specified above, as the case may be, the Option shall terminate.
(iv) Death of Optionee. In the event of the death of an
Optionee: (A) while the Optionee is an Employee or Consultant, (B) during the
thirty (30) day period described in Section 8(b)(ii), or (C) during the one (1)
year period described in Section 8(b)(iii), the Option may be exercised, at any
time within one (1) year following the date of death (but, in the case of an
Incentive Stock Option, in
7
<PAGE> 10
no event later than the date of expiration of the term of such Incentive Stock
Option as set forth in the Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the time of
death of the Optionee. To the extent that such Employee or Consultant was not
entitled to exercise the Option at the date of death, or if such Employee or
Consultant, estate or other person does not exercise such Option (which such
Employee or Consultant, estate or person was entitled to exercise) within the
one (1) year time period specified in this Plan, the Option shall terminate.
9. Stock Purchase Rights.
(a) Rights to Purchase. After the Board determines that it will
offer an Employee or Consultant a Stock Purchase Right, it shall deliver to the
offeree a stock purchase agreement or stock bonus agreement, as the case may be,
setting forth the terms, conditions and restrictions relating to the offer,
including the number of Shares which such person shall be entitled to purchase,
and the time within which such person must accept such offer, which shall in no
event exceed six (6) months from the date upon which the Board made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a stock purchase agreement or stock bonus agreement in the form
approved by the Board.
(b) Issuance of Shares. Forthwith after payment therefor, the Shares
purchased shall be duly issued; provided, however, that the Board may require
that the Purchaser make adequate provision for any federal and state withholding
obligations of the Company as a condition to the Purchaser purchasing such
Shares.
(c) Other Provisions. The stock purchase agreement or stock bonus
agreement shall contain such other terms, provisions and conditions not
inconsistent with this Plan as may be determined by the Board, including rights
of first refusal as set forth in Section 20 hereof.
10. Stock Appreciation Rights.
(a) Grants of SARs. Tandem SARs may be awarded by the Committee in
connection with any Option granted under the Plan, either on the Date of Grant
of the Option or thereafter at any time prior to the exercise, termination or
expiration of the Option Nontandem SARs may also be granted by the Committee at
any time. On the Date of Grant of a Nontandem SAR, the Committee shall specify
the number of shares of Common Stock covered by such right and the base price of
shares of Common Stock to be used in connection with the calculation described
in Section 10(c) below. SARs shall be subject to such terms and conditions not
inconsistent with the other provisions of this Plan as the Committee shall
determine.
(b) Exercise of Tandem SARs. A Tandem SAR shall be exercisable only
to the extent that the related Option is exercisable and shall be exercisable
only for such period as the Committee may determine (which period may expire
prior to the expiration date of the related Option). Upon the exercise of all or
a portion of a Tandem SAR, the related Option shall be canceled with respect to
an equal number of shares of Common Stock. A Tandem SAR shall entitle the
Grantee to surrender to the Corporation unexercised the related Option, or any
portion thereof, and to receive from the Corporation in exchange therefor that
number of shares of Common Stock having an aggregate fair market value equal to
(A) the excess of (i) the fair market value of one (1) share of Common Stock as
of the date the Tandem SAR is exercised over (ii) the Option price per share
specified in such Option, multiplied by (B) the number of shares of Common Stock
subject to the Option, or portion thereof, which is surrendered. Cash shall be
delivered in lieu of any fractional shares.
(c) Exercise of Nontandem SARs. A Nontandem SAR shall be exercisable
during such period as the Committee shall determine prior to the Date of Grant.
The exercise of a Nontandem SAR shall entitle the Grantee to receive from the
Corporation that number of shares of Common Stock
8
<PAGE> 11
having an aggregate fair market value equal to (A) the excess of (i) the fair
market value of one (1) share of Common Stock as of the date on which the
Nontandem SAR is exercised over (ii) the base price of the shares covered by the
Nontandem SAR, multiplied by (B) the number of shares of Common Stock covered by
the Nontandem SAR, or the portion thereof being exercised. Cash shall be
delivered in lieu of any fractional shares.
(d) Settlement of SARs. As soon as is reasonably practicable after
the exercise of a SAR, the Corporation shall (i) issue, in the name of the
Grantee, stock certificates representing the total number of full shares of
Common Stock to which the Grantee is entitled pursuant to Section 10(b) or 10(c)
hereof and cash in an amount equal to the fair market value, as of the date of
exercise, of any resulting fractional shares, and (ii) if the Committee causes
the Corporation to elect to settle all or part of its obligations arising out of
the exercise of the SAR in cash pursuant to Section 10(e), deliver to the
Grantee an amount in cash equal to the fair market value, as of the date of
exercise, of the shares of Common Stock it would otherwise be obligated to
deliver.
(e) Cash Settlement. The Committee, in its discretion, may cause the
Corporation to settle all or any part of its obligation arising out of the
exercise of a SAR by the payment of cash in lieu of all or part of the shares of
Common Stock it would otherwise be obligated to deliver in an amount equal to
the fair market value of such shares on the date of exercise.
11. Restricted Shares.
(a) Grant of Restricted Shares. The Committee may from time to time
cause the Corporation to issue Restricted Shares under the Plan, subject to such
restrictions, conditions and other terms as the Committee may determine in
addition to those set forth herein.
(b) Restrictions. At the time a grant of Restricted Shares is made,
the Committee shall establish a period of time (the "Restricted Period")
applicable to such Restricted Shares. Each grant of Restricted Shares may be
subject to a different Restricted Period. The Committee may, in its sole
discretion, at the time a grant is made, prescribe restrictions in addition to
or other than the expiration of the Restricted Period, including the
satisfaction of corporate or individual performance objectives, which shall be
applicable to all or any portion of the Restricted Shares. Except with respect
to grants of Restricted Shares intended to qualify as performance based
compensation for purposes of Section 162(m) of the Code, the Committee may also,
in its sole discretion, shorten or terminate the Restricted Period or waive any
other restrictions applicable to all or a portion of such Restricted Shares.
None of the Restricted Shares may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of prior to the date on which such Restricted
Shares vest in accordance with Section 11(c).
(c) Restricted Stock Certificates. The Corporation shall issue, in
the name of each Grantee, stock certificates with proper legends representing
the total number of Restricted Shares granted to the Grantee, as soon as
reasonably practicable after the Date of Grant. The Secretary of the Corporation
shall hold such certificates, properly endorsed for transfer, after the
Grantee's benefit until such time as the Restricted Shares are forfeited to the
Corporation or until the Restricted Shares vest. In lieu of the foregoing,
Restricted Shares awarded to a Grantee may be held under the Grantee's name in a
book entry account maintained by or on behalf of the Corporation.
(d) Rights of Holders of Restricted Shares. Except as otherwise
determined by the Committee either at the time Restricted Shares are awarded or
at any time thereafter prior to the lapse of the restrictions, holders of
Restricted Shares shall not have the right to vote such shares or the right to
receive any dividends with respect to such shares. All distributions, if any,
received by an employee or consultant with respect to Restricted Shares as a
result of any stock split-up, stock distribution, combination of shares, or
other similar transaction shall be subject to the restrictions of this Section
11.
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<PAGE> 12
(e) Termination of Employment Relationship. Any Restricted Shares
granted pursuant to the Plan shall be forfeited if the Grantee terminates
employment or consultant relationship with the Corporation or its subsidiaries
for reasons other than death or disability prior to the expiration or
termination of the Period of Restriction and the satisfaction of any other
conditions applicable to such Restricted Shares. Upon such forfeiture, the
Secretary of the Corporation shall either cancel or retain in its treasury the
Restricted Shares that are forfeited to the Corporation. Upon the death of a
Grantee prior to his termination of employment or service as a consultant, or
upon a Grantee's termination of employment as a result of disability, all
Restricted Shares previously awarded to such Grantee which have not previously
vested shall be forfeited unless the Committee in its sole discretion shall
determine otherwise.
(f) Delivery of Restricted Shares. Subject to the provisions of this
Section, at such time as the Grantee shall become vested in his Restricted
Shares, the restrictions applicable to the Restricted Shares shall lapse and a
stock certificate for the number of Restricted Shares with respect to which the
restrictions have lapsed shall be delivered, free of all such restrictions, to
the Grantee or the Grantee's beneficiary or estate, as the case may be.
12. Performance Units and Performance Shares.
(a) Grant of Performance Units/Shares. Subject to the terms of the
Plan, Performance Units and Performance Shares may be granted to eligible
Employees and Consultants at any time and from time to time, as shall be
determined by the Committee, in its sole discretion. The Committee shall have
complete discretion in determining the number of Performance Units and
Performance Shares granted to each Participant.
(b) Value of Performance Units/Shares. Each Performance Unit shall
have an initial value that is established by the Committee at the time of the
grant. Each Performance Share shall have an initial value equal to the Fair
Market Value of a Share on the date of grant. The Committee shall set
performance goals in its discretion which, depending on the extent to which they
are met, will determine the number and/or value of Performance Units/Shares that
will be paid out to the Participants. The time period during which the
performance goals must be met shall be called a "Performance Period."
Performance Periods of Awards granted to Insiders shall, in all cases, exceed
six (6) months in length.
(c) Earning of Performance Units/Shares. After the applicable
Performance Period has ended, the holder of Performance Units/Shares shall be
entitled to receive a payout of the number of Performance Unit/Shares earned by
the Participant over the Performance Period, to be determined as a function of
the extent to which the corresponding performance goals have been achieved.
Notwithstanding the preceding sentence, after the grant of a Performance
Unit/Share, the Committee, in its sole discretion, may waive the achievement of
any performance goals for such Performance Unit/Share.
(d) Form and Timing of Payment of Performance Units/Shares. Payment
of earned Performance Units/Shares shall be made in a single lump sum, within
forty-five (45) calendar days following the close of the applicable Performance
Period. The Committee, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market
Value equal to the value of the earned Performance Units/Shares at the close of
the applicable Performance Period) or in combination thereof.
Prior to the beginning of each Performance Period,
Participants may, in the discretion of the Committee, elect to defer the receipt
of any Performance Unit/Share payout upon such terms as the Committee shall
determine.
(e) Cancellation of Performance Units/Shares. Subject to the
applicable Award Agreement, upon the earlier of (a) the Participant's
termination of employment, or (b) the date set forth in
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<PAGE> 13
the Award Agreement, all remaining Performance Units/Shares shall be forfeited
by the Participant to the Company, the Shares subject thereto shall again be
available for grant under the Plan.
(f) Nontransferability. Performance Units/Shares may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further a Participant's
rights under the Plan shall be exercisable during the Participant's lifetime
only by the Participant or the Participant's legal representative.
13. Non-Transferability of Options and Stock Purchase Rights. Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee or Purchaser, only by the Optionee or Purchaser.
14. Adjustments Upon Changes in Capitalization, Merger or Other Events.
Subject to any required action by the shareholders of the Company, the number of
shares of Common Stock covered by each outstanding Option and Stock Purchase
Right, and the number of shares of Common Stock which have been authorized for
issuance under this Plan but as to which no Options or Stock Purchase Rights
have yet been granted or which have been returned to this Plan upon cancellation
or expiration of an Option or Stock Purchase Right, or repurchase of Shares from
a Purchaser or Optionee upon termination of employment or otherwise, as well as
the price per share of Common Stock covered by each such outstanding Option or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock of the Company or the payment of a stock dividend with respect
to the Common Stock. Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option or Stock Purchase
Rights.
In the event of the dissolution or liquidation of the Company, all
Options and Stock Purchase Rights will terminate immediately prior to the
consummation of such proposed action if not previously exercised. The Board, at
its option, may provide for one or more of the following from time to time or in
any stock option agreement or stock purchase agreement that, in the event of a
Major Event, then (A) all Options and Stock Purchase Rights will be assumed or
equivalent options or stock purchase rights will be substituted by such
surviving corporation (or other entity) or a parent or subsidiary of such
surviving corporation (or other entity), (B) all Options and Stock Purchase
Rights will continue in full force and effect, or (C) all Options and Stock
Purchase Rights will terminate if not exercised prior to the consummation of the
transaction.
The foregoing adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
The grant of an Option or Stock Purchase Right pursuant to this Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or any part of its business or assets.
15. Time of Grant. The date of grant of an Option or Stock Purchase
Right shall, for all purposes, be the date on which the Board makes the
determination granting such Option or Stock Purchase Right. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
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<PAGE> 14
16. Amendment and Termination.
(a) Amendment. The Board may amend this Plan from time to time in
such respects as the Board may deem advisable; provided that the shareholders of
the Company must approve the following amendments or revisions within 12 months
before or after the adoption of such revision or amendment:
(i) any increase in the number of Shares subject to this Plan,
other than in connection with an adjustment under Section 14 of this Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options (to the extent such modification requires
shareholder approval in order for the Plan to satisfy the requirements of
Section 422(b) of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act); or
(iii) any other revision or amendment if such revision or
amendment requires shareholder approval in order for this Plan to satisfy the
requirements of Section 422(b) of the Code or to comply with the requirements of
Rule 16b-3 promulgated under the Exchange Act if applicable to the Company.
(b) Shareholder Approval. If any amendment requiring shareholder
approval under Section 16(a) of this Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 20 of this Plan.
(c) Suspension and Termination. The Board may suspend or terminate
this Plan at any time. No Options or Stock Purchase Rights may be granted while
this Plan is suspended or after it is terminated.
(d) Effect of Amendment; Termination or Suspension. Any such
amendment, termination or suspension of this Plan shall not affect Options or
Stock Purchase Rights already granted and such Options or Stock Purchase Rights
shall remain in full force and effect as if this Plan had not been amended,
terminated or suspended, unless mutually agreed otherwise between the Optionee
or Purchaser (as the case may be) and the Company, which agreement must be in
writing and signed by the Optionee or Purchaser (as the case may be) and the
Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange or other stock trading system upon which the Shares may then be listed.
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to make such representations and warranties at the time of any such
exercise as the Company may at that time determine, including without
limitation, representations and warranties that (i) the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares in violation of applicable federal or state securities
laws, and (ii) such person is knowledgeable and experienced in financial and
business matters and is capable of evaluating the merits and the risks
associated with purchasing the Shares.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of this Plan.
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<PAGE> 15
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares under this Plan,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
19. Option, Stock Purchase and Stock Bonus Agreements. Options shall be
evidenced by written stock option agreements in such form as the Board shall
approve. Upon the exercise of Stock Purchase Rights, the Purchaser shall sign a
stock purchase agreement or stock bonus agreement in such form as the Board
shall approve.
20. Shareholder Approval.
(a) The shareholders of the Company shall have approved this Plan
within 12 months before or after this Plan is adopted. Any shares purchased
before shareholder approval is obtained shall be rescinded if shareholder
approval is not obtained within 12 months before or after this Plan is adopted.
Such shares shall not be counted in determining whether such approval is
obtained.
(b) If the Company registers any class of equity securities pursuant
to Section 12 of the Exchange Act, any required approval of the shareholders of
the Company obtained after such registration shall be solicited substantially in
accordance with Section 14(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(c) If the Company registers any class of equity securities pursuant
to Section 12 of the Exchange Act and if prior to such time either (x) the
shareholders of the Company did not approve this Plan or (y) the Company did not
solicit shareholder approval substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder, then the
Company shall take all necessary actions to qualify the Plan under Rule 16(b)(3)
promulgated under the Exchange Act at or prior to the later of (A) the first
annual meeting of shareholders held subsequent to the first registration of any
class of equity securities of the Company under Section 12 of the Exchange Act
or (B) the granting of an Option hereunder to an officer or director after such
registration.
21. Information to Optionees and Purchasers. The Company shall provide
annually to each Optionee and Purchaser, during the period that such Optionee or
Purchaser has one or more Options or Stock Purchase Rights outstanding, copies
of the annual financial statements of the Company.
22. Right of Company to Terminate Employment or Consulting Services.
This Plan shall not confer upon any Optionee or holder of a Stock Purchase Right
any right with respect to continuation of employment by or the rendition of
consulting services to the Company, any of its Subsidiaries or its Parent, nor
shall it interfere in any way with his or her right or the Company's, any of its
Subsidiaries' or its Parent's right to terminate his or her employment or
services at any time, with or without cause.
23. Rights of First Refusal and Repurchase.
(a) The written agreements evidencing Options or Stock Purchase
Rights may contain such provisions as the Board shall determine (or pursuant to
a separate agreement) to the effect that if an Optionee or Purchaser elects to
sell all or any Shares that the Optionee or Purchaser acquired upon the exercise
of an Option or Stock Purchase Right, then any proposed sale of such Shares by
such Optionee or Purchaser shall be subject to a right of first refusal in favor
of the Company.
(b) The Board may require, at its option, that a stock purchase
agreement, stock option agreement, stock bonus agreement, or other agreement
pursuant to this Plan grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the Purchaser's employment with the
Company for any reason (including death or disability). The repurchase price
shall be at the higher of the original purchase price or fair value of the
Shares on the date of termination of
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<PAGE> 16
employment. If the Board so determines, the purchase price for shares
repurchased may be paid by cancellation of any indebtedness of the Purchaser to
the Company. The repurchase option must be exercised by the Company within 90
days of termination of employment for cash or cancellation of money indebtedness
for the Shares and the right shall terminate when the Company's Common Stock
becomes publicly traded. The Board may require such a repurchase right in other
events.
(c) Certificates representing shares issued upon exercise of Options
or Stock Purchase Rights shall bear a restrictive legend to the effect that the
transferability of such shares is subject to the restrictions contained in this
Plan and the applicable written agreement between the Optionee or Purchaser and
the Company.
24. Withholding. The Company's obligation to deliver shares of Common
Stock under this Plan shall be subject to applicable federal, state and local
tax withholding requirements. To the extent provided by the terms of the stock
option agreement relating to an Option, the Optionee may satisfy any federal,
state or local tax withholding obligation relating to the exercise of such
Option by any or a combination of the following means: (i) cash payment or wage
withholding; (ii) authorizing the Company to withhold from the Shares otherwise
issuable to the Optionee upon exercise of the Option the number of Shares having
a fair market value less than or equal to the amount of the withholding tax
obligation; or (iii) delivering to the Company unencumbered shares of Common
Stock owned by the Optionee having a fair market value less than or equal to the
amount of the withholding tax obligation; provided, however, that with respect
to clauses (ii) and (iii) above the Board in its sole discretion may disapprove
such payment and require that such taxes be paid in cash.
25. Separability. At a time when the Company has a class of equity
securities registered pursuant to Section 12 of the Exchange Act, if any of the
terms or provisions of this Plan conflict with the requirements of Rule 16b-3
promulgated under the Exchange Act and/or Section 422 of the Code, then such
terms or provisions shall be deemed inoperative to the extent they so conflict
with the requirements of Rule 16b-3 promulgated under the Exchange Act, and/or
with respect to Incentive Stock Options, Section 422 of the Code. The foregoing
sentence shall not apply with respect to the requirements of Rule 16b-3
promulgated under the Exchange Act if the Board has expressly declared that such
requirements shall not apply. With respect to Incentive Stock Options, if this
Plan does not contain any provision required to be included herein under Section
422 of the Code, such provision shall be deemed to be incorporated herein with
the same force and effect as if such provision had been set out at length
herein. To the extent any Option that is intended to qualify as an Incentive
Stock Option cannot so qualify, such Option, to that extent, shall be deemed to
be a Nonstatutory Stock Option for all purposes of this Plan.
26. Non-Exclusivity of this Plan. The adoption of this Plan by the Board
shall not be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options and the awarding of stock and
cash otherwise than under this Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.
27. Governing Law. This Plan shall be governed by, and construed in
accordance with the laws of the State of New York.
28. Cancellation of and Substitution for Nonstatutory Options. The
Company shall have the right to cancel any Nonstatutory Stock Option at any time
before it otherwise would have expired by its terms and to grant to the same
Optionee in substitution therefor a new Nonstatutory Stock Option stating an
option price which is lower (but not higher) than the option price stated in the
cancelled Option. Any such substituted option shall contain all the terms and
conditions of the cancelled Option; provided, however, that such substituted
Option shall not be exercisable after the expiration of ten (10) years and one
day from the date of grant of the cancelled Option.
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<PAGE> 17
29. Market Standoff. Unless the Board determines otherwise, each
Optionee or Purchaser shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the Securities Act;
provided, however, that such restriction shall apply only to the first two
registration statements of the Company to become effective under the Securities
Act which includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such 180-day period.
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<PAGE> 18
Exhibit 1
Form of Stock Option Agreement
<PAGE> 19
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into
as of the date of grant set forth below (the "Date of Grant") by and between
BigStar Entertainment, Inc., a Delaware corporation (the "Company"), and the
optionee named below ("Optionee"). Capitalized terms not defined herein shall
have the meaning ascribed to them in the Company's 1999 Stock Option & Incentive
Plan (the "Plan").
Optionee: ______________________________________________
Social Security Number: ______________________________________________
Address: ______________________________________________
______________________________________________
Total Option Shares: ______________________________________________
Exercise Price Per Share: ______________________________________________
Date of Grant: ______________________________________________
Type of Stock Option: [ ] Incentive Stock Option ("ISO")
(Check one): [ ] Non-Statutory Stock Option
1. Grant of Option. The Company hereby grants to Optionee an option
(the "Option") to purchase the total number of shares of Common Stock of the
Company set forth above (the "Shares") at the Exercise Price Per Share set forth
above (the "Exercise Price"), subject to all of the terms and conditions of this
Agreement and the Plan. If designated as an Incentive Stock Option above, the
Option is intended to qualify as an "incentive stock option" ("ISO") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Only Employees of the Company shall receive ISOs.
2. Exercise Price. The Exercise Price, is not less than the fair market
value per share of Common Stock on the date of grant, as determined by the
Board; provided, however, in the event Optionee is an Employee and owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of its Parent or Subsidiary corporations
immediately before this Option is granted, said exercise price is not less than
one hundred ten percent (110%) of the fair market value per share of Common
Stock on the date of grant as determined by the Board.
3. Exercise of Option. This Option shall be exercisable during its term
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Vesting
(a) This Option shall not become exercisable as to any of the
number of the Shares as follows (check one) :
<PAGE> 20
[ ]: until the date that is one (1) year from the date of grant of the
Option (the "Anniversary Date"). On the Anniversary Date, this
Option may be exercised to the extent of 25% of the Shares. Upon the
expiration of each calendar month from the Anniversary Date, this
Option may be exercised to the extent of the product of (a) the
total number of Shares set forth at the beginning of this Agreement
and (b) the fraction the numerator of which is one (1) and the
denominator of which is forty-eight (48) (the "Monthly Vesting
Amount"), plus the shares as to which the right to exercise the
Option has previously accrued but has not been exercised; provided,
however, that notwithstanding any of the above, the 25% exercisable
on the Anniversary Date and the Monthly Vesting Amount with respect
to any calendar month shall become exercisable only if the Employee
was an employee of the Company or any Subsidiary of the Company as
of the Anniversary Date and the last day of such month,
respectively.
[ ]: ____ % of the shares vesting over ____ months, pro rata for each
month of Optionee providing continued service to the Company.
[ ]: ________________________________________________.
(b) This Option may not be exercised for a fraction of a
Share.
(c) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitations contained in subsection
3(i)(d).
(d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in Section 11 below.
(ii) Method of Exercise. This Option shall be exercisable by written
notice which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by Optionee and
shall be delivered in person or by certified mail to the President, Secretary or
Chief Financial Officer of the Company. The written notice shall be accompanied
by payment of the exercise price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(iii) Adjustments, Merger, etc. The number and class of the Shares
and/or the exercise price specified above are subject to appropriate adjustment
in the event of changes in the capital stock of the Company by reason of stock
dividends, split-ups or combinations of shares, reclassifications, mergers,
consolidations, reorganizations or liquidations. Subject to any required action
of the stockholders of the Company, if the Company shall be the surviving
corporation in any merger or consolidation, this Option (to the extent that it
is still outstanding) shall pertain to and apply to the securities to which a
holder of the same number of shares of Common Stock that are then subject to
this Option would have been entitled. A dissolution or liquidation of the
Company, or a merger or consolidation in which the Company is not the surviving
corporation, will cause this Option to terminate, unless the agreement or merger
or consolidation shall otherwise provide, provided that the Optionee shall, if
the Board expressly authorizes, in such event have the right immediately prior
to such dissolution or liquidation, or merger or consolidation, to exercise this
Option in whole or part. To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by the Board,
whose
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<PAGE> 21
determination in that respect shall be final, binding and conclusive. In the
event that (i) Optionee is an Employee, and (ii) the Company consummates a
merger resulting in a change in control of the Company, and (iii) the Employee
is terminated without cause, then any options remaining unvested hereunder shall
be deemed to automatically vest.
4. Optionee's Representations. By receipt of this Option, by its
execution, and by its exercise in whole or in part, Optionee represents to the
Company that Optionee understands that:
(i) both this Option and any Shares purchased upon its exercise are
securities, the issuance by the Company of which requires compliance with
federal and state securities laws;
(ii) these securities are made available to Optionee only on the
condition that Optionee makes the representations contained in this Section 4 to
the Company;
(iii) Optionee has made a reasonable investigation of the affairs of
the Company sufficient to be well informed as to the rights and the value of
these securities;
(iv) Optionee understands that the securities have not been
registered under the Securities Act of 1933, as amended (the "Act") in reliance
upon one or more specific exemptions contained in the Act, which may include
reliance on Rule 701 promulgated under the Act, if available, or which may
depend upon (a) Optionee's bona fide investment intention in acquiring these
securities; (b) Optionee's intention to hold these securities in compliance with
federal and state securities laws; (c) Optionee having no present intention of
selling or transferring any part thereof (recognizing that the Option is not
transferable) in violation of applicable federal and state securities laws; and
(d) there being certain restrictions on transfer of the Shares subject to the
Option;
(v) Optionee understands that the Shares subject to this Option, in
addition to other restrictions on transfer, must be held indefinitely unless
subsequently registered under the Act, or unless an exemption from registration
is available; that Rule 144, the usual exemption from registration, is only
available after the satisfaction of certain holding periods and in the presence
of a public market for the Shares; that there is no certainty that a public
market for the Shares will exist, and that otherwise it will be necessary that
the Shares be sold pursuant to another exemption from registration which may be
difficult to satisfy; and
(vi) Optionee understands that the certificate representing the
Shares will bear a legend prohibiting their transfer in the absence of their
registration or the opinion of counsel for the Company that registration is not
required, and a legend prohibiting their transfer in compliance with applicable
state securities laws unless otherwise exempted.
5. Method of Payment. Payment of the purchase price shall be made by
cash, check or, in the sole discretion of the Board at the time of exercise,
promissory notes or other Shares of Common Stock having a fair market value on
the date of surrender equal to the aggregate purchase price of the Shares being
purchased.
6. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
7. Termination of Status as an Employee. In the event of termination of
Optionee's Continuous Status as an Employee for any reason other than death or
disability, Optionee may, but only within thirty (30) days after the date of
such termination (but in no event later than the date of expiration of the term
of this Option as set forth in Section 11 below), exercise this Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to
3
<PAGE> 22
exercise this Option at the date of such termination, or if Optionee does not
exercise this Option within the time specified herein, this Option shall
terminate.
8. Disability of Optionee. In the event of termination of Optionee's
Continuous Status as an Employee as a result of Optionee's disability, Optionee
may, but only within six (6) months from the date of termination of employment
or consulting relationship (but in no event later than the date of expiration of
the term of this Option as set forth in Section 11 below), exercise this Option
to the extent Optionee was entitled to exercise it at the date of such
termination; provided, however that if the disability is not total and permanent
(as defined in Section 22(e)(3) of the Code) and the Optionee exercises the
option within the period provided above but more than three months after the
date of termination, this Option shall automatically be deemed to be a
Nonstatutory Stock Option and not an Incentive Stock Option; and provided,
further, that if the disability is total and permanent (as defined in Section
22(e)(3) of the Code), then the Optionee may, but only within one (1) year from
the date of termination of employment or consulting relationship (but in no
event later than the date of expiration of the term of this Option as set forth
in Section 11 below), exercise this Option to the extent Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise this Option at the date of termination, or if Optionee
does not exercise such Option (which Optionee was entitled to exercise) within
the time periods specified herein, this Option shall terminate.
9. Death of Optionee. In the event of the death of Optionee:
(i) during the term of this Option while an Employee of the Company
and having been in Continuous Status as an Employee since the date of grant of
this Option, this Option may be exercised, at any time within one (1) year
following the date of death (but, in the case of an Incentive Stock Option, in
no event later than the date of expiration of the term of this Option as set
forth in Section 11 below), by Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the time of death of the Optionee.
To the extent that such Employee was not entitled to exercise the Option at the
date of death, or if such Employee, estate or other person does not exercise
such Option (which such Employee, estate or person was entitled to exercise)
within the one (1) year time period specified herein, the Option shall
terminate; or
(ii) during the thirty (30) day period specified in Section 7 or the
one (1) year period specified in Section 8, after the termination of Optionee's
Continuous Status as an Employee, this Option may be exercised, at any time
within one (1) year following the date of death (but, in the case of an
Incentive Stock Option, in no event later than the date of expiration of the
term of this Option as set forth in Section 11 below), by Optionee's estate or
by a person who acquired the right to exercise this Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination. To the extent that such Employee was not entitled to
exercise this Option at the date of death, or if such Employee, estate or other
person does not exercise such Option (which such Employee, estate or person was
entitled to exercise) within the one (1) year time period specified herein, this
Option shall terminate.
10. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee, only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
11. Term of Option. Subject to the other terms of this Agreement, this
Option may not be exercised more than five (5) years from the date of grant of
this Option, and may be exercised during such term only in accordance with the
Plan and terms of this Option; provided, however, that the term of this option,
if it is a Nonstatutory Stock Option, may be extended for the period set forth
in Section 9(i) or Section 9(ii) in the circumstances set forth in such
Sections.
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<PAGE> 23
12. Early Disposition of Stock; Taxation Upon Exercise of Option. If
Optionee is an Employee and the Option qualifies as an ISO, Optionee understands
that, if Optionee disposes of any Shares received under this Option within two
(2) years after the date of this Agreement or within one (1) year after such
Shares were transferred to Optionee, Optionee will be treated for federal income
tax purposes as having received ordinary income at the time of such disposition
in any amount generally measured as the difference between the price paid for
the Shares and the lower of the fair market value of the Shares at the date of
exercise or the fair market value of the Shares at the of disposition. Any gain
recognized on such premature sale of the Shares in excess of the amount treated
as ordinary income will be characterized as capital gain. Optionee hereby agrees
to notify the Company in writing within thirty (30) days after the date of any
such disposition. Optionee understands that if Optionee disposes of such Shares
at any time after the expiration of such two-year and one-year holding periods,
any gain on such sale will be treated as long-term capital gain laws subject to
meeting various qualifications. If Optionee is a Consultant or this is a
Nonstatutory Stock Option, Optionee understands that, upon exercise of this
Option, Optionee will recognize income for tax purposes in an amount equal to
the excess of the then fair market value of the Shares over the exercise price.
Upon a resale of such shares by the Optionee, any difference between the sale
price and the fair market value of the Shares on the date of exercise of the
Option will be treated as capital gain or loss. Optionee understands that the
Company will be required to withhold tax from Optionee's current compensation in
some of the circumstances described above; to the extent that Optionee's current
compensation is insufficient to satisfy the withholding tax liability, the
Company may require the Optionee to make a cash payment to cover such liability
as a condition to exercise of this Option.
13. Tax Consequences. The Optionee understands that any of the foregoing
references to taxation are based on federal income tax laws and regulations now
in effect, and may not be applicable to the Optionee under certain
circumstances. The Optionee may also have adverse tax consequences under state
or local law. The Optionee has reviewed with the Optionee's own tax advisors the
federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. The Optionee is relying solely on such advisors
and not on any statements or representations of the Company or any of its
agents. The Optionee understands that the Optionee (and not the Company) shall
be responsible for the Optionee's own tax liability that may arise as a result
of the transactions contemplated by this Agreement.
14. Severability; Construction. In the event that any provision in this
Option shall be invalid or unenforceable, such provision shall be severable
from, and such invalidity or unenforceability shall not be construed to have any
effect on, the remaining provisions of this Option. This Option shall be
construed as to its fair meaning and not for or against either party.
15. Damages. The parties agree that any violation of this Option (other
than a default in the payment of money) cannot be compensated for by damages,
and any aggrieved party shall have the right, and is hereby granted the
privilege, of obtaining specific performance of this Option in any court of
competent jurisdiction in the event of any breach hereunder.
16. Governing Law. This Option shall be deemed to be made under and
governed by and construed in accordance with the laws of the State of New York.
Jurisdiction for any disputes hereunder shall be solely in New York, New York.
17. Delay. No delay or failure on the part of the Company or the
Optionee in the exercise of any right, power or remedy shall operate as a waiver
thereof, nor shall any single or partial exercise by any of them of any right,
power or remedy preclude other or further exercise thereof, or the exercise of
any other right, power or remedy.
18. Restrictions. Notwithstanding anything herein to the contrary,
Optionee understands and agrees that Optionee shall not dispose of any of the
Shares, whether by sale, exchange, assignment, transfer, gift, devise, bequest,
mortgage, pledge, encumbrance or otherwise, except in accordance with the terms
and conditions of this Section 18, and Optionee shall not take or omit any
action which will
5
<PAGE> 24
impair the absolute and unrestricted right, power, authority and capacity of
Optionee to sell Shares in accordance with the terms and conditions hereof.
Any purported transfer of Shares by Optionee that violates any
provision of this Section 18 shall be wholly void and ineffectual and shall give
to the Company or its designee the right to purchase from Optionee all but not
less than all of the Shares then owned by Optionee for a period of 90 days from
the date the Company first learns of the purported transfer at the Agreement
Price and on the Agreement Terms (as those terms are defined in subsections
(b)(3) and (b)(4), respectively, of this Section 18). If the Shares are not
purchased by the Company or its designee, the purported transfer thereof shall
remain void and ineffectual and they shall continue to be subject to this
Agreement.
The Company shall not cause or permit the transfer of any Shares to
be made on its books except in accordance with the terms hereof.
(a)(1). Permitted Transfers.
(i) Optionee may sell, assign or transfer any Shares held by the
Optionee but only by complying with the provisions of subsection (b)(1) of this
Section 18.
(ii) Optionee may sell, assign or transfer any Shares held by the
Optionee without complying with the provisions of subsection (b)(1) by obtaining
the prior written consent of the Company's shareholders owning 50% of the then
issued and outstanding shares of the Company's Common Stock (determined on a
fully diluted basis) or a majority of the members of the Board of Directors of
the Company, provided that the transferee agrees in writing to be bound by the
provisions of this Option and the transfer is made in accordance with any other
restrictions or conditions contained in the written consent and in accordance
with applicable federal and state securities laws.
(iii) Upon the death of Optionee, Shares held by the Optionee may be
transferred to the personal representative of the Optionee's estate without
complying with the provisions of subsection (b)(1). Shares so transferred shall
be subject to the other provisions of this Option, including in particular
subsection (b)(2).
(a)(2). No Pledge. Unless a majority of the members of the Board of
Directors consent, Shares may not be pledged, mortgaged or otherwise encumbered
to secure indebtedness for money borrowed or any other obligation for which the
Optionee is primarily or secondarily liable.
(a)(3). Stock Certificate Legend. Each stock certificate for Shares issued
to the Optionee shall have conspicuously written, printed, typed or stamped upon
the face thereof, or upon the reverse thereof with a conspicuous reference on
the face thereof, one or both of the following legend:
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE TRANSFERRED IN THE ABSENCE OF REGISTRATION THEREUNDER OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT. SUCH SHARES MAY NOT BE
SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN ANY MANNER EXCEPT IN
ACCORDANCE WITH AND SUBJECT TO THE TERMS OF THE STOCK OPTION AGREEMENT, A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. UNLESS A MAJORITY OF
THE MEMBERS OF THE BOARD OF DIRECTORS CONSENT, SUCH STOCK OPTION AGREEMENT
PROHIBITS ANY PLEDGE, MORTGAGE OR OTHER ENCUMBRANCE OF SUCH SHARES TO SECURE ANY
OBLIGATION OF THE HOLDER HEREOF. EVERY CREDITOR OF THE HOLDER HEREOF AND ANY
PERSON ACQUIRING OR PURPORTING TO ACQUIRE THIS CERTIFICATE OR THE SHARES HEREBY
EVIDENCED OR
6
<PAGE> 25
ANY INTEREST THEREIN IS HEREBY NOTIFIED OF THE EXISTENCE OF SUCH STOCK OPTION
AGREEMENT, AND ANY ACQUISITION OR PURPORTED ACQUISITION OF THIS CERTIFICATE OR
THE SHARES HEREBY EVIDENCED OR ANY INTEREST THEREIN SHALL BE SUBJECT TO ALL
RIGHTS AND OBLIGATIONS OF THE PARTIES TO SUCH STOCK OPTION AGREEMENT AS THEREIN
SET FORTH.
(ii) [any legend required by applicable state securities laws]
(b)(1). Sales of Shares.
(i) Company's Right of First Refusal. In the event that the Optionee
shall desire to sell, assign or transfer any Shares held by the Optionee to any
other person (the "Offered Shares") and shall be in receipt of a bona fide offer
to purchase the Offered Shares ("Offer"), the following procedure shall apply.
The Optionee shall give to the Company written notice containing the terms and
conditions of the Offer, including, but not limited to (a) the number of Offered
Shares; (b) the price per Share; (c) the method of payment; and (d) the name(s)
of the proposed purchaser(s).
An offer shall not be deemed bona fide unless the Optionee has
informed the prospective purchaser of the Optionee's obligation under this
Option and the prospective purchaser has agreed to become a party hereunder and
to be bound hereby. The Company is entitled to take such steps as it reasonably
may deem necessary to determine the validity and bona fide nature of the Offer.
Until 30 days after such notice is given, the Company or its
designee shall have the right to purchase all of the Offered Shares at the price
offered by the prospective purchaser and specified in such notice. Such purchase
shall be on the Agreement Terms, as defined in subsection (b)(4).
(ii) Failure of Company or its Designee to Purchase Offered Shares.
If all of the Offered Shares are not purchased by the Company and/or its
designee within the 30-day period granted for such purchases, then any remaining
Offered Shares may be sold, assigned or transferred pursuant to the Offer;
provided, that the Offered Shares are so transferred within 30 days of the
expiration of the 30-day period to the person or persons named in, and under the
terms and conditions of, the bona fide Offer described in the notice to the
Company; and provided further, that such persons agree to execute and deliver to
the Company a written agreement, in form and content satisfactory to the
Company, agreeing to be bound by the terms and conditions of this Option.
(b)(2). Manner of Exercise.
Any right to purchase hereunder shall be exercised by giving written
notice of election to the Optionee, the Optionee's personal representative or
any other selling person, as the case may be, prior to the expiration of such
right to purchase.
(b)(3). Agreement Price.
The "Agreement Price" shall be the higher of (A) the fair market
value of the Shares to be purchased determined in good faith by the Board of
Directors of the Company and (B) the original exercise price of the Shares to be
purchased.
(b)(4). Agreement Terms. "Agreement Terms" shall mean and include the
following:
(i) Delivery of Shares and Closing Date. At the closing, the
Optionee, the Optionee's personal representative or such other selling person,
as the case may be, shall deliver certificates representing the Shares, properly
endorsed for transfer, and with the necessary documentary and transfer tax
stamps, if any, affixed, to the purchaser of such Shares. Payment of the
purchase price therefor shall concurrently be made to the Optionee, the
Optionee's personal representative or such other selling person, as provided in
subsection (ii) of this subsection (b)(4). Such delivery and payment shall be
made at the principal office of the Company or at such other place as the
parties mutually agree.
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<PAGE> 26
(ii) Payment of Purchase Price. The Company shall pay the purchase
price to the Optionee at the closing.
(b)(5). Right to Purchase Upon Certain Other Events.
The Company or its designee shall have the right to purchase all,
but not less than all, of the Shares held by the Optionee at the Agreement Price
and on the Agreement Terms for a period of 90 days after any of the following
events:
(i) an attempt by a creditor to levy upon or sell any of the
Optionee's Shares;
(ii) the filing of a petition by the Optionee under the U.S.
Bankruptcy Code or any insolvency laws;
(iii) the filing of a petition against Optionee under any insolvency
or bankruptcy laws by any creditor of the Optionee if such petition is not
dismissed within 30 days of filing; or
(iv) the entry of a decree of divorce between the Optionee and the
Optionee's spouse.
The Optionee shall provide the Company written notice of the occurrence of any
such event within 30 days of such event.
(c)(1). Termination. The provisions of this Section 18 shall terminate and
all rights of each such party hereunder shall cease except for those which shall
have theretofore accrued upon the occurrence of any of the following events:
(i) cessation of the Company's business;
(ii) bankruptcy, receivership or dissolution of the Company;
(iii) ownership of all of the issued and outstanding shares of the
Company by a single shareholder of the Company;
(iv) written consent or agreement of the shareholders of the Company
holding 50% of the then issued and outstanding shares of the Company
(determined on a fully diluted basis);
(v) consent or agreement of a majority of the members of the Board
of Directors of the Company; or
(vi) registration of any class of equity securities of the Company
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
(c)(2). Amendment. This Section 18 may be modified or amended in whole or
in part by a written instrument signed by shareholders of the Company holding
50% of the outstanding shares of Common Stock (determined on a fully diluted
basis) or a majority of the members of the Board of Directors of the Company.
19. Market Standoff. Unless the Board of Directors otherwise consents,
Optionee agrees hereby not to sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the Act; provided,
however, that such restriction shall apply only to the first two registration
statements of the Company to become effective under the Act which includes
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the Act. The Company may impose
8
<PAGE> 27
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such 180-day period.
20. Complete Agreement. This Agreement constitutes the entire agreement
between the parties with respect to its subject matter, and supersedes all other
prior or contemporaneous agreements and understandings both oral or written;
subject, however, that in the event of any conflict between this Agreement and
the Plan, the Plan shall govern. This Agreement may only be amended in a writing
signed by the Company and the Optionee.
21. Privileges of Stock Ownership. Participant shall not have any of the
rights of a shareholder with respect to any Shares until Optionee exercises the
Option and pay the Exercise Price.
22. Notices. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated above or to such other address as
such party may designate in writing from time to tome to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by rapifax or telecopier.
DATE OF GRANT:________________
BIGSTAR ENTERTAINMENT, INC.
By:________________________________
Name:
Title:
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS OPTION, THE COMPANY'S PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND
THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan, represents that
Optionee is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of this Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board or
of the Committee upon any questions arising under the Plan.
Dated:________________
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<PAGE> 28
___________________________________
Optionee
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<PAGE> 29
Consent of Spouse
The undersigned spouse of the Optionee to the foregoing Stock Option
Agreement acknowledges on his or her own behalf that: I have read the foregoing
Stock Option Agreement and I know its contents. I hereby consent to and approve
of the provisions of the Stock Option Agreement, and agree that the Shares
issued upon exercise of the options covered thereby and my interest in them are
subject to the provisions of the Stock Option Agreement and that I will take no
action at any time to hinder operation of the Stock Option Agreement on those
Shares or my interest in them.
___________________________________
Signature of Spouse
___________________________________
Address
11
<PAGE> 1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into by and between BigStar
Entertainment, Inc., a Delaware corporation (the "Company"), and David
Friedensohn, the undersigned individual ("Executive").
RECITAL
The Company and Executive desire to enter into an Employment
Agreement setting forth the terms and conditions of Executive's employment with
the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company and Executive agree as follows:
1. Employment.
(a) Term. The Company hereby employs Executive to serve
as CEO of the Company. The employment with the Company is not for any specified
period of time. As a result, either the Company or the Executive is free to
terminate the employment relationship at any time, subject to the other
provisions of this Agreement.
(b) Duties and Responsibilities. Executive will be
reporting to the Company's Board of Directors. Within the limitations
established by the Bylaws of the Company, the Executive shall have each and all
of the duties and responsibilities of that position and such other duties on
behalf of the Company, as may be assigned from time to time by the Company's
Board.
(c) Location. The location at which Executive shall
perform services for the Company shall be New York, New York.
(d) Board Seat. The Company shall nominate Executive to
continue to be a Board member while he is employed by the Company, and shall use
its commercially reasonable efforts to ensure his election to the Board.
2. Compensation.
(a) Base Salary. Executive shall be paid a base salary
("Base Salary") payable in bi-weekly installments consistent with Company's
payroll practices. The Base Salary shall be as follows:
<PAGE> 2
<TABLE>
<CAPTION>
Calendar Year Amount
------------- ------
<S> <C>
1999 $160,000
2000 $200,000
2001 and thereafter $250,000
</TABLE>
(b) Payment. Payment of all compensation to Executive
hereunder shall be made in accordance with the relevant Company policies in
effect from time to time, including normal payroll practices, and shall be
subject to all applicable employment and withholding taxes.
(c) Bonus. Executive shall also be entitled to a
guaranteed bonus as follows:
<TABLE>
<CAPTION>
Calendar Year Amount
------------- ------
<S> <C>
1999 Quarterly bonus of
$22,500
2000 Quarterly bonus of
$5,000 ($10,000 if
the Company is
publicly traded)
2001 and thereafter Quarterly bonus of
$18,750 ($37,500 if the Company is
publicly traded)
</TABLE>
3. Other Employment Benefits.
(a) Business Expenses. Upon submission of itemized
expense statements in the manner specified by the Company, Executive shall be
entitled to reimbursement for reasonable travel and other reasonable business
expenses duly incurred by Executive in the performance of his duties under this
Agreement.
(b) Benefit Plans. Executive shall be entitled to
participate in the Company's medical and dental plans, life and disability
insurance plans and retirement plans pursuant to their terms and conditions.
Executive shall be entitled to participate in any other benefit plan offered by
the Company to its employees during the term of this Agreement (other than stock
option or stock incentive plans, which are governed by Section 3(d) below).
Nothing in this Agreement shall preclude the Company from terminating or
amending any employee benefit plan or program from time to time.
2
<PAGE> 3
(c) Vacation. Executive shall be entitled to four (4)
weeks of vacation each year of full employment, exclusive of legal holidays, as
long as the scheduling of Executive's vacation does not interfere with the
Company's normal business operations.
(d) Stock Options. Executive shall be entitled to
options to acquire shares of the Common Stock of the Company pursuant to the
terms of the Company's 1999 Stock Option and Incentive Plan, subject to the
following terms:
(1) The number of shares for which the
options will become exercisable shall be 100,000 shares, subject to
vesting. The shares will vest in 1/48 equal amounts for each month
of continued employment by Executive.
(2) The exercise price for the options shall
be at seven dollars and twenty-five cents ($7.25) per share, as
appropriately adjusted for stock splits, stock dividends, and the
like.
(3) The vested options shall be exercisable
until the earlier of five (5) years after vesting or 90 days after
termination of Executive's employment with the Company. Executive
may elect within 30 days after termination for his stock options to
be non-incentive stock options, and in that event, the vested
options need not be exercised until five (5) years after the date of
vesting.
(4) Issuance of the options shall be in
accordance with all applicable securities laws and the other terms
and conditions of the Company's Stock Option Plan and the Stock
Option Agreement with Executive of even date herewith.
(5) Executive shall be given credit for two
years worth of vesting of his unvested options (and any stock
subject to vesting, if any) in the following events: (a) the
termination of Executive without cause (defined in Section 5(a)
below) or (b) the acquisition of the Company by merger, sale of all
or substantially all of the Company's assets, or other
reorganization resulting in a change of 50% or more in the ownership
of the Company's stock.
(e) No Other Benefits. Subject to Section 5(b),
Executive understands and acknowledges that the compensation specified in
Sections 2 and 3 of this Agreement shall be in lieu of any and all other
compensation, benefits and plans; provided, that each year the Board shall
review whether it is appropriate to award Executive additional stock options.
(f) Life Insurance. The Company shall pay for the
premiums of a universal life insurance policy with the benefits payable to the
Executive or his heirs, in the principal amount of $1 million, subject to the
Company being able to obtain such coverage on reasonable terms.
(g) Key Man Life Insurance. The Company shall obtain Key
Man Life Insurance on the life of the Executive, in the amount of $2 million,
with the proceeds payable to
3
<PAGE> 4
the Company. Executive shall cooperate in connection therewith as may be
reasonably requested by the Company (including but not limited to taking
physical exams).
4. Executive's Business Activities. Executive shall devote the
substantial portion of his entire business time, attention and energy
exclusively to the business and affairs of the Company, Executive may serve as a
member of the Board of Directors of other organizations that do not compete with
the Company, and may participate in other professional, civic, governmental
organizations and activities that do not materially affect his ability to carry
out his duties hereunder.
5. Termination of Employment.
(a) For Cause. Notwithstanding anything herein to the
contrary, the Company may terminate Executive's employment hereunder for cause
for any one of the following reasons: (1) conviction of a felony, or a
misdemeanor where imprisonment is imposed, (2) Executive's gross incompetence in
performing his duties hereunder, or (3) material breach of this Agreement which
breach is not cured within ten (10) days following written notice of such
breach. Upon termination of Executive's employment with the Company for cause,
the Company shall be under no further obligation to Executive for salary or
bonus, except to pay all accrued but unpaid base salary, accrued bonus (if any)
and accrued vacation to the date of termination thereof.
(b) Without Cause. The Company may terminate Executive's
employment hereunder at any time without cause, provided, however, that
Executive shall be entitled to severance pay in the amount of two (2) years of
Base Salary in addition to accrued but unpaid Base Salary and accrued vacation,
less deductions required by law, but if, and only if, Executive executes a valid
and comprehensive release of any and all claims that the Executive may have
against the Company in a form provided by the Company and Executive executes
such form.
(c) Termination for Good Reason. If Executive terminates
his employment with the Company for Good Reason (as hereinafter defined), he
shall be entitled to the vesting benefits set forth in Section 3(d)(5) and the
severance benefits set forth in Section 5(b). For purposes of this Agreement,
"Good Reason" shall mean any of the following: (i) relocation of the Company's
executive offices more than forty miles from the current location, without
Executive's concurrence; (ii) any material breach by the Company of this
Agreement; (iii) a material change in the principal line of business of the
Company, without Executive's concurrence, or (iv) any significant change in the
Executive's duties and responsibilities.
(d) Cooperation. After notice of termination, Executive
shall cooperate with the Company, as reasonably requested by the Company, to
effect a transition of Executive's responsibilities and to ensure that the
Company is aware of all matters being handled by Executive.
6. Disability of Executive. The Company may terminate this Agreement
without liability if Executive shall be permanently prevented from properly
performing his essential duties hereunder with reasonable accommodation by
reason of illness or other physical
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<PAGE> 5
or mental incapacity for a period of more than 120 consecutive days. Upon such
termination, Executive shall be entitled to all accrued but unpaid Base Salary,
accrued bonus (if any) and accrued vacation.
7. Death of Executive. In the event of the death of Executive, the
Company's obligations hereunder shall automatically cease and terminate;
provided, however, that within 15 days the Company shall pay to Executive's
heirs or personal representatives Executive's Base Salary and accrued vacation
accrued to the date of death.
8. Confidential Information and Invention Assignments. Executive has
executed a Confidential Information and Invention Assignment Agreement (the
"Confidential Information and Invention Assignment Agreement"). The obligations
under the Confidential Information and Invention Assignment Agreement shall
survive termination of this Agreement for any reason.
9. Exclusive Employment. During employment with the Company, (a)
Executive will not do anything to compete with the Company's present or
contemplated business, nor will he plan or organize any competitive business
activity and (b) Executive will not enter into any agreement which conflicts
with his duties or obligations to the Company. Executive will not during his
employment or within one (1) year after it ends, without the Company's express
written consent, solicit or encourage any employee, agent, independent
contractor, supplier, consultant, investor, or alliance partner to terminate or
alter a relationship with the Company.
10. Assignment and Transfer. Executive's rights and obligations
under this Agreement shall not be transferable by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void.
11. No Inconsistent Obligations. Executive is aware of no
obligations, legal or otherwise, inconsistent with the terms of this Agreement
or with his undertaking employment with the Company. Executive will not disclose
to the Company, or use, or induce the Company to use, any proprietary
information or trade secrets of others. Executive represents and warrants that
he or she has returned all property and confidential information belonging to
all prior employers.
12. Miscellaneous.
(a) Attorneys' Fees. Should either party hereto, or any
heir, personal representative, successor or assign of either party hereto,
resort to legal proceedings in connection with this Agreement or Executive's
employment with the Company, the party or parties prevailing in such legal
proceedings shall be entitled, in addition to such other relief as may be
granted, to recover its or their reasonable attorneys' fees and costs in such
legal proceedings from the non-prevailing party or parties; provided, however,
that nothing herein is intended to affect the provisions of Section 12(l).
(b) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to conflict of law principles.
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<PAGE> 6
(c) Entire Agreement. Except with respect to the Stock
Option Plan and Stock Option Agreement referenced in Section 3(d), this
Agreement, together with the Confidential Information and Invention Assignment
Agreement, contains the entire agreement and understanding between the parties
hereto and supersedes any prior or contemporaneous written or oral agreements,
representations and warranties between them respecting the subject matter
hereof.
(d) Amendment. This Agreement may be amended only by a
writing signed by Executive and by a duly authorized representative of the
Company.
(e) Severability. If any term, provision, covenant or
condition of this Agreement, or the application thereof to any person, place or
circumstance, shall be held to be invalid, unenforceable or void, the remainder
of this Agreement and such term, provision, covenant or condition as applied to
other persons, places and circumstances shall remain in full force and effect.
(f) Construction. The headings and captions of this
Agreement are provided for convenience only and are intended to have no effect
in construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Executive.
(g) Rights Cumulative. The rights and remedies provided
by this Agreement are cumulative, and the exercise of any right or remedy by
either party hereto (or by its successor), whether pursuant to this Agreement,
to any other agreement, or to law, shall not preclude or waive its right to
exercise any or all other rights and remedies.
(h) Nonwaiver. No failure or neglect of either party
hereto in any instance to exercise any right, power or privilege hereunder or
under law shall constitute a waiver of any other right, power or privilege or of
the same right, power or privilege in any other instance. All waivers by either
party hereto must be contained in a written instrument signed by the party to be
charged and, in the case of the Company, by an officer of the Company (other
than Executive) or other person duly authorized by the Company.
(i) Notices. Any notice, request, consent or approval
required or permitted to be given under this Agreement or pursuant to law shall
be sufficient if in writing, and if and when sent by certified or registered
mail, with postage prepaid, to Executive's residence (as noted in the Company's
records), or to the Company's principal office, as the case may be.
(j) Assistance in Litigation. Executive shall, during
and after termination of employment, upon reasonable notice, furnish such
information and proper assistance to the Company as may reasonably be required
by the Company in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become a party; provided, however, that
such assistance following termination shall be furnished at mutually agreeable
times and for mutually agreeable compensation.
(k) Disputes. Any controversy, claim or dispute arising
out of or relating to this Agreement or the employment relationship, either
during the existence of the
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<PAGE> 7
employment relationship or afterwards, between the parties hereto, shall be
litigated solely in state or federal court in New York, New York. Each party (1)
submits to the jurisdiction of such court, (2) waives the defense of an
inconvenient forum, (3) agrees that valid consent to service may be made by
mailing or delivery of such service to the New York Secretary of State (the
"Agent") or to the party at the party's last known address, if personal service
delivery can not be easily effected, and (4) authorizes and directs the Agent to
accept such service in the event that personal service delivery can not easily
be effected. EACH PARTY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING
HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER MATTER INVOLVING THE PARTIES HERETO.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date set forth below.
BIGSTAR ENTERTAINMENT, INC. EXECUTIVE:
By: /s/ David Levitsky /s/ David Friedensohn
--------------------------- -----------------------------------
Name: David Levitsky David Friedensohn
---------------------------
Title: Executive Vice President
---------------------------
Date: March 15, 1999
---------------------------
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* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this "Agreement") is entered this 18
day of February 1998, by and between Big Star Entertainment, a having an address
at 330 E. 83rd St., Apt G3, New York, NY ("Company"), and BAKER & TAYLOR, INC.
("B&T"), a Delaware corporation having an address at 8140 North Lehigh Avenue,
Morton Grove, Illinois 60053.
WITNESSETH:
For valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
As used throughout this Agreement the following terms have the following
meanings:
1.1 "Effective Date" means February 18, 1998
1.2 "Initial Termination Date" means the day preceding the first anniversary
of the Effective Date.
1.3 "Customers" or "Customer" means customers of Company within the United
States who order Products (hereinafter defined) from Company by means of
Company's online retail store doing business over the Internet.
1.4 "Products" means [books, spoken word audio products,] pre-recorded video
products in VHS, laser disc and DVD formats, multi-media products, and music
audio products.
2. TERM
2.1 This Agreement will begin on the Effective Date and will expire on the
Initial Termination Date, unless terminated on an earlier date pursuant to the
express terms of this Agreement or unless extended pursuant to the terms of
Section 2.2.
2.2 Unless one of the parties ("the "Notifying Party") to this Agreement
notifies the other party not less than 60 days prior to the Initial Termination
Date or any subsequent Termination Date (hereinafter defined) that the Notifying
Party wishes that this Agreement not be renewed, and if this Agreement otherwise
is in full force and effect and no Event of Default (hereinafter defined) has
occurred, this Agreement automatically may be renewed for not more than five (5)
consecutive periods of one (1) year each (each such period, a "Renewal Term")
without further action by either party and on the same terms and conditions as
set forth herein. If the Notifying Party notifies the other party before the 60
day period that it does not wish that this Agreement be renewed, this Agreement
automatically will expire on the Initial Termination Date or on the next
succeeding Termination Date. As used herein, "Termination Date" means the
anniversary of the Initial Termination Date in a Renewal Term to which the same
relates. As used herein,
<PAGE> 2
"Term" means the period beginning on the date hereof and ending on the Initial
Termination Date or a Renewal Term, as the case may be.
3. ORDER FULFILLMENT
3.1 Company will transmit orders in batches via the Internet to B&T at B&T's
Internet mailbox location by file transfer protocol ("FTP"). The frequency of
batched orders transmitted to B&T will be determined by the parties' mutual
agreement. Each order transmitted by Company to B&T will contain the following
information: (a) the Customer's name and shipping address, (b) the method by
which Products ordered must be shipped to the Customer, (c) whether or not the
order may be fulfilled in multiple shipments of Products to the Company or if
the order may only be fulfilled when B&T has all products ordered in stock, (d)
the text of any special messages to the Customer, and (e) instructions
concerning specific package inserts to be included in the order. B&T will
furnish Company with specifications for FTP communications. B&T may change such
specifications from time to time on not less than 30 days' prior written notice
to Company.
3.2 If Company wishes B&T to include specialized package inserts ("Special
Inserts" with orders to Customers, Company from time to time will deliver to B&T
the same at no expense to B&T and in sufficient quantity to supply to Customers
as directed by Company to B&T and in sufficient quantity to supply to Customers
as directed by Company to B&T. The handling cost payable by Company for
including the Special Inserts will be $45 for every 1,000 Special Inserts
included pursuant to Company's directions. Within one (1) business day after
inquiry from Company, B&T will notify Company of the quantity of the various
Special Inserts on hand at Shipping Facilities (hereinafter defined). B&T will
use reasonable commercial efforts to assure that an adequate quantity of Special
Inserts is maintained at each Shipping Facility.
3.3 After receipt of an order, B&T will (a) fill the order from inventory of
Products in stock at such of B&T's facilities in the United States as B&T from
time to time may designate (collectively, "Shipping Facilities"), (b) print the
text of any special message requested by Company on the standard packing slip
included in the order, (c) include any additional packing slips (including
Special Interests) requested by Company in the order, (d) pursuant to Company's
instructions, and based upon availability of Products in stock, ship the order
to Company either as a multiple shipment or as one shipment, (e) promptly place
any Products ordered by Company which B&T does not have in stock on a backorder
report for review by B&T's account manager for Company, after which time such
Products will be promptly ordered by B&T (collectively, "Backordered Products"),
and (f) ship any Backordered Products, when received by B&T, pursuant to the
terms of the preceding clauses (a)-(d) and the following two sentences. B&T will
ship on the same business day all orders received by 1:00 P.M. Eastern time from
Company on such business day for Products which B&T then has in stock at a
Shipping Facility. Any orders received by B&T after 1:00 P.M. Eastern time will
be shipped on the following business day. As used in this Section, "business
day" means Monday through Friday, but excluding any Holidays. As used herein,
"Holiday" means any recognized holiday on which the approved carrier or shippers
providing services under this Agreement are closed for business.
3.4 B&T will print all packing slips (other than Special Inserts,) will insert
all packing slips and will print and affix shipping labels on orders being
shipped to Customers as part of its
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<PAGE> 3
fulfillment obligations hereunder and at no expense to Company, other than the
fulfillment fee specified below.
3.5 Company acknowledges that it does not expect B&T to maintain in stock a
complete inventory of all Products that may be ordered by Customers. B&T will
maintain, and will update on a weekly basis, stock availability for Products. In
addition, B&T will provide stock availability to Company on demand by FTP
transmission.
3.6 Invoices enclosed in shipments by B&T to Customers will be customized in
accordance with Company's specifications. Company's specifications will not
exceed the capabilities of B&T's invoice printers.
3.7 (a) B&T will provide the following reports to Company:
(i) On a weekly basis, B&T will transmit to Company a Ship Complete
Report which details, by order, all orders received from Company for the
preceding week, all Products contained in each order from Company, the
fulfillment status of each such order, and the number of days elapsed since the
order was made.
(ii) On a daily basis and on a weekly basis, B&T will deliver to
Company on a Daily Log and a Weekly Log, respectively, which details (x) all
Product returns (identified by invoice number) processed by B&T for the
preceding business day or for the preceding week, as the case may be, and
indicating quantity and amount, and (y) by order, all orders filled by B&T on
the preceding business day or the preceding week, as the case may be, and which
includes the following information for each such order: the order number, the
Customer's name and address, an itemization of Products shipped, the price
charged by B&T to Company for each Product, and shipping and handling charges to
Customers and to Company.
(iii) On a weekly basis, B&T will deliver to Company a Canceled
Order Report which specifies all orders canceled each day during the previous
week and includes the following information for each cancelled order: the order
number, the Customer's name, the title of each Product, the quantity of all
Products, and the name of the person who cancelled the order on behalf of the
Customer.
(iv) On a weekly basis, B&T will deliver to Company an Inactive
Product Report which specifies all orders of Products which are on backorder
during the previous week and for which any Product contained in the order has
been flagged as "inactive" in B&T's inventory system. As used herein, "inactive"
means all Products which are out of print or otherwise permanently unavailable
for sale.
(v) On a monthly basis, B&T will deliver to Company a statement of
account which itemizes (x) all invoices sent to Company hereunder during the
prior calendar month, (y) all payments received from Company hereunder during
the prior calendar month which have been applied against invoices and (z) all
invoices unpaid by Company hereunder.
(b) The preceding reports will be delivered by FTP
transmission to Company's Internet address at no additional charge to Company.
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<PAGE> 4
3.8 If any Products ordered by a Company are placed on moratorium by the
vendor, B&T will notify Company and will supply the Product only while B&T's
supplies last, after which time B&T will cancel the order. If a shipment from
any vendor to B&T of any Products ordered by Customers is delayed, B&T will
notify Company within one (1) business day after being notified by the vendor of
the delay. B&T will not be liable for delays arising from the failure of any
freight carrier to meet its respective delivery standards. As used herein,
"placed on moratorium" means Products which are designated by the vendor as
being indefinitely unavailable for purchase from the vendor.
4. ORDER PROCESSING BY B&T
Within 30 days after receipt of Company's request to do so, B&T will
establish and thereafter maintain a dedicated post office box and/or a dedicated
toll-free telephone number to which Customers may place order with B&T directly
by mail or telephone, respectively, as part of Company's Internet retail store
operation. B&T's actual costs to establish and maintain either the post office
box or the 800 telephone number will be reimbursed by Company within 30 days
after receipt of B&T's invoice therefor. B&T will terminate either the direct
mail or the toll-free telephone number within 30 days after the Company's
request to do the same.
5. RETURNS
5.1 (a) As used in this Agreement:
(i) "Defective Products" means Products which contain manufactured
defects which prevent them from being used for their intended
purpose;
(ii) "Damaged Products" means Products which are damaged during
shipment to Customers which prevent them from being used for their
intended purpose; and
(iii) "Unmerchandisable Products" means Products which are shopworn
and/or soiled.
(b) Each shipment of Products to Customers will include Company's return
policy, including instructions that Customers are to make returns of Products to
Company at B&T's return center address. Within three (3) business days of B&T's
receipt of the same, all returned Products will be received into B&T's
inventory, the Products will be logged as having been received, Company will be
issued a credit by B&T for the price paid by Company to B&T for the returned
Products and B&T will provide Company with information in reasonably sufficient
detail to allow Company to properly credit Customers for such returns. Company
will reimburse B&T for any freight costs incurred for Products returns within 30
days after receipt of B&T's invoice therefor, except for returns of Defective
Products, Unmerchandisable Products and/or Products shipped erroneously to
Customers, in which case B&T promptly will issue a credit to Company equal to
the U.S. Postal Service charge for shipment from Customers to B&T of such
Products, and B&T will be responsible for any freight costs to ship replacement
Products. On not less than 30 days' prior notice to B&T, Company may elect to
process all returns of Products from Customers after the date specified in such
notice.
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<PAGE> 5
(c) B&T will not be obligated to accept any returns of Products submitted
more than 60 days after shipment of such Products to a Customer, including
returns of Defective Products, Damaged Products, Unmerchandisable Products
and/or erroneously shipped Products.
5.2 If returns of Products (other than returns of Defective Products,
Unmerchandisable Products or Products erroneously shipped by B&T) during any
calendar quarter exceed [*] [*] of the total price charged by B&T to Company of
all Products shipped during the prior calendar quarter, Company will pay B&T a
return fee equal to [*] [*] of the price charged by B&T to Company for such
Products. Payment of any return fees will be made within 30 days after Company's
receipt of B&T's invoice therefor. Credit memos for returns will be processed by
B&T and delivered to Company within 15 days after B&T's receipt of the returned
product. Credits issued to Company under such credit memos will be applied
immediately to payables incurred by Company.
5.3 All Product returned to B&T (except for returns of Defective Products
and/or Unmerchandisable Products) during any calendar quarter must be with the
original packaging intact (including manufacturer's shrink wrap for video and
audio Products.) Returns of any Products which are not in compliance with the
preceding sentence will be subject to a repackaging fee of $[*] per unit, for
returns of all Products which in the aggregate exceed __ percent (__%) of the
price charged by B&T to Company of all Products shipped during the prior
calendar quarter. Conversely, no repackaging fee will be payable for returns of
all Products which in the aggregate are __ percent (__%) or less of the price
charged by B&T to Company of all Products shipped during the prior calendar
quarter. Payment of any repackaging fees will be made within 30 days after
Company's receipt of B&T's invoice therefor.
5.4 (a) B&T will use commercially reasonable efforts to not ship
Unmerchandisable Products to Customers. If Unmerchandisable Products are shipped
by B&T to Customers, B&T's sole liability hereunder will be to accept returns of
the same within the time period specified above and, subject to availability,
promptly replace the same for Customers at no additional cost to them or to
Company. If replacement Products are not available, B&T promptly will issue a
credit to Company in the amount theretofore invoiced to Company for the same.
(b) B&T will package for shipment to Customers in a manner which is
commercially reasonable to prevent damage during shipment. If Products are
damaged during shipment to Customers, B&T will accept a return of the same made
within the time period specified above and, subject to availability, replace the
same for Customers at no additional cost to Customers within a reasonable period
of time. If replacement Products are not available, B&T promptly will issue a
credit to Company in the amount theretofore invoiced to Company for the same.
Company will reimburse B&T for the freight charges incurred by B&T for the
return of such Products to B&T and for shipment of replacement Products to
Customers. Such reimbursement will be made within 30 days after Customer's
receipt of B&T's invoice therefor. Company also will pay B&T a fulfillment
charge for supplying replacement Products in accordance with the terms of
Section 6.3 (a) below. Company will not be responsible for reimbursing B&T for
the cost of replacement Products. B&T promptly will file a claim with the
carrier that shipped the Damaged Products (if permitted by such carrier's
terms), and will use commercially reasonable efforts to prosecute any such
claim. If any portion recovered by B&T from a carrier with respect
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<PAGE> 6
to a claim filed by B&T is specifically identified as reimbursement for freight
charges, B&T will issue a credit to Company in such amount within 30 days after
B&T's receipt thereof.
6. PRICING AND PAYMENT TERMS
6.1 (a) Company will pay B&T for all Products ordered by Customers, and
Company will pay all fees and reimbursables payable to B&T herein, within [*]
days after Customer's receipt of B&T's invoice therefor. All payments made to
B&T will be in good funds and delivered by check or wire transfer to the order
of B&T pursuant to B&T's instructions. Company may not reduce and set off
amounts payable hereunder against any indebtedness or any other claim that
Company may have against B&T, however or whenever arising, except as expressly
provided herein.
(b) The purchase price payable by Company for Products ordered by
Customers during the Term will be the following:
(i) for VHS video products (other than for Disney Classics having a
list price of $[*]) purchased for sale (i.e., for which the
suggested retail price for a single unit is under $30, or which is
designated with "E" for the product group in B&T's ordering system)
the list price at the time an order is placed; less a discount of
[*]%;
(ii) for VHS video products which are designated with "R" for the
product group in B&T's ordering system, the list price at the time
an order is placed, less a discount of [*]%;
(iii) for DVD video products, B&T's cost to purchase, plus an amount
equal to [*]% of such cost;
(vii) for music audio compact discs and music audio cassettes, the
published list price at the time an order is placed, less a
discount of [*]%;
(viii) for spoken word audio compact discs and spoken word audio
cassettes, the published list price at the time an order is placed,
less a discount of [*]%;
(ix) for multimedia products, B&T's cost to purchase, plus an amount
equal to [*]% of such cost; and
(x) for printed books, the prices established from time to time as
B&T's published standard retail terms (a copy of the current
published standard retail terms is attached hereto as Exhibit
6.1(b).
6.2 As used in this Agreement, "list price" means, respectively, the
publisher's, studio's or audio label's published list price with respect to a
Product, unless the same does not exist, in which case "list price" means B&T's
published list price for such Product.
6.3 (a) Company will pay B&T an order fulfillment fee for each order placed by
Company equal to $[*] for the first unit in each order and $[*] for each
additional unit in each
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<PAGE> 7
order, regardless of the number of shipments made for each order or the number
of locations from which the shipments are made.
(b) Company will pay B&T a transmission fee of $[*] per order for all
orders of Products made by Company to B&T by means of electronic data
interchange transmission through a value added network. No fee will be payable
if Company transmits orders to B&T by FTP.
(c) Company will reimburse B&T for all toll-free telephone orders from
Customers to B&T at the rate of $[*] per minute.
(d) Company will reimburse B&T for all mail orders from Customers to B&T
at the rate of $[*] for the first unit in each order and $[*] for each
additional unit in each order.
(e) Company will reimburse B&T for all toll-free telephone customer
service calls at the rate of $[*] per minute.
(f) Company will pay B&T for a toll-free telephone maintenance charge at
the rate of $[*] per month for each toll-free line used by B&T hereunder. Plus
any additional set up costs.
Company will not be liable for any payments referred to in clauses (c) - (f) of
this Section unless Company has requested B&T to perform such services pursuant
to Section 4.1 above.
6.4 Except as provided in Section 5.1 concerning returns of Defective
Products, Unmerchandisable Products and/or erroneously shipped Products, Company
will pay all freight costs for all Product shipments to, and Product returns
from, Customers. Freight costs will be at the carriers' published rates. Company
acknowledges that such freight charges are subject to change.
6.5 The cost of any custom reporting functions or custom packaging requested
by Company and supplied by B&T hereunder will be determined by the agreement of
the parties from time to time.
7. WARRANTY OF TITLE
7.1 B&T warrants that it has good title to the Products delivered to Customers
pursuant to this Agreement. EXCEPT FOR THE FOREGOING WARRANTY, THERE ARE NO
OTHER EXPRESS WARRANTIES, AND THERE ARE NO IMPLIED WARRANTIES. EXPRESSLY
EXCLUDED ARE ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY B&T OR ITS AGENTS OR
EMPLOYEES WILL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THE
FOREGOING WARRANTY.
7.2 NEITHER B&T NOR COMPANY WILL NOT BE LIABLE FOR ANY DIRECT, INDIRECT,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, AND THE LIKE) ARISING OUT OF ANY CUSTOMER'S USE
OF, OR INABILITY TO USE, ANY PRODUCTS, EVEN IF EITHER PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF
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SUCH DAMAGES. The only liability B&T will have with respect to any Defective
Products, damaged Products, Unmerchandisable Products and/or Products
erroneously shipped will be the return rights of Customers described herein.
7.3 The provisions of this Section shall survive the termination or expiration
of this Agreement.
8. TERMINATION
8.1 Either party may terminate this Agreement forthwith upon the occurrence of
an Event of Default by the other party. As used herein, an "Event of Default"
means the defaulting party's failure to cure, after receipt of not less than 30
days' prior written notice from the non-defaulting party, of any of the
following: (i) failure of the defaulting party to observe or perform any
condition or obligation imposed on the defaulting party under this Agreement
(including payment obligations), (ii) breach of any warranty made by the
defaulting party under this Agreement, and/or (iii) filing of a voluntary
petition in bankruptcy or having an involuntary petition filed against the
defaulting party, the appointment of a receiver or trustee for the defaulting
party, or the execution of an assignment for the benefit of creditors of the
defaulting party. The option to terminate this Agreement shall be in addition
to, and not in lieu of, any other remedy available to the terminating party
under this Agreement or at law or equity, all such remedies being cumulative.
8.2 Termination of this Agreement upon either party's default, or the
expiration of this Agreement will not affect:
(a) the rights of either party with respect to any breach of this
Agreement, or
(b) the obligations of either party already accrued prior to the effective
date of expiration or termination (including obligations with respect to
returned Products).
(c) those obligations of the parties that, by their terms, survive
termination or expiration of this Agreement.
8.3 In the event of the expiration or a termination of this Agreement, the
parties promptly will reconcile accounts payable and receivable and bring the
balance owed, if any, current and up-to-date to the party concerned.
9. CONFIDENTIALITY. The parties acknowledge that each may be exposed under
this Agreement to confidential information relating to the other party's
business, including but not limited to, the terms of this Agreement, quantities
of Products, dollar volumes, revenues of Products, wholesale prices and similar
information. The parties agree that, during the Term and for a period of three
(3) years after the termination or expiration of this Agreement, neither party
will disclose to any third party (except to the party's employees, agents,
contractors, directors and similar entities solely required to fulfill the terms
of this Agreement) any such confidential information without the prior written
consent of the other party, only if such third parties agree to be bound by the
confidentiality provisions hereof. The confidential information which each party
may receive from the other party for the above period will be treated with the
same degree of care used to protect its own confidential business information.
The confidentiality obligations
8
<PAGE> 9
between the parties will not apply to any information (a) which is in the public
domain or which becomes part of the public domain through no fault of the party
receiving the confidential information (the "receiving party"); (b) which is
known by the receiving party prior to the disclosure thereof by the disclosing
party (as established by documentary evidence); (c) which is lawfully received
by the receiving party from a third party who provided such information without
breach of any separate confidentiality obligation owed to the disclosing party;
(d) which is disclosed by the disclosing party to any third party without
restriction on further disclosure; or (e) which is independently developed by
personnel having no access to the disclosing party's confirmation information
(as established by documentary evidence). Confidential information also may be
disclosed to third parties as may be required by law in the reasonable judgment
of the receiving party's attorneys. In the event of disclosure under the
preceding sentence, the receiving party promptly will notify the disclosing
party of the same so that the disclosing party may seek a protective order or
other appropriate remedy, and the receiving party will not oppose action by the
disclosing party to obtain such an order or remedy.
10. MISCELLANEOUS
10.1 The risk of loss for Products shall pass from B&T when the Products are
delivered to the carrier for shipment to Customers.
10.2 B&T will not be responsible for any sales or related tax liability, if
any, associated with the sale of Products to Customers.
10.3 Neither party will be liable for any failure to perform, or delay in the
performance of, any of its obligations hereunder (nor will the same constitute
in an Event of Default) if and to the extent the failure or delay is caused,
directly or indirectly, by events beyond its control, such as acts of God, acts
of the public enemy, acts of any governmental body in its sovereign or
contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes
or other labor disputes (except strikes or labor disputes that are not industry
wide but are brought against Company or B&T solely), freight embargoes, and/or
unusually severe weather. Lack of funds by either party will not excuse its
timely performance of its obligations hereunder. In the event of an occurrence
described in the first sentence, the non-performing party affected will be
excused from further performance or observance of the obligation(s) so affected
for as long as such circumstances prevail and if the party continues to use its
best efforts to recommence performance or observance whenever and to whatever
extent possible without delay.
10.4 This Agreement shall be construed in accordance with the laws of the State
of Illinois, without giving effect to the conflict of laws provisions thereof.
10.5 The parties agree to bring any dispute, controversy or claim arising out
of this Agreement or the matters provided for in this Agreement and which has
not been resolved by the parties through an informal process within 45 days
after either party notifies the other that a matter is in dispute, for
arbitration and settlement in Chicago, Illinois in accordance with the Rules of
the American Arbitration Association (the "Rules"). Each party will bear its own
legal expenses, attorneys' fees and disbursements and costs of all experts and
witnesses called by it. However, if the claim of either party is upheld by the
arbitrators in all material respects, then the prevailing party promptly will be
reimbursed by the other party for its reasonable attorneys' fees and
9
<PAGE> 10
disbursements and the reasonable costs of its experts and witnesses, and the
non-prevailing party also will pay all fees, costs and expenses of the
arbitration. Any award rendered will be final and conclusive upon the parties.
Any judgment thereon may be enforced in any court having jurisdiction. Both
parties will continue to perform their respective obligations under this
Agreement during any arbitration proceedings. Notwithstanding the Rules, the
arbitrators' determination will only be in favor of one party's position.
10.6 No representation, promise, inducement or agreement relating to the
transactions contemplated by this Agreement has been made by either party that
is not set forth in this Agreement, and neither party shall be bound by or
liable for any representation, promise, inducement or agreement not so set
forth.
10.7 All notices, demands, consents, approvals and requests given by either
party hereunder shall be in writing and shall be sent, by a nationally
recognized overnight courier with receipt acknowledged and provision for payment
made, or by registered or certified mail (return receipt requested), return
postage pre-paid, to the parties at the following addresses:
If to B&T: Baker & Taylor, Inc.
c/o Baker & Taylor Entertainment
8140 North Lehigh Avenue
Morton Grove, IL 60053
Attn: Sherri L. Sawyer
Telecopy No.: 847-470-7860
If to Company: Big Star Entertainment
330 E. 83rd Street, Apt. G3
New York, NY
Attn: Mr. David Levitsky
All notices given by courier will be deemed delivered when received at the
notice address and all notices given by registered or certified mail will be
deemed delivered five (5) days after deposit with the U.S. Postal Service.
Either party may change its notice address from time to time by notification in
writing to the other party, however any such notification will not be deemed
given until actually received by the recipient party.
10.8 Either party (the "Auditing Party") may, on reasonable prior notice to the
other party (the "Audited Party"), at the Auditing Party's own expense, during
the Audited Party's regular business hours and at the place where the Audited
Party regularly keeps them, examine the books and records of the Audited Party
relating to the Audited Party's performance of its obligations hereunder.
10.9 The waiver or failure of either party to exercise in any respect any right
provided for herein will not be deemed a waiver of any further right hereunder.
10.10 The provisions of this Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and each of their respective successors and
assigns. Neither party may assign its interest in this Agreement without the
prior written consent of the other party, which consent will not be unreasonably
withheld or delayed. Notwithstanding the preceding sentence, either
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<PAGE> 11
party shall have the right, upon contemporaneous notice given to the other
party, and provided the assignee assumes all of the assigning party's
obligations under this Agreement accruing after the date of such assignment, to
assign this Agreement to any entity to which the assigning party may transfer
all or substantially all of its assets (or, in the case of B&T, the assets of
its operating unit presently known as Baker & Taylor Entertainment).
10.11 Nothing contained in this Agreement shall be deemed or construed to create
a partnership or joint venture of or between Company and B&T, or to create any
other relationship between the parties other than that of independent
contractors.
10.12 The captions used herein are for convenience of reference only and are not
part of this Agreement, and shall in no way be deemed to define, limit,
describe, or modify the meaning of any provision of this Agreement.
10.13 If any term or provision of this Agreement or applications thereof to any
person or circumstances is, to any extent, held to be invalid or unenforceable,
the remaining terms and provisions of this Agreement, or the applications of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, will not be affected thereby, and each term
and provision of this Agreement will be valid and enforced to the fullest extent
permitted by law.
10.14 If Company fails to make any payment to B&T within 30 days after payment
is due hereunder with respect to an invoice actually delivered to Company, then
Company will pay B&T the amount due, together with interest thereon until paid,
calculated at the rate of twelve percent (12%) per annum.
10.15 This Agreement contains and embodies the entire agreement of the parties
hereto, and no representations, inducements, or agreements, oral or otherwise
between the parties not contained in this Agreement, if any, will be of any
force or effect. This Agreement may not be modified, changed or terminated in
whole or in part in any manner other than by an agreement in writing duly signed
by both parties.
10.16 This Agreement may be signed in counterparts both of which taken together
shall be deemed one original. Telecopied facsimiles of a signed counterpart of
this Agreement from one party to the other will be deemed to be delivery of a
signed counterpart by the party sending the telecopied facsimile.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have signed and delivered this Agreement
on the date first above written.
BAKER & TAYLOR, INC.,
by Baker & Taylor Entertainment
By: /s/ William J. Polich
----------------------
Name: William J. Polich
--------------------
Title: Sr. VP
-------------------
Big Star Entertainment
By: /s/ David Levitsky
----------------------
Name: David Levitsky
--------------------
Title: Executive VP
-------------------
12
<PAGE> 13
EXHIBIT 6.1(b)
[Baker & Taylor Books' Current Standard Terms]
13
<PAGE> 1
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
STRATEGIC MARKETING AGREEMENT
AGREEMENT, dated as of May, 1999 by and between BigStar Entertainment, Inc.
("BigStar") a Delaware corporation with offices at 19 Fulton St. 5th Floor,
New York, NY, 10038 Tel. 212/422-1160, Fax. 212/422-1950 and Baker &
Taylor, Inc. ("B&T") 2709 Water Ridge Parkway, Charlotte, NC 28217, Tel.,
704/329-9102, Fax 704/329-9105.
BigStar wishes to establish a strategic marketing relationship with B & T
pursuant to the terms and conditions set forth herein.
1) Term
The initial term of this Agreement will begin on May 1, 1999 and will end
December 31, 2000. This Agreement will renew automatically for 24 month
Additional Terms unless cancelled in writing by either party with 90 days
notice prior the end of the preceding term.
2) B & T Duties
B & T shall be responsible for all of the following:
a) Fulfillment of entertainment products, order processing and customer
fulfillment terms ("Fulfillment Services") for BigStar and BigStar
customers pursuant to the terms and conditions set forth in the
Agreement dated 18 February, 1998 between B&T and BigStar, except as
expressly revised by the terms of this Agreement.
b) Expansion of credit for the purchase of goods ("Purchases") from B &
T for BigStar to $[*] with [*] day payment terms (the "B&T Credit"),
such credit terms to be expanded to at least $[*] upon the successful
completion of an Initial Public Offering by BigStar (the "IPO") of $[*]
of BigStar common stock or more. These credit terms will become subject
to B & T's standard reasonable commercial credit terms [*] months after
the completion of an IPO or [*] months after the signature date of this
Agreement, if no IPO is completed in that time.
c) Reasonable commercial best efforts to assist in the sourcing and
price negotiation of advertising media co-operative funding, barter
advertising opportunities, market development funds and:
d) Other areas of cooperation that B & T may feel is in the best
interest of BigStar.
3) No Obligation to Purchase
BigStar shall no obligation to make any minimum purchases from B & T and this
Agreement is mutually non-exclusive.
4) Warrant Agreement
In additional consideration for the rights and agreements detailed in this
Agreement, BigStar will grant warrants that provide B & T with the right, but
not the obligation, to purchase 60,000 BigStar Entertainment Inc. shares at
$4.00 per share at any time in the next 3 years. These warrants will be subject
to the terms of, and detailed further in, a "B & T BigStar Warrant Agreement"
attached in draft form as Appendix I. The current outstanding stock of BigStar
is detailed in Appendix II [NOTE BigStar Entertainment is currently filing a
4:1 stock split with the State of Delaware. The Terms in this Agreement are all
on a "post-split" basis.]
5) Termination
Subject to Section 1 herein, this Agreement shall terminate pursuant to the
terms and conditions of the Fulfillment Services agreement.
6) Confidentiality
Each party acknowledges that during the course of this Agreement it may be
entrusted with certain confidential information of the other party that is
identified as such in writing, and agrees that it will protect
<PAGE> 2
the confidentiality thereof with the same measures that it would use to protect
its own similar information, but in no event shall the care be less than
reasonable and that it will not (i) use such confidential information for any
purpose except the performance of this Agreement, or (ii) disclose any such
confidential information to any person except employees on a need to know basis
where such persons have agreed to be contractually bound by this confidentiality
provision. These obligations shall not apply to any information generally
available to the public or information approved for release by BigStar and
Subscriber without restriction.
7) Governing Law
This Agreement shall be governed pursuant to the governing law and contents
of law provisions of the Fulfillment Services agreement.
8) Dispute Resolution
All disputes shall be governed pursuant to the dispute resolution provisions
of the Fulfillment Services agreement.
9) General Provisions
The provisions hereof, including the attachments and any written supplemental
agreement hereto signed as of the date hereof constitute the entire agreement
between the parties relating to the transactions contemplated herein and
merge and supersede all prior discussions, agreements, and understandings of
every kind and nature between them. No oral modification or additions hereto
shall be binding. Neither party shall be bound by any condition, definition,
warranty or representation other than as expressly provided for in this
Agreement or as may be duly set forth in a writing signed by an authorized
officer of the party hereto which is to be bound thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
Baker & Taylor, Inc. BigStar Entertainment, Inc.
/s/ W. Polich/Pres. David Friedensohn
- ------------------------- -------------------------
(Name & Title) (Name & Title)
/s/ W. Polich /s/ David Friedensohn
- ------------------------- -------------------------
(Signature) (Signature)
5/3/99
- ------------------------- -------------------------
(Date) (Date)
<PAGE> 1
RIGHTS AGREEMENT
This Agreement is made by and among BigStar Entertainment, Inc., a
Delaware corporation (the "Company") and each of the Stockholders set forth in
the signature lines below.
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Agreement" means this Rights Agreement as from time to time amended
and in effect between the parties, including all Exhibits hereto.
"Approved Sale" shall mean the meaning assigned to it in Section
3.1.
"Board" or "Board of Directors" means the board of directors of the
Company as constituted from time to time.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act or Exchange Act.
"Common Stock" means the Company's Common Stock.
"Common Shares" means shares of the Company's Common Stock.
"Company" means BigStar Entertainment, Inc., a Delaware corporation.
"Directors" means the members from time to time of the Board of
Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission (or of any other federal agency then administering the Exchange Act)
thereunder, all as the same shall be in effect at the time.
"Holder" means any person owning or having the right to acquire
Registrable Shares or any assignee thereof in accordance with Section 2.14
hereof.
"Immediate Family" means any spouse, child, grandchild, brother,
parent or sister of a Holder.
<PAGE> 2
"Initial Public Offering" means the first public offering of Common
Stock of the Company for the account of the Company pursuant to an offering
registered under the Securities Act with the Commission.
"Person" means an individual, corporation, partnership, joint
venture, trust, university, or unincorporated organization, or a government, or
any agency or political subdivision thereof.
"Recapitalization Events" means stock splits, stock dividends,
recapitalizations, reclassifications and similar events.
"Registrable Shares" shall mean and include (i) shares of Common
Stock held by a Stockholder; and (ii) any shares of Common Stock issuable upon
exercise of warrants or options, if the Company expressly accords to such shares
the registration rights contained in this Agreement; provided, however, that
shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares upon the consummation of any sale of such shares pursuant to
a registration statement or Rule 144 under the Securities Act.
"Sale of the Company" means the sale of the Company by way of (i)
merger, consolidation or sale or transfer of at least a majority of the
Company's capital stock, or (ii) the transfer of all or substantially all of the
Company's assets.
"Securities" means any shares of capital stock of the Company or any
securities convertible into or exchangeable for any class of capital stock of
the Company and all securities into which such Securities may be converted or
reclassified as a result of any merger, consolidation, stock split, stock
dividend or other recapitalization of the Company whether now owned or hereafter
acquired.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission (or
of any other federal agency then administering the Securities Act) thereunder,
all as the same shall be in effect at the time.
"Stockholders" means (i) Persons listed as Stockholders on the
signature page hereof, (ii) any Person who purchases from the Company after the
date hereof newly issued shares of Securities of the Company and who, as
permitted by this Agreement, becomes a party to this Agreement and executes a
counterpart of this Agreement, and (iii) any permitted assignee or transferee
from any of the foregoing of Registrable Shares who is not a competitor of the
Company pursuant to the terms of this Agreement.
"Subsidiary" or "Subsidiaries" means any Person of which the Company
and/or any of its other Subsidiaries (as herein defined) directly or indirectly
owns at the time at least fifty percent (50%) of the outstanding voting
securities.
2
<PAGE> 3
ARTICLE 2
REGISTRATION RIGHTS
2.1. Piggy-Back Registrations. If at any time the Company shall determine
to register for its own account or the account of others under the Securities
Act (including without limitation pursuant to the Initial Public Offering or a
demand for registration of any Stockholder of the Company) any of its equity
securities, other than on Form S-8 or Form S-4 or their then equivalents (a
"Piggy-Back Registration"), it shall send to each Holder, written notice of such
determination and, if within fifteen (15) days after receipt of such notice,
such Holder shall so request in writing, the Company shall use its diligent
efforts to include in such registration statement all or any part of the
Registrable Shares such Holder requests to be registered, except that if, in
connection with any offering involving an underwriting of Common Stock to be
issued by the Company, the managing underwriter shall impose a limitation on the
number of shares of Common Stock which may be included in the registration
statement because, in its judgment, such limitation is necessary to effect an
orderly public distribution, then the Company shall be obligated to include in
such registration statement only such limited portion (or none, if so required
by the managing underwriter) of the Registrable Shares with respect to which
such Holder has requested inclusion hereunder. No right under this Section 2.1
shall be construed to limit any registration required under Section 2.2.
2.2. Demand Registration. If on any occasion Holders holding at least 25%
of the then outstanding Registrable Shares shall notify the Company in writing
that it or they intend to offer or cause to be offered for public sale at least
25% of the then outstanding Registrable Shares, the Company will so notify all
Holders. Upon written request of any Holder given within fifteen (15) days after
the receipt by such Holder from the Company of such notification, the Company
will use its diligent efforts to cause such of the Registrable Shares as may be
requested by any Holder (including the Holder giving the initial notice of
intent to offer) to be registered under the Securities Act as expeditiously as
possible (a "Demand Registration"). The Company shall not be required to effect
more than two Demand Registrations. If in the good faith judgment of the Board
of Directors of the Company, a Demand Registration would be detrimental to the
Company and the Board of Directors of the Company concludes, as a result, that
it is important to defer the filing of such registration statement at such time,
then the Company shall have the right to defer such filing, provided that the
Company may not defer the filing for a period of more than 180 days after
receipt of the request for a Demand Registration, or more than once in any
12-month period. Unless otherwise agreed to by the Company, the Holders may not
exercise their rights under this Section 2.2 until the earlier to occur of (i)
forty-eight (48) months following the date of this Agreement or (ii) one hundred
eighty (180) after the effectiveness of any registration statement covering the
Initial Public Offering. The Holders may not exercise their right under this
Section 2.2 for an effective date that is one hundred eighty (180) days of the
effective date of any registration statement (other than on Form S-8) covering
capital stock of the Company.
2.3. Registrations on Form S-3. In addition to the rights provided the
Holders in Sections 2.1 and 2.2 above, if the registration of Registrable Shares
under the Securities Act can be effected on Form S-3 (or any equivalent
successor form promulgated by the Commission), then the Company shall provide
the Holders with the following rights:
3
<PAGE> 4
(a) For the Holders. Upon the written request of one or more
Holders, the Company will so notify each Holder, and then will, as expeditiously
as possible, use its diligent efforts to effect qualification and registration
under the Securities Act on Form S-3 of all or such portion of the Registrable
Shares as the Holders shall specify; provided, however, the Company shall not be
required to effect a registration pursuant to this Section 2.3(a) unless the
market value of the Registrable Shares to be sold by the Holders in any such
registration shall be at least $1,000,000 at the time of filing such
registration statement, and further provided that the Company shall not be
required to effect more than one registration during any 12 month period
pursuant to this Section 2.3(a) or more than four registrations in the aggregate
pursuant to this Section 2.3(a).
(b) Conflicts. In the event that, in a registration under this
Section 2.3 which is effected through an underwriter, the underwriter imposes a
limitation on the number of Registrable Shares which may be included in the
registration statement in order to effect an orderly public distribution, then
the Company shall exclude from such registration statement, first, all shares
which are not Registrable Shares, and second, Registrable Shares which are
requested to be included pursuant to Section 2.1.
2.4. Effectiveness. The Company will use its diligent efforts to maintain
the effectiveness for up to one hundred twenty (120) days (or such shorter
period of time as the underwriters need to complete the distribution of the
registered offering, or ninety (90) days in the case of a "shelf" registration
statement on Form S-3) of any registration statement pursuant to which any of
the Registrable Shares are being offered, and from time to time will amend or
supplement such registration statement and the prospectus contained therein to
the extent necessary to comply with the Securities Act and any applicable state
securities statute or regulation. The Company will also provide each Holder with
as many copies of the prospectus contained in any such registration statement as
it may reasonably request.
2.5. Indemnification of Holders.
(a) In the event that the Company registers any of the Registrable
Shares under the Securities Act, the Company will indemnify and hold harmless
each Holder and each underwriter of the Registrable Shares (including their
officers, directors, affiliates and partners) so registered (including any
broker or dealer through whom such shares may be sold) and each Person, if any,
who controls such Holder or any such underwriter within the meaning of Section
15 of the Securities Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which they or any of them become
subject under the Securities Act, applicable state securities laws or under any
other statute or at common law or otherwise, as incurred, and, except as
hereinafter provided, will reimburse each such Holder, each such underwriter and
each such controlling Person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, as incurred, insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the final prospectus (or the registration statement
or prospectus as from time to time amended or supplemented by the Company) or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated
4
<PAGE> 5
therein or necessary in order to make the statements therein not misleading, or
any violation by the Company of any rule or regulation promulgated under the
Securities Act or any state securities laws applicable to the Company and
relating to action or inaction required of the Company in connection with such
registration, unless (i) such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary or amended preliminary prospectus or final prospectus in reliance
upon and in conformity with information furnished in writing to the Company in
connection therewith by any such holder of Registrable Shares or its controlling
person (in the case of indemnification of such holder or its controlling
person), or any such underwriter or its controlling person (in the case of
indemnification of such underwriter or its controlling person) expressly for use
therein, or unless (ii) in the case of a sale directly by such Holder of
(including a sale of such Registrable Shares through any underwriter retained by
such holder of Registrable Shares to engage in a distribution on behalf of such
Holder), such untrue statement or alleged untrue statement or omission or
alleged omission was contained in a preliminary prospectus and corrected in a
final or amended prospectus copies of which were delivered to such Holder or
such underwriter on a timely basis, and such Holder failed to deliver a copy of
the final or amended prospectus at or prior to the confirmation for the sale of
the Registrable Shares to the person asserting any such loss, claim, damage or
liability in any case where such delivery is required by the Securities Act.
(b) Promptly after receipt by any Holder, any underwriter or any
controlling Person of notice of the commencement of any action in respect of
which indemnity may be sought against the Company, such Holder, or such
underwriter or such controlling person, as the case may be, will notify the
Company in writing of the commencement thereof (provided, that failure to so
notify the Company shall not relieve the Company from any liability it may have
hereunder) and, subject to the provisions hereinafter stated, the Company shall
be entitled to assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to such Holder, of such
underwriter or such controlling Person, as the case may be), and the payment of
expenses insofar as such action shall relate to any alleged liability in respect
of which indemnity may be sought against the Company.
(c) Such Holder, any such underwriter or any such controlling Person
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof but the fees and expenses of such counsel
subsequent to any assumption of the defense by the Company shall not be at the
expense of the Company unless the employment of such counsel has been
specifically authorized in writing by the Company. The Company shall not be
liable to indemnify any Person for any settlement of any such action effected
without the Company's written consent. The Company shall not, except with the
approval of each party being indemnified under this Section 2.5, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
parties being so indemnified of a release from all liability in respect to such
claim or litigation.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which any Holder exercising
rights under this Article 2, or any controlling Person of any such Holder, makes
a claim for indemnification pursuant to this Section 2.5 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of
5
<PAGE> 6
appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 2.5 provides for indemnification in
such case, then, the Company and such Holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and of the Holder on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
Holder on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or by the Holder on the other, and each party's relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, however, that, in any such case, (A) no
such Holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Shares offered by such Holder pursuant to
such registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
2.6. Indemnification of Company.
(a) In the event that the Company registers any of the Registrable
Shares under the Securities Act, each Holder so registered will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed or otherwise participated in the preparation of the registration
statement, each underwriter of the Registrable Shares so registered (including
any broker or dealer through whom such of the shares may be sold) and each
Person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act from and against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act, applicable state securities laws or under any other
statute or at common law or otherwise, and, except as hereinafter provided, will
reimburse the Company and each such director, officer, underwriter or
controlling Person for any legal or other expenses reasonably incurred by them
or any of them in connection with investigating or defending any actions whether
or not resulting in any liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement, in any preliminary or amended preliminary prospectus or
in the final prospectus (or in the registration statement or prospectus as from
time to time amended or supplemented) or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, but only insofar as any such statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by such Holder expressly for use therein;
provided, however, that such Holder's obligations hereunder shall be limited to
an amount equal to the proceeds received by such Holder sold in such
registration.
(b) Promptly after receipt of notice of the commencement of any
action in respect of which indemnity may be sought against such Holder, the
Company will notify such Holder in writing of the commencement thereof
(provided, that failure to so notify such Holder
6
<PAGE> 7
shall not relieve such holder from any liability it may have hereunder), and
such Holder shall, subject to the provisions hereinafter stated, be entitled to
assume the defense of such action (including the employment of counsel, who
shall be counsel reasonably satisfactory to the Company) and the payment of
expenses insofar as such action shall relate to the alleged liability in respect
of which indemnity may be sought against such holder of Registrable Shares. The
Company and each such director, officer, underwriter or controlling Person shall
have the right to employ separate counsel in any such action and to participate
in the defense thereof, but the fees and expenses of such counsel subsequent to
any assumption of the defense by such Holder shall not be at the expense of such
Holder unless employment of such counsel has been specifically authorized in
writing by such Holder. Such Holder shall not be liable to indemnify any Person
for any settlement of any such action effected without such Holder's written
consent.
(c) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which the Company exercising
its rights under this Article 2 makes a claim for indemnification pursuant to
this Section 2.6, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding that this
Section 2.6 provides for indemnification, in such case, then, the Company and
such Holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and of the Holder on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the Holder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by the Holder
on the other, and each party's relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission; provided,
however, that, in any such case, (A) no such Holder will be required to
contribute any amount in excess of the public offering price of all such
Registrable Shares offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
2.7. Exchange Act Registration. If the Company at any time shall list any
class of equity securities of the type which may be issued upon the conversion
of the Preferred Stock on any national securities exchange and shall register
such class of equity securities under the Exchange Act, the Company will, at its
expense, simultaneously list on such exchange and maintain such listing of, the
Common Stock. If the Company becomes subject to the reporting requirements of
either Section 13 or Section 15(d) of the Exchange Act, the Company will use its
diligent efforts to timely file with the Commission such information as the
Commission may require under either of said Sections; and in such event, the
Company shall use its diligent efforts to take all action as may be required as
a condition to the availability of Rule 144 or Rule 144A under the Securities
Act (or any successor exemptive rule hereinafter in effect) with respect to such
Common Stock. The Company shall furnish to any Holder forthwith upon request (i)
a written statement by the Company as to its compliance with the reporting
requirements of Rule
7
<PAGE> 8
144, (ii) a copy of the most recent annual or quarterly report of the Company as
filed with the Commission, and (iii) such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Holder to sell any such Registrable Securities without
registration. After the occurrence of the Initial Public Offering, the Company
agrees to use its diligent efforts to facilitate and expedite transfers of
Common Stock pursuant to Rule 144 under the Securities Act, which efforts shall
include timely notice to its transfer agent to expedite such transfers of Common
Stock.
2.8. Further Obligations of the Company. Whenever under the preceding
Sections of this Article 2, the Company is required hereunder to register
Registrable Shares, it agrees that it shall also do the following:
(a) Furnish to each selling Holder such copies of each preliminary
and final prospectus and such other documents as said holder may reasonably
request to facilitate the public offering of its Registrable Shares;
(b) Use its diligent efforts to register or qualify the Registrable
Shares covered by said registration statement under the applicable securities or
"blue sky" laws of such jurisdictions as any selling Holder may reasonably
request; provided, however, that the Company shall not be obligated to qualify
to do business in any jurisdictions where it is not then so qualified or to take
any action which would subject it to the service of process in suits other than
those arising out of the offer or sale of the securities covered by the
registration statement in any jurisdiction where it is not then so subject;
(c) Furnish to each selling Holder a signed counterpart, addressed
to the selling holders, of
(i) an opinion of counsel for the Company, dated the effective
date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the Company's financial
statements included in the registration statement, to the extent permitted by
the standards of the American Institute of Certified Public Accountants,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' "comfort" letters) with respect to events subsequent to the date of
the financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' "comfort" letters delivered to the underwriters in
underwritten public offerings of securities;
(d) Make available for inspection to each selling Holder a copy of
all documents filed with and all correspondence from or to the Commission in
connection with any such offering of securities; and
(e) Cooperate to the extent reasonably requested to obtain all
necessary approvals from the National Association of Securities Dealers, Inc.
2.9. Stockholder Acts. Whenever under the preceding Sections of this
Article 2 the Holders are registering such shares pursuant to any registration
statement, each such Holder
8
<PAGE> 9
agrees to (i) timely provide to the Company, at its request, such information
and materials as it may reasonably request in order to effect the registration
of such Registrable Shares and (ii) convert all shares of Preferred Stock
included in any registration statement to shares of Common Stock, such
conversion to be effective at the closing of such offering pursuant to such
registration statement.
2.10. Expenses. In the case of all Piggy-Back Registrations effected under
Section 2.1, two Demand Registrations effected under Section 2.2, and one
registration per 12-month period effected under Section 2.3 up to the maximum
number specified therein, the Company shall bear all reasonable costs and
expenses of each such registration, including, but not limited to, the Company's
printing, legal and accounting fees and expenses, Commission and NASD filing
fees and "Blue Sky" fees and expenses; provided, however, that the Company shall
have no obligation to pay or otherwise bear any portion of the underwriters'
commissions or discounts attributable to the Registrable Shares being offered
and sold by the Holders, or the fees and expenses of counsel for the selling
Holders in connection with the registration of the Registrable Shares. The
Company shall pay all expenses in connection with any registration initiated
pursuant to this Article 2 which is withdrawn, delayed or abandoned at the
request of the Company, except if such withdrawal, delay or abandonment is
caused by the fraud, material misstatement or omission of a material fact by a
Holder to be included in such registration.
2.11. Market Stand-Off" Agreement. Each Holder hereby agrees that, during
the period of duration (up to, but not exceeding, 180 days) specified by the
Company and an underwriter of Common Stock or other securities of the Company,
following the effective date of a registration statement of the Company filed
under the Securities Act, it shall not, to the extent requested by the Company
and such underwriter, directly or indirectly sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who agree to
be similarly bound) any securities of the Company held by it at any time during
such period except Common Stock included in such registration; provided,
however, that:
(a) such agreement shall be applicable only during the three-year
period following the date of the final prospectus distributed pursuant to the
first such registration statement of the Company which covers Common Stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering; and
(b) all officers and directors of the Company, all five-percent (5%)
security holders, and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 2.11.
9
<PAGE> 10
Notwithstanding the foregoing, the obligations described in this
Section 2.11 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future.
2.12. Other Registration Rights. The Company shall not grant any
registration rights to any other Person which registration rights are senior to
the registration rights of the Holders, unless the Company shall first obtain
the written consent of a majority-in-interest of the Holders. The Company may
grant registration rights in the future to any future purchaser of the
Securities of the Company which are on parity with the Holders, without the
consent of the Holders, provided that such purchasers agree in writing to be
bound by the provisions of this Agreement. The Company has the right to add
employees of the Company who have options or Securities of the Company as
parties to this Agreement.
2.13. S-8 Registration. Reasonably promptly after completion of the
Initial Public Offering, the Company shall use its diligent efforts to file with
the Commission a registration statement on Form S-8 (or its equivalent successor
form) to register all shares of Common Stock issuable pursuant to options
granted under the Company's stock option plans adopted by the Company's Board of
Directors and approved by the Company's Stockholders.
2.14. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Shares pursuant to this Article 2 may be assigned (but
only with all related obligations) by a Holder to a transferee or assignee,
provided (i) the Company is, within a reasonable time before such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; (ii) that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and (iii) the
assignee, in the Company's judgment, is not a competitor of the Company.
2.15. Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Article 2 after the earlier of (i) five
(5) years following the consummation of the sale of securities in an Initial
Public Offering, (ii) such time as Rule 144 or another similar exemption under
the Act is available for the sale of all of such Holder's shares during a three
(3)-month period without registration.
2.16. Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Article 2.
ARTICLE 3
SALE OF COMPANY
3.1. Sale. If the Board of Directors and the holders of a majority of the
outstanding Securities entitled to vote approve a Sale of the Company (the
"Approved Sale"), all of the Stockholders shall consent to and raise no
objections against an Approved Sale, and if the Approved Sale is structured as a
sale of stock or merger, all of the Stockholders shall agree to
10
<PAGE> 11
sell their securities on the terms and conditions of the Approved Sale. All of
the Stockholders shall take all reasonably necessary and desirable actions in
connection with the consummation of the Approved Sale.
3.2. Expenses. The Stockholders shall bear their pro rata share (based
upon the number of shares sold) of the costs of any sale of Securities pursuant
to an Approved Sale to the extent such costs are incurred for the benefit of all
holders of the Company's Securities and are not otherwise paid by the Company or
the acquiring party. Costs incurred by the Stockholders on their own behalf
shall not be considered costs of the transaction hereunder.
3.3. Termination. The provisions of this Article 3 shall terminate upon
the completion of an Initial Public Offering.
ARTICLE 4
MISCELLANEOUS
4.1. No Waiver; Cumulative Remedies. No failure or delay on the part of
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
4.2. Amendments, Waivers and Consents. Any provision in the Agreement to
the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company shall obtain consent thereto in writing from the holder
or holders of at least a majority of the Registrable Shares, provided that no
consents shall be effective to reduce the percentage of the Registrable Shares
the consent of the holders of which is required under this Section 4.2. Any
waiver or consent may be given subject to satisfaction of conditions stated
therein and any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
4.3. Addresses for Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and mailed, telegraphed or delivered to each applicable party at
the address set forth in the records of the Company or at such other address as
to which such party may inform the other parties in writing in compliance with
the terms of this Section.
If to any Stockholder: at such Stockholder's address for notice as
set forth in the register maintained by the Company, or at such other address as
shall be designated by such Person in a written notice to the other parties
complying as to delivery with the terms of this Section.
If to the Company: at the address set forth on page 1 hereof, or at
such other address as shall be designated by the Company in a written notice to
the other parties complying as to delivery with the terms of this Section.
11
<PAGE> 12
All such notices, requests, demands and other communications shall,
shall be deemed delivered: three days after mailed (which mailing must be
accomplished by certified mail, return receipt requested and postage prepaid);
when transmitted by successful facsimile transmission; one business day after
deposited with a guaranteed overnight courier service (charged to sender); or
when delivered in hand or dispatched by telegraph.
4.4. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Company. This Agreement is not assignable by the
Stockholders without the consent of the Company, except as provided for in
Section 2.14.
4.5. Entire Agreement. This Agreement constitutes the entire agreement
among the parties and supersedes any prior or contemporaneous understandings,
representations or agreements concerning the subject matter hereof.
4.6. Severability. The provisions of this Agreement are severable and, in
the event that any court of competent jurisdiction one or more of the provisions
or part of a provision contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a
provision of this Agreement, but this Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of a
provision, had never been contained herein, and such provisions or part reformed
so that it would be valid, legal and enforceable to the maximum extent possible.
4.7. Confidentiality. Each Stockholder agrees that it will keep
confidential and will not disclose, or divulge any confidential, proprietary,
secret or non-public information which such Stockholder may obtain from the
Company and not use such information other than for the benefit of the Company
or in furtherance of the Stockholder's rights as a Stockholder of the Company,
provided that no such information shall be deemed to be non-public if it (i) is
or becomes generally available to the public other than as a result of a
disclosure by the Stockholder or its respective agents, representatives or
employees; (ii) is or becomes available to the Stockholder on a non-confidential
basis from a source (other than the Company or one of its officers, directors,
agents, representatives or employees) that is not prohibited from disclosing
such information by a legal, contractual or fiduciary obligation; or (iii) was
known to the Stockholder on a non-confidential basis prior to its disclosure to
it by the Company and provided further that, any other term of this Agreement to
the contrary notwithstanding, the Company shall not be obligated to disclose any
information, the disclosure of which it believes in good faith would be
detrimental to the Company or its Stockholders.
4.8. Governing Law and Construction. This Agreement will be governed by
and construed in accordance with the laws of New York, without regard to the
principles of conflicts of law. The language of this Agreement shall be deemed
to be the result of negotiation among the parties and their respective counsel
and shall not be construed strictly for or against any party. Each party (i)
agrees that any action arising out of or in connection with this Agreement shall
be brought solely in federal or state courts in New York, New York, (ii) hereby
consents to the sole jurisdiction of such courts, and (iii) agrees that,
whenever a party is requested to executed one or more documents evidencing such
consent, it shall do so immediately.
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<PAGE> 13
4.9. Headings. Article, section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
4.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
4.11. Further Assurances. From and after the date of this Agreement, upon
the request of any Stockholder or the Company, the Company and the Stockholder
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
4.12. Aggregation of Stock. All shares of Company stock held or acquired
by a Stockholder and its Affiliates and Immediate Family shall be aggregated
together for purposes of determining the availability of any rights under this
Agreement.
4.13. Attorney's Fees. In the event that any dispute among the parties to
this Agreement should result in a legal proceeding, the prevailing party shall
be entitled to recover from the other party(ies) to such dispute, all fees,
costs and expenses of enforcing any right under or with respect to this
Agreement, including without limitation, such fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the ____________________, 199__.
BIGSTAR ENTERTAINMENT, INC.
By:________________________________
Title:_____________________________
COMMON STOCKHOLDERS
_______________________________ _______________________________
Signature Signature
_______________________________ _______________________________
Title Title
_______________________________ _______________________________
Printed Name Printed Name
_______________________________ _______________________________
Signature Signature
_______________________________ _______________________________
Title Title
_______________________________ _______________________________
Printed Name Printed Name
BIGSTAR
RIGHTS AGREEMENT SIGNATURE PAGE
<PAGE> 1
LEASE AGREEMENT BETWEEN
SEAPORT ASSOCIATES, LP,
AS LANDLORD
AND
BIGSTAR ENTERTAINMENT, INC,
AS TENANT.
Premises:
19 FULTON STREET
FIFTH (5TH) FLOOR
NEW YORK, NEW YORK 10038
Prepared By:
The Law Offices of
HIRSCH & KATZ, LLP
595 Stewart Avenue
Suite 400
Garden City, New York 11530
(516) 227-1117
<PAGE> 2
AGREEMENT OF LEASE, made as of the day of February, 1999 by and
between SEAPORT ASSOCIATES L.P., a New York limited partnership, having an
address at 3000 Marcus Avenue, Lake Success, New York 11042 (hereinafter the
"Landlord"), and BIGSTAR ENTERTAINMENT, INC, a New York corporation having an
office located at 100 Wall Street, New York, New York 10005 (hereinafter the
"Tenant").
The parties agree as follows:
1. DEMISED PREMISES
The Landlord does hereby lease to the Tenant and the Tenant does hereby
rent from the Landlord the entire Fifth (5th) floor which shall be deemed to
contain approximately Seven Thousand, Two Hundred and Twenty-Four (7,224)
rentable square feet (hereinafter the "Demised Premises") in the office building
located at 19 Fulton Street, New York, New York 10038 (hereinafter the
"Building"), together with all fixtures and improvements which at the
commencement of this Lease or at any time during the term are attached thereon
or installed therein and together with all appurtenances to the premises. The
Demised Premises are shown on EXHIBIT "A" hereto.
2. TERM AND COMMENCEMENT
(a) The term of this Lease shall be for Forty-Four (44) months, commencing
on February 1, 1999 (the "Commencement Date") and expiring at noon on September
30, 2002 (the "Expiration Date"), unless the same shall sooner terminate
pursuant to any of the terms, covenants, conditions or agreements of this Lease
or pursuant to law.
(b) Landlord shall not be liable to Tenant if Landlord cannot deliver
possession of the Demised Premises on the Commencement Date due to the holding
over by a prior tenant in violation of the terms of said prior tenant's lease.
This Lease shall continue, and rent will be waived for the period between the
Commencement Date and the date on which Landlord delivers possession.
Notwithstanding the foregoing, in the event that Landlord is unable to deliver
possession of the Demised Premises on or before February 15, 1999, then in such
event, Tenant may serve notice on Lessor of its intention to terminate this
Lease and if within seven (7) days thereafter, Landlord shall not have delivered
possession of the Demised Premises, then in such events, this Lease shall
terminate on the expiration of such seven (7) day period as if such termination
date were the Expiration Date, and the Fixed Rent, Additional Rent shall be
apportioned as of such date of sooner termination and any prepaid portion of
Fixed Rent, Additional Rent and Security Deposit (as hereinafter defined) for
any period after such date shall be refunded by Landlord to Tenant.
3. RENT
(a) During the term of this Lease Tenant shall pay to Landlord a "Fixed
Annual Rent" in advance on the first day of each month of the Term of this Lease
at Landlords office, without demand, notice, setoff or deduction, as follows:
(i) during and in respect of the period from February 1, 1999
through January 31, 2000, (both dates inclusive) an amount equal to ONE HUNDRED
AND SIXTY-SIX THOUSAND,
2
<PAGE> 3
ONE HUNDRED AND FIFTY-TWO AND 00/100 ($166,152.00) DOLLARS (exclusive of
electric) payable in equal monthly installments of THIRTEEN THOUSAND, EIGHT
HUNDRED AND FORTY-SIX AND 001100 ($13,846.00) DOLLARS (exclusive of electric);
(ii) during and in respect of the period from February 1, 2000
through January 31, 2001, (both dates inclusive) an amount equal to ONE HUNDRED
AND SEVENTY-ONE THOUSAND, ONE HUNDRED AND THIRTY-SIX AND 56/100 ($171,136.56)
DOLLARS (exclusive of electric) payable in equal monthly installments of
FOURTEEN THOUSAND, TWO HUNDRED AND SIXTY-ONE AND 38/100 ($14,261.38) DOLLARS
(exclusive of electric);
(iii) during and in respect of the period from February 1, 2001
through January 31, 2002, (both dates inclusive) an amount equal to ONE HUNDRED
AND SEVENTY-SIX THOUSAND, TWO HUNDRED AND SEVENTY AND 64/100 ($176,270.64)
DOLLARS (exclusive of electric) payable in equal monthly installments of
FOURTEEN THOUSAND, SIX HUNDRED AND EIGHTY-NINE AND 22/100 ($14,689.22) DOLLARS
(exclusive of electric); and
(iv) during and in respect of the period from February 1, 2002
through September 30, 2002, (both dates inclusive) an amount equal to ONE
HUNDRED AND TWENTY-ONE THOUSAND, THIRTY-NINE AND 20/100 ($121,039.20) DOLLARS
(exclusive of electric) payable in equal monthly installments of FIFTEEN
THOUSAND, ONE HUNDRED AND TWENTY-NINE AND 90/100 ($15,129.90) DOLLARS (exclusive
of electric).
(b) Upon execution hereof, Tenant shall pre-pay the first (1st), third
(3rd), fifth (5th), seventh (7th), ninth (9th) and eleventh (11th) monthly
installments of Fixed Annual Rent by bank or certified check.
4. SECURITY DEPOSIT; GUARANTY
(a) Tenant shall deposit with Landlord, upon execution of this Lease, the
sum of One Hundred and Eighty Thousand, Six Hundred and 00/100 ($180,600.00)
Dollars by Letter of Credit as provided in paragraph (b) as security for the
faithful performance and observance by Tenant of the terms, provisions,
conditions and covenants of this Lease (the "Security Deposit"). Tenant agrees
that, in the event that Tenant defaults, beyond all applicable grace and cure
periods after notice, in respect of any terms, provisions, conditions and
covenants of this Lease (including the payment of Fixed Annual Rent or
Additional Rent), Landlord may notify the Issuing Bank (as such term is defined
in paragraph (b) and thereupon receive all of the monies represented by the said
Letter of Credit and use, apply, or retain the whole or any part of such
proceeds, as the case may be, to the extent required for the payment of Fixed
Annual Rent, Additional Rent, or any other sums as to which Tenant is in
default, or for any sum that Landlord may expend or may be required to expend by
reason of Tenant's default, in respect of the terms, provisions, conditions and
covenants of this Lease (including any damages or deficiency accrued before or
after summary proceedings or other re-entry by Landlord). In the event that
Landlord applies or retains any portion or all of such cash security or proceeds
of such Letter of Credit, as the case may be, Tenant shall forthwith restore the
amount so retained or applied.
(b) Tenant may deliver to Landlord a clean, irrevocable and unconditional
Letter of Credit issued by and drawn upon any commercial bank acceptable to
Landlord (the "Issuing
3
<PAGE> 4
Bank") with offices for banking purposes in the City of New York, which Letter
of Credit shall have a term of not less than one year, be in a form and content
reasonably satisfactory to Landlord, be for the account of Landlord and be in
the amount of One Hundred and Eighty Thousand, Six Hundred and 00/100
($180,600.00) Dollars. The Letter of Credit shall provide that:
(i) the Issuing Bank shall pay to Landlord an amount up to the face
amount of the Letter of Credit upon presentation of only the Letter of Credit, a
sight draft in the amount to be drawn and an affidavit of default;
(ii) the Letter of Credit shall be deemed to be automatically
renewed, without amendment, for consecutive periods of one year during the Term
of this Lease, unless the Issuing Bank sends written notice ("Non-Renewal
Notice") to Landlord by certified or registered mail, return receipt requested,
not less than thirty (30) days next preceding the then expiration date of the
Letter of Credit that it elects not to have such Letter of Credit renewed;
(iii) Landlord, after receipt of the Non-Renewal Notice, shall have
the right, exercisable by a sight draft only, to receive the moneys represented
by the Letter of Credit (which moneys shall be held by Landlord as a cash
deposit pursuant to the terms of this Article 4 pending replacement of such
Letter of Credit); and
(iv) Upon Landlord's sale of the Property, or Landlord's interest
therein, or a leasing of the Property, the Letter of Credit shall be
transferable by Landlord as provided in paragraph (c) hereof.
(c) In the event of a sale of the Property, or Landlord's interest
therein or of a leasing of the Property, Landlord shall transfer the Letter of
Credit deposited hereunder to the vendee or lessee, and Landlord shall thereupon
be released by Tenant from all liability for the return of such Letter of Credit
to a new lessor. Tenant shall execute such documents as may be necessary to
accomplish such transfer or assignment of the Letter of Credit.
(d) Tenant covenants that it will not assign or encumber, or attempt to
assign or encumber the monies or Letter of Credit deposited hereunder as
security, and that neither Landlord nor its successors and/or assigns shall be
bound by any such assignment, or attempted encumbrance.
(e) In the event that Tenant shall fully and faithfully comply with all of
the material terms, provisions, covenants and conditions of this Lease, the
Security Deposit, or that portion not required to cure any defaults under this
Agreement, shall be returned to Tenant within ten (10) days after the date fixed
as the end of the Lease or of any extended term, if applicable, and delivery of
the entire possession of the Demised Premises to Landlord.
(f) Tenant shall deliver, upon execution of this Lease, an Limited
Personal Guaranty which shall be attached to this Lease as EXHIBIT "B" from
Tenant's principles (the "Guarantors").
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5. ELECTRIC POWER
(a) Landlord shall furnish to Tenant, electric power as provided to
Landlord from the public utility company furnishing electric power to the
Building at an annual additional charge of FOURTEEN THOUSAND FOUR HUNDRED AND
FORTY-EIGHT AND 00/100 ($14,448.00) DOLLARS payable in equal monthly
installments of ONE THOUSAND, TWO HUNDRED AND FOUR AND 00/100 ($1,204.00)
DOLLARS (the "Electric Charge"). Upon execution hereof, Tenant shall pre-pay the
first (1st), third (3rd), fifth (5th), seventh (7th), ninth (9th) and eleventh
(11th) monthly installments of Electric Charge by bank or certified check.
(b) Tenant shall use such electric power reasonably necessary for lighting
and for operation of such equipment as is normally used in ordinary business
offices. Tenant's use of electric power in the Demised Premises shall not at any
time exceed the capacity of any of the electrical conductors, conduits, and
equipment in or otherwise serving the Demised Premises. Tenant shall not make or
perform, or permit the making or performing of, any alterations to wiring
installations or other electrical facilities in or serving the Demised Premises
without the prior written consent of Landlord in each instance (which shall not
be unreasonably withheld). Should Landlord grant any such consent, all
additional risers or other equipment required therefor shall be installed by
Landlord and the cost thereof shall be paid by Tenant upon Landlords' demand as
Additional Rent.
(c) Landlord shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electric energy furnished to the Demised
Premises by reason of any requirement, act or omission of the public utility
serving the Building and/or the Demised Premises with electricity or for any
other reason not attributable to Landlord.
(d) Landlord shall furnish and install the replacement lighting tubes,
lamps, bulbs and ballasts in the Demised Premises, at Tenant's expense.
6. ADDITIONAL RENT; LATE CHARGES
(a) Any charge or sum due Landlord under this Lease shall be payable as
"Additional RENT." If Tenant fails to pay any Additional Rent after the
expiration of any applicable grace, notice and cure period, Landlord shall have
the same rights as in the case of Tenant's nonpayment of Fixed Annual Rent.
(b) Tenant shall pay Landlord interest at an annual rate of 2% above the
prime rate, as set by Citibank, N.A., or its successor, on any sum not paid
within ten (10) days of when such sum is due.
(c) Tenant shall pay (i) all occupancy and rent taxes in respect of
Tenant's occupancy of the Demised Premises, if applicable, (ii) license and
permit fees required for Tenant's operations, and (iii) all New York State and
City sales and compensating use taxes required to be paid by Tenant during the
course of its business to the extent that Tenant is not entitled to an exemption
because (A) Tenant is an organization exempt from such taxes or (B) Tenant is
entitled to such exemption by virtue of the exemption for "capital improvements"
provided for in Section 1101 (b) (9) of the New York State Tax Law.
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7. USE AND CONDITION
(a) The Demised Premises shall be used solely for general and executive
offices. If Tenant's use as provided for herein is prohibited by Landlord,
Tenant may terminate this Lease. Landlord shall not prohibit such use except
upon a bona fide default notice duly given from the City of New York or The
South Street Seaport Corporation, their successors or assigns, based upon the
City Lease or the Office Development Lease (said Leases being defined in Section
13(a)) or any other agreement, law, rule or ordinance by which the Building,
Landlord or Tenant may be bound.
(b) In recognition of the historic and cultural importance of the South
Street Seaport and in accordance with the provisions of the Office Development
Lease (as hereinafter defined), Tenant shall use the Demised Premises
exclusively as offices and Tenant shall neither use nor occupy, nor permit or
suffer the Demised Premises or any part thereof, to be used or occupied for any
unlawful or illegal business, use or purpose, or for any business, use or
purpose which is immoral or disreputable or extra-hazardous, or in such a manner
as to constitute a nuisance of any kind (public or private) or that would in any
way adversely affect the public standing or good reputation of Landlord or any
other person associated with South Street Seaport.
(c) Landlord makes no representations, express or implied, as to the
condition of the Demised Premises and Tenant agrees to accept the same in "AS
IS" condition on the Commencement Date. Landlord shall have no obligation to
perform any work in order to prepare the Demised Premises for Tenant's
occupancy.
(d) Except as otherwise specifically provided for in Section 2(b) of this
Lease, Tenant hereby waives any right to terminate, cancel or rescind this Lease
by reason of Owner's failure to deliver possession of the Demised Premises or
otherwise perform its obligations under this Article, which Tenant might
otherwise have pursuant to any law now or hereafter in force or otherwise.
Tenant further waives the right to recover any damages which may result from
Landlord's failure to deliver possession of the Demised Premises or otherwise to
perform its obligations under this Article. The provisions of this Article shall
be considered an express provision to the contrary pursuant to New York REAL
PROPERTY LAW Section 223-(a) governing delivery of possession of the Demised
Premises and any law providing for such a contingency in the absence of such
express agreement now or hereafter enacted shall have no application is such
case to the extent inconsistent with this Lease.
8. TENANT'S ALTERATIONS
(a) From and after the date on which Tenant enters into occupancy or
possession of the Demised Premises and throughout the Term of this Lease, Tenant
shall, have the right, after obtaining Landlords written consent, which consent
shall not be unreasonably withheld, at Tenant's own cost and expense, to make
alterations, additions and improvements which are nonstructural and which do not
affect utility services or plumbing or electrical lines, including Tenant's
changes to wall or ceiling finishes or elements (collectively referred to as
"Alterations"), in or to the Demised Premises as Tenant shall deem necessary or
desirable in connection with the conduct of its business, subject, however, to
Tenant's compliance with the requirements in Section 8(b).
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(b) The performance of any such nonstructural Alteration is subject,
however, to the following requirements:
(i) The plans and specifications for all Tenant's Alterations shall
have been approved in writing by Landlord, which approval shall not be
unreasonably withheld.
(ii) The construction company or contractor for Tenant's Alterations
shall have been approved in writing by Landlord, which approval shall not be
unreasonably withheld.
(iii) Tenant's Alterations shall be made promptly in a good and
workmanlike manner.
(iv) Tenant shall pay for any reinforcement of the floors or other
parts of the Building which is necessitated by installation of Tenant's safes or
other Tenant's Alterations and Landlord shall provide access for Tenant to do
such work.
(v) The paid bills and other written documents pertaining to
Tenant's Alterations shall be submitted to Landlord evidencing payment for
Tenant's Alterations. Tenant acknowledges and agrees that if Tenant defaults
under the terms and provisions of this Article 8, such default shall be a
material default under this Lease.
(vi) Tenant shall, before performing any Tenant's Alterations, at
its own expense, obtain all permits, approvals, and certificates required by any
governmental authority and shall promptly deliver copies of same to Landlord;
and at the time such Tenant's Alterations are done, such Tenant's Alterations
shall be made in strict conformance to the requirements of all applicable laws,
codes, regulations, insurance policies and requirements of all governmental
authorities including but not limited to those laws relating to Landmark
properties. Tenant shall carry and require Tenant' s contractors and
subcontractors who perform the Tenant's Alterations involved to carry workmen's
compensation, general liability and personal and property damage insurance
reasonably acceptable to Landlord and to deliver to Landlord certificates of
such insurance prior to the commencement of Tenant's Alterations. Tenant agrees
to indemnify and hold harmless Landlord from and against all loss, damage,
liability (whether in contract or tort), and expense, including court costs and
attorneys' fees, caused by, or arising from or relating to the work involved,
including any liability for labor or materials supplied for such alterations.
Tenant shall keep the Demised Premises free from mechanics' liens of any kind by
obtaining waivers thereof and by removing or bonding any lien filed, within ten
(10) days from the filing thereof.
(c) Prior to granting its consent to any Tenant's Alteration, Landlord may
impose reasonable conditions (in addition to those expressly provided in this
Lease) to guaranty completion of and payment for any Alteration or restoration
of the Demised Premises. Tenant shall make no structural alterations, without
Landlords prior written consent, which consent shall not be unreasonably
withheld or delayed.
(d) Tenant's Alterations to the Demised Premises shall, upon installation,
become the property of the Fee Owner and a part of the Demised Premises and
shall remain upon and be surrendered with the Demised Premises without
compensation to Tenant unless Landlord advises Tenant in writing that any such
Alteration or Alterations must be removed at the end of the
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Term. If Landlord requires removal, Tenant shall be responsible, at its sole
cost and expense, to restore the Demised Premises to their condition prior to
performance of the Alterations.
(e) Tenant shall bear any cost and expense for changes to the sprinkler
system required by law as a result of any Alterations made by or for the benefit
of Tenant in the Demised Premises.
(f) Landlord shall not be liable in any way for any injury, loss or damage
which may occur to any of Tenant's decorations or installations or to any of
Tenant's other property, the same being solely at Tenant's risk.
9. HEATING VENTILATING AND AIR CONDITIONING (HVAC)
(a) Except as otherwise specifically provided for herein, Landlord shall
supply: (i) air-conditioning (between May 31st and October 1st in each year),
heating (between October 1st and May 31st in each year) and ventilation from
8:00 a.m. to 6:00 p.m. Monday through Saturday; (ii) elevator service
twenty-four hours a day, seven days a week, (iii) water for ordinary lavatory
and drinking purposes, but if Tenant uses or consumes water for any other
purposes or in unusual quantities (of which fact Landlord shall be the
reasonable judge), Landlord may install a water meter at Tenant's expense in
good working order and repair to register such water consumption and Tenant
shall pay for water consumed as shown on said meter as Additional Rent as and
when bills are rendered.
(b) Tenant agrees at all times to use reasonable efforts to cooperate
fully with Landlord and to abide by all regulations and requirements which
Landlord may reasonably prescribe for the proper functioning and protection of
the HVAC system.
10. INTERRUPTION OF SERVICES
Landlord reserves the right to stop services of any heating, plumbing,
elevator, air conditioning or power systems, or cleaning or other services, in
order to make repairs, alterations, replacements or improvements necessary in
the judgment of Landlord for as long as may be reasonably required by reason
thereof or by reason of strikes, accidents, laws, orders or regulations or any
other reason beyond the control of Landlord and Landlord shall use its best
efforts to restore services as soon as possible. Tenant shall not be entitled to
an abatement of rent in the event that Landlord stops services for the reasons
specified herein.
11. REPAIRS
Tenant shall, throughout the term of this Lease, take good care of the
Demised Premises and the fixtures therein (unless Landlord is obligated to
maintain pursuant to this Lease) and at Tenant's sole cost and expense, make all
repairs thereto as and when needed to preserve them in good working order and
condition, reasonable wear and tear excepted. Landlord shall maintain and repair
the outside, public and structural portions of the Building and the plumbing,
heating, ventilation, electrical, sprinkler, air conditioning and water systems.
If Tenant fails after thirty (30) days notice to proceed with due diligence to
make repairs required to be made by Tenant, the same may be made by Landlord at
the expense of Tenant and the expenses thereof incurred by Landlord shall be
collectible as Additional Rent after rendition of a bill or statement therefor.
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12. REQUIREMENTS OF LAW FIRE INSURANCE, FLOOR LOADS
(a) Prior to the Commencement Date, if Tenant is then in possession, and
at all times thereafter, Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders and regulations of all
state, federal, municipal and local governments, departments, commissions and
boards and any direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters or any similar
body which shall impose any violation, order or duty upon Landlord or Tenant
with respect to the Demised Premises or the Building arising out of Tenant's
activities in connection with the permitted use hereunder, including but not
limited to the Americans with Disabilities Act. Nothing herein shall require
Tenant to make structural repairs unless Tenant has by its manner of use of the
Demised Premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant may, after securing Landlord to Landlords reasonable satisfaction against
all damages, interest, penalties and expenses, including, but not limited to,
reasonable attorneys fees, by cash deposit or by surety bond in an amount and
with a company reasonably satisfactory to Landlord, contest and appeal any such
laws, ordinances, orders, rules, regulations or requirements provided same is
done with all reasonable promptness and provided such appeal shall not subject
Landlord to prosecution for a criminal offense or constitute a default under any
Lease or mortgage under which Landlord may be obligated, or cause the Demised
Premises or any part thereof to be condemned or vacated. Tenant shall not do or
permit any act or thing to be done in or to the Demised Premises which is
contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Landlord with respect to the Demised Premises or the Building, or
which shall or might subject Landlord to any liability or responsibility to any
person or for property damage, nor shall Tenant keep anything in the Demised
Premises except as now or hereafter permitted by the Fire Department, Board of
Fire Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and in such quantity so as not to
increase the rate for fire insurance applicable to the Building, nor use the
Demised Premises in a manner which will increase the insurance rate for the
Building or any property located therein. Landlord represents that the permitted
use does not violate the provisions of this Article. Tenant shall pay all costs,
expenses, fines, penalties or damages, which may be imposed upon Landlord by
reason of Tenant's failure to comply with the provisions of this Article and if
by reason of such failure the fire insurance rate shall, at the beginning of
this Lease or at any time thereafter, be higher than it otherwise would be, then
Tenant shall reimburse Landlord, as Additional Rent hereunder, for that portion
of all fire insurance premiums thereafter paid by Landlord which shall have been
charged because of such failure by Tenant, and Tenant shall make such
reimbursement upon the first day of the month following such outlay by Landlord.
Tenant shall not place a load upon any floor of the Demised Premises exceeding
the floor load per square foot area which it was designed to carry and which is
allowed by law. Landlord reserves the right to designate the height and position
of all safes, business machines and mechanical equipment. Such installations
shall be placed and maintained by Tenant, at Tenant's expense, in setting
sufficient, in Landlords reasonable judgment to absorb and prevent vibration,
noise and annoyance.
(b) Tenant shall not release, discharge or dispose of, or permit, or
suffer any release, discharge or disposal of any Hazardous Material (as
hereinafter defined) at the Demised Premises in violation of any Environmental
Law (as hereinafter defined). Tenant shall not permit
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or suffer the manufacture, generation, storage, transmission or presence of any
Hazardous Material over or upon the Demised Premises in violation of any
Environmental Law. Tenant shall: (i) promptly, upon learning thereof, notify
Landlord of any violation of, or non-compliance with, potential violation of or
non-compliance with, or liability or potential liability under, any
Environmental Law concerning the Demised Premises, (ii) promptly make (and
deliver to Landlord copies of) all reports or notices that Tenant is required to
make under any Environmental Law concerning the Demised Premises and maintain in
current status all permits and licenses required under any Environmental Law
concerning the Demised Premises, (iii) immediately comply with any orders,
actions or demands of any Governmental Authority (as herein defined) with
respect to the discharge, clean-up or removal of Hazardous Materials at or from
the Demised Premises due to a breach of a covenant set forth herein (iv) pay
when due the cost of all environmental consultants, laboratory analysis, removal
of, treatment of, or the taking of any remedial action (including abatement
and/or disposal) with respect to, any Hazardous Material on the Demised Premises
which is required by an Environmental Law due to a breach of a covenant set
forth herein, (v) keep the Demised Premises free of any lien imposed pursuant to
any Environmental Law in respect of a breach of a covenant set forth herein,
(vi) from time to time, upon the request of Landlord, execute such affidavits,
certificates and statements concerning Tenant's knowledge and belief concerning
the presence of Hazardous Materials on the Demised Premises and (vii) otherwise
comply with all Environmental Laws concerning the Demised Premises.
13. SUBORDINATION
(a) The Lease between The City of New York, as lessor ("Fee Owner"), and
the South Street Seaport Museum, as lessee, dated as of December 15, 1981, is
herein referred to as the "City Lease." The "Office Development Lease" shall
mean: (i) that certain lease dated as of October 27, 1983 between The South
Street Seaport Corporation, as landlord, and Seaport Associates, LP, as Tenant,
a memorandum of which was recorded in the Office of the Register of the City of
New York on February 6, 1984 in Reel 762 at Page 740, as thereafter supplemented
and amended by that certain First Supplement of Lease dated as of December 29,
1983, First Amendment of Lease dated as of March 15, 1988 and Second Amendment
of Lease dated as of November 23, 1998, as the same may have thereafter been
supplemented or amended; and (ii) that certain Lease Agreement dated as of March
15, 1988 made by and between The South Street Seaport Corporation, as landlord,
and Seaport Associates, LP, as tenant, a memorandum of which was recorded in the
Office of the Register of the City of New York on March 28, 1988 in Reel 1383 at
Page 106, as thereafter supplemented and amended by that certain First Amendment
to Lease dated as of November 23, 1998, as the same may have thereafter been
supplemented or amended. If any provision of this Lease shall conflict or be
inconsistent with any provisions of the City Lease or the Office Development
Lease, the provisions of the City Lease and/or the Office Development Lease
shall control and this Lease shall be deemed amended accordingly.
(b) This Lease is subject and subordinate to all the terms and conditions
of the City Lease, the Office Development Lease and any mortgage which may now
or hereafter affect the City Lease, the Office Development Lease or the real
property of which the Demised Premises are a part and to all renewals,
modifications, consolidations, substitutions, replacements and
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extensions of any such leases and mortgages. In confirmation of such
subordination, Tenant shall promptly execute any certificate Landlord may
request.
(c) If, by reason of any default on the part of Landlord or The South
Street Seaport Corporation (the "Seaport Corporation") or for any other reason,
this Lease, the Office Development Lease or the City Lease is terminated by
summary proceedings or otherwise, or if Landlord is ousted from possession
through foreclosure proceedings brought by any present or future permitted
mortgagee, Tenant, at the option and request of Landlord, the Seaport
Corporation, the Fee Owner, such mortgagee or a purchaser at foreclosure of a
mortgage, shall attorn to Landlord, the Seaport Corporation, the Fee Owner, such
mortgagee or purchaser, as the case may be, as Tenant's landlord under this
Lease for the balance of the term remaining on such Lease subject to all the
terms of this Lease. The foregoing provision shall be self-operative and no
further instrument or document shall be necessary unless required by Landlord,
the Seaport Corporation, the Fee Owner or such mortgagee or purchaser.
(d) Tenant shall execute and deliver, at any time and from time to time,
upon the request of Landlord, or of the lessor under such underlying lease, an
instrument which includes only the executory provisions of this Lease and which
may be necessary or appropriate to evidence such attornment. Tenant hereby
waives the provisions of any statute or rule of law now or hereafter in effect
which may give or purport to give Tenant any right of election to terminate this
Lease or to surrender possession of the Demised Premises in the event any
proceeding is brought by The Seaport Corporation to terminate the Office
Development Lease, or by the Fee Owner to terminate the City Lease, or by any
present or future permitted mortgagee to foreclose any mortgage, and Tenant
agrees that this Lease shall not be affected in any way whatsoever by any such
proceeding provided that Tenant's possession of the Demised Premises under the
terms of this Lease is not disturbed.
(e) The foregoing provisions of this Article 13 shall inure to the benefit
of Landlord, The Seaport Corporation, the Fee Owner, any present or future
permitted mortgagee or a purchaser at foreclosure and their respective
successors and assigns.
14. PROPERTY - LOSS, DAMAGE REIMBURSEMENT, INDEMNITY
Landlord or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to Landlords employees or agents, nor for loss of
or damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature, nor
shall Landlord or its agents be liable for any such damage caused by other
tenants or persons in, upon or about said Building or caused by operations in
construction of any private, public or quasi-public work, unless caused by or
due to the gross negligence or willful misconduct of Landlord, its agents,
servants, employees, invitees, licensees or contractors. Except for Tenant's
business equipment and inventory, Tenant shall not move any safe, heavy
machinery, heavy equipment, bulky matter, or fixtures into or out of the
Building without Landlords prior written consent. If such safe, machinery,
equipment, bulky matter or fixtures requires special handling, all work in
connection therewith shall comply with the Administrative Code of the City of
New York and all other laws and regulations applicable thereto and shall be done
during such hours as Landlord may designate. Tenant shall indemnify and save
harmless Landlord against and from all liabilities, obligations, damages,
penalties,
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claims, costs and expenses, including reasonable attorneys' fees, paid, suffered
or incurred as a result of any breach by Tenant, Tenant's agents, servants,
contractors, employees, invitees, or licensees, of any covenant or condition of
this Lease, or the carelessness, negligence or improper conduct of Tenant,
Tenant's agents, servants, contractors, employees, invitees or licensees.
Tenant's liability under this Lease extends to the acts and omissions of any
subtenant, and any agent, servant, contractor, employee, invitee or licensee of
any subtenant. In case any action or proceeding is brought against Landlord by
reason of any such claim, Tenant, upon written notice from Landlord, will, at
Tenant's expense, resist or defend such action or proceeding by counsel approved
in writing by Landlord, such approval not to be unreasonably withheld or
delayed.
15. DESTRUCTION, FIRE AND OTHER CASUALTY
(a) If the Demised Premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give immediate notice thereof to Landlord and
this Lease shall continue in full force and effect except as hereinafter set
forth.
(b) If the Demised Premises are partially damaged or rendered partially
unusable by fire or other casualty, the Demised Premises may be restored, at
Landlords option, by and at the expense of Landlord and the rent, until such
restoration shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the Demised Premises which is
usable.
(c) If all or substantially all of the Demised Premises are damaged or
rendered unusable, the rent shall be proportionately paid up to the time of the
casualty and thenceforth shall cease until the date when the Demised Premises
shall have been restored by Landlord, subject to Landlords right to elect not to
restore the same as hereinafter provided.
(d) If the Demised Premises are rendered substantially unusable, unless
Landlord is obligated under terms of any other agreement to restore the Demised
Premises, Landlord shall not be obligated to restore the Demised Premises or the
Building. If the Building shall be so damaged that Landlord shall decide not to
restore it, then in such event, Landlord may elect to terminate this Lease by
written notice to Tenant within thirty (30) days after fire or other casualty
specifying a date for the expiration of this Lease, which date shall not be more
than thirty (30) days after the giving of such notice and upon the date
specified in such notice, the term of this Lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this Lease and Tenant shall forthwith quit, surrender and vacate the Demised
Premises, without prejudice however to Landlord's rights and remedies against
Tenant under the Lease provisions in effect prior to such termination, and any
rent owing shall be paid up to the date that the Demised Premises were rendered
substantially unusable and any payments of rent made by Tenant which were on
account of any period subsequent to such date shall be returned to Tenant
(provided Tenant is not in default under any of the term of this Lease). Unless
Landlord shall serve a termination notice as provided for herein Landlord shall
make the restoration under the conditions of paragraphs (b) and (c) above, with
all reasonable expedition subject to delays due to adjustment of insurance
claims, labor troubles and causes beyond Landlords control. In the event that
Landlord elects to rebuild and has not completed the making of the required
repairs and restored and rebuilt the Demised Premises and/or access thereto
within twelve (12) months from the date of such damage or destruction to the
condition the
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Demised Premises were in on the Commencement Date (except for Tenant's
property), Tenant may serve notice on Landlord of its intention to terminate
this Lease and if within thirty (30) days thereafter, Lessor shall not have
substantially completed the making of the required repairs and restored and
rebuilt the Demised Premises to the condition the Demised Premises were in on
the Commencement Date (except for Tenant's property), then in such events, this
Lease shall terminate on the expiration of such thirty (30) day period as if
such termination date were the Expiration Date, and the Fixed Rent and
Additional Rent shall be apportioned as of such date of sooner termination and
any prepaid portion of Fixed Rent and Additional Rent for any period after such
date shall be refunded by Landlord to Tenant. After any such casualty, Tenant
shall cooperate with Landlords restoration by removing from the Demised
Premises, as promptly as reasonably possible, all of Tenant's salvageable
inventory and movable equipment, furniture and other property, if required by
Landlord for the restoration of the Building.
(e) Nothing contained hereinabove shall relieve Tenant from liability that
may exist as a result of damage from fire or other casualty. Notwithstanding the
foregoing, each party shall look first to any insurance in its favor before
making any claim against the other party for recovery for loss or damage
resulting from fire or other casualty, and to the extent of insurance required
under the terms of this Lease and to the extent permitted by law, Landlord and
Tenant each hereby releases and waives all right of recovery against the other
and any such right of recovery by any one claiming through or under each of them
by way of subrogation or otherwise. Tenant acknowledges that Landlord will not
carry insurance on Tenant's furniture and/or furnishings or any fixtures or
equipment, improvements, or appurtenances owned or used by Tenant and agrees
that Landlord will not be obligated to repair any damage thereto or replace the
same unless otherwise required under the provisions of this Lease.
(f) The parties agree that the provisions of this Article shall govern and
control in lieu of Section 227 of the Real Property Law.
16. EMINENT DOMAIN
(g) If all or substantially all of the Demised Premises are taken for
public or quasi-public purposes, then this Lease shall terminate as of the date
Tenant is required to quit the Demised Premises.
(h) In the event of any taking, the proceeds of all awards relating
thereto shall be payable to Landlord. However, Tenant shall have the right to
assert its claim for that portion of the award related to the loss of or damage
to its trade fixtures or removable personal property.
17. ASSIGNMENT, SUBLETTING OR MORTGAGING
(a) Tenant shall not, whether voluntarily or involuntarily: (i) assign or
otherwise transfer this Lease, (ii) sublet the Demised Premises or any part
thereof, or allow the same to be used, occupied or utilized by anyone other than
Tenant, or (iii) mortgage, pledge, encumber or otherwise hypothecate this Lease
in any manner whatsoever, without in each instance obtaining the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed.
(b) Any proposed assignee, sublessee or transferee, shall in any event:
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(i) be as credit worthy a tenant as Tenant hereunder, taking into
consideration any guaranty of this Lease, and demonstrate financial
responsibility reasonably necessary to fulfill its obligations under this Lease;
(ii) occupy the Demised Premises for the Permitted Use and only the
Permitted Use, as described in this Lease; and
(iii) in the reasonable opinion of Landlord, be a tenant whose
occupancy will be in keeping with the dignity and character of the Building and
whose occupancy will not be more hazardous than that of Tenant or impose any
additional burden upon Landlord in the maintenance and operation of the
Building.
(c) In connection with any proposed assignment sublease or transfer,
Tenant shall pay to the Landlord on demand the reasonable costs (including
attorneys fees) that may be incurred by the Landlord, including, without
limitation, the reasonable costs of making investigations as to the
acceptability of the proposed assignee or sublessee.
(d) In the event of any assignment or sublease of the Demised Premises
which requires the payment of Fixed Rent, Additional Rent and other charges in
excess of the amounts payable to the Landlord as set forth in this Lease, then
one-half of the excess or profit shall be paid to the Landlord and shall be
payable to Landlord as Additional Rent and shall be due and payable to Landlord
at such times as due and payable by such assignee or subtenant to the Tenant. In
the event the Tenant fails to make payment of such excess or profit in violation
of this Lease, Landlord may collect such rent directly from the assignee or
subtenant.
(e) Regardless of Landlord's consent, no subletting, assignment or other
hypothecation of this Lease will release Tenant from Tenant's obligations
hereunder or alter the primary liability of Tenant to pay the rental and to
perform all other obligations to be performed by Tenant under this Lease, unless
specifically released in writing by Landlord.
18. ACCESS TO PREMISES
(a) Landlord and Fee Owner and their respective agents shall have the
right (but shall not be obligated) to enter the Demised Premises in any
emergency at any time, and, at other times, upon reasonable notice, to examine
the same and to make such repairs, replacements and improvements as Landlord may
deem necessary or reasonably desirable to the Demised Premises or to any other
portion of the Building or as may be required or permitted by this Lease, the
City Lease or the Office Development Lease or which Landlord may elect to
perform following Tenant's failure to make repairs or perform any work which
Tenant is obligated to perform under this Lease, or for the purpose of complying
with laws, regulations and other directions of governmental authorities.
(b) Any alterations or repairs done by Landlord or Fee Owner shall be
performed in such manner so as to minimize interference with Tenant's use and
enjoyment of the Demised Premises. Landlord may, during the progress of any work
in the Demised Premises, take all necessary materials and equipment into said
premises without the same constituting an eviction nor shall Tenant be entitled
to any abatement of rent while such work is in progress nor to any damages by
reason of loss or interruption of business or otherwise.
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(c) Throughout the Term hereof Landlord shall have the right to enter the
Demised Premises at reasonable hours, upon reasonable notice, for the purpose of
inspecting the Demised Premises or of showing the same to prospective purchasers
or mortgagees of the Building or of Fee Owner's interest in the property, and
during the last six (6) months of the Term, or if this Lease be renewed or
extended then during the last six (6) months of such renewed or extended term,
for the purpose of showing the same to prospective tenants and may, during said
six-month period, place upon the Demised Premises the usual notices "To Let" and
"For Sale", which notices Tenant shall permit to remain thereon without
molestation.
(d) If during the last month of the Term, Tenant shall have removed all or
substantially all of Tenant's property therefrom, and notified Landlord,
Landlord may immediately enter, alter, renovate or redecorate the Demised
Premises without limitation or abatement of rent, or incurring liability to
Tenant for any compensation and such act shall have no effect on this Lease or
Tenant's obligations hereunder. Landlord shall have the right at any time,
without the same constituting an eviction and without incurring liability to
Tenant therefor, to redesign; alter, and change the arrangement and/or location
of public entrances, passageways, doors, doorways, corridors, elevators, stairs,
toilets, or other public parts of the Building and to change the name, number or
designation by which the Building may be known, provided, however, that same
does not materially and adversely interfere with Tenant's ability to conduct its
business in the Demised Premises.
19. BANKRUPTCY
(a) If on the Commencement Date, or if at any time during the Term hereof,
(i) Tenant admits in writing its inability to pay its debts, or (ii) Tenant
makes an assignment for the benefit of creditors or petitions for or enters into
an arrangement with creditors, or (iii) a proceeding or arrangement for the
relief of Tenant's debts under the laws of the United States or of any state or
foreign government is commenced and is not dismissed within thirty (30) days of
commencement, or (iv) a custodian, trustee, receiver or other agent is appointed
or authorized to take charge of all or part of Tenant's property pursuant to an
arrangement or proceeding for the relief of Tenant's debts under the laws of the
United States or of any state or foreign government or otherwise and is not
removed within thirty (30) days, this Lease, at the option of Landlord, may be
canceled and terminated by written notice to Tenant and whether such
cancellation and termination occur prior to or during the Term, neither Tenant
nor any person claiming through or under Tenant by virtue, of any statute or
rule of law or of any order of any court or other body having jurisdiction,
shall thereafter be entitled to possession or to remain in possession of the
Demised Premises but shall forthwith quit and surrender said Demised Premises,
and Landlord, in addition to other rights and remedies Landlord has by virtue of
any other provision herein or elsewhere in this Lease contained or by virtue of
any statute or rule of law, may retain as liquidated damages any rent, security
deposit or moneys received from Tenant or others on behalf of Tenant.
(b) In the event of the termination of this Lease pursuant to paragraph
(a) hereof, Landlord shall forthwith, notwithstanding any other provisions of
this Lease to the contrary, be entitled to recover from Tenant as and for
liquidated damages an amount equal to the difference between(i) the Fixed Annual
Rent and Additional Rent payable hereunder for the later of the first full month
of the Term of this Lease or the month immediately preceding such termination,
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multiplied by the number of months and partial months during the period that
would otherwise have constituted the balance of the Term of this Lease, and (ii)
the fair and reasonable rental value of the Demised Premises for the same number
of months and partial months, both discounted to the date of termination at the
rate of 4% per annum to determine present worth. If such Premises or any part
hereof be re-let by Landlord for the unexpired Term of said Lease, or any part
thereof, before presentation of proof of such liquidated damages to any court,
commission or tribunal, the amount of rent reserved upon such re-letting shall
be deemed to be the fair and reasonable rental value for the part or the whole
of the premises so re-let during the term of the reletting. Nothing herein
contained shall limit or prejudice the right of Landlord to prove and obtain as
liquidated damages by reason of such termination, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, such damages are to be proved, whether or not such
amount be greater, equal to, or less than the amount of the difference referred
to above.
20. DEFAULT
(a) If Tenant defaults in fulfilling any of the covenants of this Lease
other than the covenants for payment of Fixed Annual Rent or Additional Rent, or
if the Demised Premises become vacant or deserted, or if the Demised Premises
are damaged by reason of negligence or carelessness of Tenant, its agents,
servants, contractors, employees, invitees or licensees and such damage is not
promptly repaired by Tenant, or if any execution or attachment shall be issued
against Tenant or any of Tenant's property, or if a receiver or custodian is
appointed for all or a portion of Tenant's property or is appointed for or takes
possession of all or any portion of the Demised Premises and is not removed
within thirty (30) days, or if Tenant shall default with respect to any other
lease between Landlord and Tenant, in any one or more of such events, upon
Landlord serving a written ten (10) days notice upon Tenant specifying the
nature of said default and if, upon the expiration of such ten (10) days, Tenant
shall have failed to comply with or remedy such default, or if the said default
or omission complained of shall be of a nature that the same cannot be
completely cured or remedied within such ten (10) day period, and if Tenant
shall not have diligently commenced curing such default within such ten (10) day
period and shall not thereafter with reasonable diligence and in good faith
proceed to remedy or cure such default, then Landlord may serve a written five
(5) days' notice of cancellation of this Lease upon Tenant, and upon the
expiration of such five (5) days, this Lease and the Term hereunder shall end
and expire as fully and completely as if the expiration of such five (5) day
period were the day herein definitely fixed for the end and expiration of this
Lease and the Term hereof and Tenant shall then quit and surrender the Demised
Premises to Landlord but Tenant shall remain liable as herein provided.
(b) If the notice provided for in paragraph (a) hereof shall have been
given, and the Term shall expire as aforesaid, or if Tenant shall default in the
payment of the Fixed Annual Rent, Additional Rent or any part thereof or if
Tenant shall default in any other payment herein required within ten (10) days
after notice, or if the Lease is terminated for failure of a Guaranty as
provided in Article 4 hereof, then and in any of such events Landlord may,
without notice, re-enter the Demised Premises by summary proceedings or
otherwise, dispossess Tenant and the legal representatives of Tenant and any
other occupant of the Demised Premises and remove their effects and hold the
premises as if this Lease had not been made. Tenant hereby waives the service of
Notice of Intention to institute legal proceedings to that end unless such
notice is
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required by law. If Tenant shall default hereunder prior to the date fixed as
the commencement of any renewal or extension of this Lease, and such default has
not been cured, Landlord may cancel and terminate such renewal or extension
agreement.
21. REMEDIES OF LANDLORD AND WAIVER OF REDEMPTION
(a) In case of any such default as provided in Article 20 above,
(i) The Fixed Annual Rent and all Additional Rent shall become due
thereupon and be paid up to the time of such expiration, together with such
expenses as Landlord may incur for legal expenses, attorneys fees, brokerage
and/or putting the Demised Premises in good order, or for preparing the same for
re-rental;
(ii) Landlord may re-let the Demised Premises or any part or parts
thereof, either in the name of Landlord or otherwise, for a term or terms which
may at Landlords option be less than or exceed the period which would otherwise
have constituted the balance of the Term of this Lease and may grant
concessions or free rent or charge a higher rental than that in this Lease; and
(iii) Tenant or the legal representatives of Tenant shall also pay
Landlord, for the failure of Tenant to observe and perform Tenant's covenants
herein contained, any deficiency between the rent hereby reserved and/or
covenanted to be paid and the net amount, if any, of the rents collected on
account of the lease or leases of the Demised Premises for each month of the
period which would otherwise have constituted the balance of the Term of this
Lease. Any such liquidated damages shall be paid in monthly installments by
Tenant on the rent days specified in this Lease and any suit brought to collect
the amount of the deficiency for any month shall not prejudice in any way the
rights of Landlord to collect the deficiency for any other month by a similar
proceeding.
(b) In place and instead of holding Tenant liable upon the several rent
days and otherwise as provided in the preceding paragraph, Landlord may elect to
recover from Tenant forthwith, as damages and not as a penalty, the liquidated
damages provided for in paragraph (b) of Article 19 hereof as if this Lease had
been terminated pursuant to paragraph (a) of Article 19 on the date of the
expiration of the term under Article 20 hereof.
(c) In addition to the amounts required to be paid by Tenant under the
preceding paragraphs of this Article 21, Tenant shall pay to Landlord, when
incurred, all expenses of Landlord in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage and advertising expenses and for keeping
the Demised Premises in good order or for preparing the same for re-letting.
Landlord, in putting the Demised Premises in good order or preparing the same
for re-rental, may, at Landlord's option, make such alterations, repairs,
replacements, and/or decorations in the Demised Premises as Landlord in
Landlords sole judgement considers advisable and necessary for the purpose of
re-letting the Demised Premises, and the making of such alterations, repairs,
replacements, and/or decorations shall not operate or be construed to release
Tenant from any liability hereunder.
(d) The failure of Landlord to re-let the Demised Premises or any part or
parts thereof shall not release or affect Tenant's liability hereunder. Landlord
shall in no event be liable in any
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way whatsoever for failure to re-let the Demised Premises, or in the event that
the Demised Premises are re-let, for failure to collect the rent under such
re-letting; and in no event shall Tenant be entitled to receive the excess, if
any, of any net rents collected over the sums payable by Tenant to Landlord
hereunder by reason of a re-letting of the Demised Premises.
(e) In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this Lease of any particular remedy shall not preclude Landlord from pursuing
any other remedy, in law or in equity. Tenant hereby expressly waives any and
all rights of redemption granted by or under any present or future laws in the
event of Landlord obtaining possession of the Demised Premises by reason of the
violation by Tenant of any of the covenants and conditions of this Lease or
otherwise.
22. FEES AND EXPENSES
(a) If Tenant shall default in the observance or performance of any term
or covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions of this Lease, then, unless otherwise provided
elsewhere in this Lease, Landlord may immediately or at any time thereafter and
upon reasonable notice perform the same for the account of Tenant and if
Landlord, in connection therewith or in connection with any default by Tenant in
the covenant to pay Fixed Annual Rent or Additional Rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including, but
not limited to, reasonable attorneys' fees in instituting, prosecuting or
defending any action or proceeding (provided that Landlord is the successful
party in such action or proceeding), such sums paid or obligations incurred,
with interest at 2% above the prime lending rate of Citibank, N.A. or its
successor, shall be deemed to be Additional Rent hereunder and shall be paid by
Tenant to Landlord within ten (10) days of rendition of any bill or statement to
Tenant therefor.
(b) Notwithstanding the foregoing, in the event that either party to this
Lease shall institute, prosecute or defend any action or proceeding in
connection with its respective obligations under this Lease, the prevailing
party shall be entitled to reasonable legal fees.
23. NO REPRESENTATIONS BY LANDLORD
Neither Landlord nor Landlords agents have made any representations or
promises with respect to the physical condition of the Building, the land upon
which it is erected or the Demised Premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the Demised
Premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this Lease. All understandings and agreements
heretofore made between Landlord and Tenant with respect to the subject matter
of this Lease are merged in this Lease, which alone fully and completely
expresses the agreement between Landlord and Tenant with respect to the subject
matter of this Lease, and any executory agreement hereafter made shall be
ineffective to change, modify, discharge or effect an abandonment of this Lease
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
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24. SOUTH STREET SEAPORT DISTRICT; FULTON FISH MARKET
(a) The South Street Seaport District is a mixed use cultural and
commercial complex involving public entertainment and activities throughout the
District. Tenant hereby waives all claims that traffic, pedestrian or vehicular,
and cultural and commercial entertainment and activities taking place in the
District disturb or disrupt Tenant's right to quiet enjoyment of the Demised
Premises or constitute a violation of any other obligation of Landlord under the
terms of this Lease.
(b) The Fulton Fish Market is part of the historic South Street Seaport
District. Tenant hereby waives all claims that fish odors or noise emanating
from the South Street Seaport District, whether made by the fish market, the
public or by performers, disturb or disrupt Tenant's right to quiet enjoyment of
the Demised Premises or constitute a violation of any other obligation of
Landlord under the terms of this Lease.
25. NO WAIVER
The failure of Landlord to seek redress for violation of or to insist upon
the strict performance of any covenant or condition of this Lease or of any of
the Rules and Regulations set forth as EXHIBIT "C' attached hereto and made a
part hereof or as hereafter adopted by Landlord, shall not prevent a subsequent
act which would have originally constituted a violation from having all the
force and effect of an original violation. The receipt by Landlord of rent with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach and no provision of this Lease shall be deemed to have
been waived by Landlord unless such waiver be in writing signed by Landlord. No
payment by Tenant or receipt by Landlord of a lesser amount than the monthly
rent herein stipulated shall be deemed to be other than on account of the
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlords right to recover the balance of such rent or pursue any other remedy
provided in this Lease. No act or thing done by Landlord or Landlord's agents
during the term hereby demised shall be deemed an acceptance of a surrender of
said premises and no agreement to accept such surrender shall be valid unless in
writing signed by Landlord. No employee of Landlord or Landlord's agent shall
have any power to accept the keys to said premises prior to the termination of
the Lease and the delivery of keys to any such agent or employee shall not
operate as a termination of the Lease or a surrender of the Demised Premises. No
payment by Tenant shall be deemed a waiver of Tenant's rights pursuant to the
Lease.
26. WAIVER OF TRIAL BY JURY
It is mutually agreed that the parties hereto waive trial by jury in any
action brought by either of the parties hereto against the other (except for
personal injury or property damage) in any way connected with this Lease. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for possession of the Demised Premises, Tenant will not interpose any
counterclaim unless Tenant would be forever barred from litigating such
counterclaim or other claim in any future action.
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27. DEFINITIONS
(a) The term, "business days" as used in this Lease shall mean all days
except Saturdays, Sundays and legal holidays observed by the government offices
of the State of New York or United States of America and those designated as
holidays by the applicable building service union employees service contract.
(b) The term "Environmental Laws" shall mean any and all federal, state,
local, or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority regulating,
relating to or imposing liability or standards of conduct concerning
environmental conditions at the Demised Premises, Building or Property as now or
may at any time hereafter be in effect, including but not limited to and without
limiting the generality of the foregoing, The Clean Water Act also known as the
Federal Water Pollution Control Act, 88 U.S.C. Section Section 1251 et seq., the
Toxic Substance Control Act, 15 U.S.C. Section Section 2601 et seq., the Clean
Air Act, 42 U.S.C. Section Section 7401 et seq., the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. Section Section 186 et seq., the Safe
Drinking Water Act, 42 U.S.C. Section Section 300f et seq., the Surface Mining
Control and Reclamation Act, Section 1201 et seq., 80 U.S.C. Section 1201 et
seq., the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. Section Section 9601 et seq., the Superfund Amendment and
Reauthorization Act of 1986 ("SARA"), Public Law 99-499, 100 Stat. Section 1818,
the Emergency Planning and Community Right to Know Act, 42 U.S.C. Section
Section 1101 et seq. the Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C. Section Section 6901 et seq., and the Occupational Safety and Health Act
as amended ("OSHA"), 29 U.S.C. Section 655 and Section 657, together with any
amendments thereto, regulations promulgated thereunder and all substitutions
thereof.
(c) The term "Hazardous Material" shall mean (i) Any hazardous, toxic or
dangerous waste, substance or material defined as such in (or for the purpose
of) CERCLA, SARA, RCRA, or any other Environmental Law as now or at any time
hereafter in effect; (ii) any other waste, substance or material that exhibits
any of the characteristics enumerated in 40 C.F.R- Section Section 261.20
through 261.24, inclusive, and those extremely hazardous substances listed under
Section 902 of SARA that are present in threshold planning or reportable
quantities as defined under SARA and toxic or hazardous chemical substances that
are present in quantities that exceed exposure standards as those terms are
defined under Section 6 and 8 of OSHA and 29 C.F.R. Part 1910; (iii) any
asbestos or asbestos containing substances whether or not the same are defined
as hazardous, toxic, dangerous waste, a dangerous substance or dangerous
material in any Environmental Law; (iv) "Red Label" flammable materials; (v) all
laboratory waste and by-products; and (vi) all biohazardous materials.
(d) The term "Landlord" as used in this Lease means only the owner, or the
mortgagee in possession, for the time being, of the land and Building (or the
owner of a lease of the Building or of the land and Building), so that in the
event of any conveyance, sale or sales of said land and Building or of said
lease (including a termination hereof), or in the event of a lease of the
Building, or of the land and Building, such Landlord shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder.
(e) The term "office," or "offices," wherever used in this Lease, shall
not be construed to mean premises used as a store or stores, for the sale, at
any time, of goods, wares or
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merchandise, of any kind, or as a shop, booth or other stand, barber shop, or
for other similar purposes or for manufacturing.
(f) The words "re-enter" and "re-entry" as used in this Lease are not
restricted to their technical legal meaning.
(g) The term "substantially complete" and words of similar import shall be
deemed to mean, with regard to construction work, completion but for such minor
details of work, the non-completion of which would not materially interfere with
the utility of the affected space and if a certificate is issued by an
independent architect or engineer stating that the work is substantially
complete, then such determination shall be conclusive and binding upon the
parties to this Lease.
(h) The term "Tenant's Delays" shall mean: (i) any and all delays caused
by or attributable to any action or failure or refusal of Tenant to perform a
duty of, Tenant or any person claiming through or under Tenant, or any agent,
servant, employee, director, shareholder, contractor or invitee of Tenant or any
such person, and (ii) any delays included by Landlord in substantially
completing the Work by reason of Extra Work and/or changes requested by Tenant
in connection with the Work that were not reflected on the Plans.
(i) The term "Unavoidable Delays" shall mean any and all delays beyond
Landlord's reasonable control, including Tenant's Delays, governmental
restrictions, governmental preemption, strikes, labor disputes, lockouts,
shortages of labor and materials, enemy action, civil commotions, riot,
insurrection and fire, other casualty and other acts of God.
28. ADJACENT EXCAVATION - SHORING
If an excavation shall be made upon land adjacent to the Demised Premises,
or shall be authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the Demised Premises
for the purpose of doing such work as said person shall deem necessary to
preserve the wall or the Building from injury or damage and to support the same
by proper foundations without any claim for damages or indemnity against
Landlord unless Landlord is guilty of willful misconduct.
28. RULES AND REGULATIONS
Tenant and Tenant's agents, servants, contractors, employees, invitees,
and licensees shall observe faithfully, and comply strictly with the Rules and
Regulations attached hereto as EXHIBIT "C' and such other and further reasonable
rules and regulations as Landlord or Landlords agents may from time to time
adopt; provided however, that such rules or regulations do not impair Tenant's
rights under this Lease or alter the permitted use. Notice of any additional
rules and regulations shall be given in such manner as Landlord may elect.
Nothing herein contained shall be construed to impose upon Landlord any duty or
obligation to enforce any rules and regulations or terms, covenants or
conditions in any other lease as against any other tenant, and Landlord shall
not be liable to Tenant for violation of the same by any other tenant, its
agents, servants, contractors, employees, invitees or licensees.
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30. BROKER
Tenant wants and represents to Landlord that it has not dealt with any
broker in connection with the Demised Premises or the negotiation or execution
of this Lease except for Legacy Real Estate, Inc. (the "Broker"). Tenant agrees
to pay the Broker all commissions in accordance with the terms of separate
agreement. Tenant agrees that should any claim be made for commissions or
finders fee or similar fee by the Broker or any other broker or other person
arising by, through or on account of any act of Tenant or Tenant's
representative, Tenant shall indemnify and hold Landlord harmless from and
against any and all such claims, liabilities, costs or expenses (including
reasonable attorneys' fees) in connection therewith.
31. INSURANCE
(a) Tenant in its own name as insured shall secure and maintain insurance
coverage for and relating to the Demised Premises which shall be effective from
Tenant's entry into the Demised Premises and throughout the term of this Lease
as follows:
(i) Comprehensive general liability insurance including coverage for
all occurrences in and about the Demised Premises with the following minimum
coverage limits:
(1) for bodily and personal injury or wrongful death to one person,
$1,000,000.00; and
(2) for injury or wrongful death from any one accident,
$1,000,000.00; and
(3) for all damages arising out of injury to or destruction of
property in any one accident, $1,000,000.00;
(ii) All Risk insurance to cover Tenant's leasehold improvements,
alterations, fixtures, equipment, machinery, furniture and all other property of
Tenant in the Demised Premises in such amount that Tenant shall not be a
co-insurer and sufficient to cover replacement costs of all such improvements,
alterations, fixtures, equipment, machinery, furniture and other Tenant
property;
(iii) Worker's Compensation covering all persons employed by Tenant
in the Demised Premises, as required by applicable law;
(iv) Business interruption insurance in the amount required to
enable Tenant to meet its obligations under this Lease.
(b) All insurance coverage required under this Article 31 shall be issued
by New York licensed insurance companies, reasonably satisfactory to Landlord.
(c) If Landlord reasonably determines during the Term hereof that the
foregoing minimum limits set forth in paragraph (a) above have become
unsatisfactory, and Landlord gives notice to Tenant of such determination, then
Tenant shall thereafter promptly obtain insurance which has limits in accordance
with such determination and which otherwise conforms to the provisions of this
Lease concerning such insurance. If insurance provided for in this Article is
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affected by a policy of blanket insurance, said policy shall specify the amount
of the total insurance allocated to the Demised Premises, which will not be less
then the amount required by this Article 31. Any blanket insurance policy shall,
as to the Demised Premises, comply with all other provisions of this Article 31.
(d) Every policy of liability insurance required under this Article 31
shall name as additional insureds Landlord, The South Street Seaport
Corporation, the South Street Seaport Museum, the New York City Economic
Development Corporation and the City of New York, their respective successors or
assigns (the "Additional Insureds"), and shall waive all rights to subrogation
against and indemnification from said Additional Insureds. Every insurance
policy obtained by Tenant in accordance with the terms of this Article shall
also include provisions that no act or omission of any party insured thereunder
shall affect or limit the obligation of the insurance company to pay the amount
of any loss sustained and that the policy shall not be invalidated should any of
the insureds waive, in writing, prior to a loss, any and all rights of recovery
against any party for losses covered by such policies.
(e) Tenant waives all rights to recover against the Additional Insureds or
against the officers, directors, shareholders, partners, joint ventures,
employees, agents, invitees or business visitors of said Additional Insureds, or
any of them or against any other tenant or occupant of the Building for any
loss or damage arising from any cause covered by any insurance required to be
carried by Tenant pursuant to this Article 31. Tenant shall cause its insurer or
insurers to issue appropriate waiver of subrogation rights endorsements to all
policies of insurance carried in connection with the Building or the Demised
Premises or the contents of either of them Tenant will cause all other
occupants of the Demised Premises claiming by, under of through Tenant to
execute and deliver to Landlord's waiver of claims similar to the waiver in this
Article and to obtain such waiver of subrogation rights endorsements.
(f) A certified copy of any policy of liability insurance required under
this Article 31, or a certificate or certificates evidencing the existence
thereof, or binders therefor, shall be delivered to Landlord prior to Tenant's
entry into the Demised Premises. If any binder is delivered, it shall be
replaced within thirty (30) days by a certified copy of the policy or a
certificate. Each such copy or certificate shall contain a valid provision or
endorsement that the policy may not be canceled, terminated, changed or modified
without giving fifteen (15) days' written advance notice thereof to Landlord. A
renewal policy shall be delivered to Landlord at least fifteen (15) days prior
to the expiration date of each expiring policy, except for any policy expiring
after the term of this Lease.
(g) Landlord shall use its best efforts to cause to be included in any
fire insurance policies for the Building appropriate clauses pursuant to which
the insurers (i) waive all right of subrogation against Tenant with respect to
losses payable under such policies and/or (ii) agree that such policies shall
not be invalidated should the insured waive in writing prior to a loss any and
all rights of recovery against any party for losses covered by such policies.
32. SIGNS
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<PAGE> 24
Tenant shall not erect or maintain any signs on the Building or on any
part of the outside of the Demised's Premises or the inside of the Demised
Premises if such is visible from the outside of the Demised Premises without the
prior written consent of Landlord.
33. LANDLORD'S RIGHT TO ALTER PUBLIC SPACES
Landlord reserves the right in its sole discretion to redesign or alter
from time to time any and all spaces in the Building which are not leased to
specific tenants, provided however, that such alterations do not materially
impair Tenant's use of the Demised Premises.
34. INDEMNIFICATION OF LANDLORD AND FEE OWNER
To the extent not covered by Landlord's insurance, Tenant shall
indemnify and hold Landlord and its agents and the Fee Owner, the City of New
York, the New York City Economic Development Corporation, the South Street
Seaport Museum, and The South Street Seaport Corporation, and their respective
successors and assigns ("Indemnified Persons") harmless against all loss, damage
and expense (including attorneys' fees) at any time suffered or incurred by
Landlord or Indemnified Persons as a result of any demand, claim, cause of
action, suit, judgment, execution or liability arising from or in connection
with any injury, loss or damage suffered by any person or property (1) while on
the Demised Premises or (2) as a result of any act or omission by Tenant or
Tenant's agents, servants, contractors, employees, guests, invitees or
licensees. Tenant agrees that Landlord and Indemnified Persons shall not be
liable to Tenant or any of its agents, servants, contractors, employees, guests,
invitees or licensees on account of any loss, damage or injury suffered by any
of them due to any defect or failure in the Demised Premises or the real
property of which they are part, including without limitation any defect in or
failure of any part of the heating, air conditioning, ventilating, plumbing or
electrical systems or any appurtenance to the Demised Premises such as
stairways, halls, roofs and elevators. In no event shall Landlord or Indemnified
Persons be liable to Tenant or any other party for any remote, incidental or
consequential damages to person or property resulting from any condition in the
Demised Premises or the real property of which they are part or any act or
omission by Landlord or Indemnified Persons or any other party.
35. LIABILITY OF LANDLORD
(a) Tenant shall look only to Landlord's estate and interest in the land
and Building for the collection of any judgment (or other judicial process
requiring the payment of money by Landlord) in the event of any default by
Landlord under this Lease, and no other property or other assets of Landlord
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Lease, the
relationship of Landlord and Tenant hereunder or Tenant's use and occupancy of
the Demised Premises. Nothing contained in this Article shall be construed to
permit Tenant to offset against rents due a successor landlord, a judgment (or
other judicial process) requiring the payment of money by reason of any default
of a prior Landlord. Under no circumstances shall Tenant look to the City of New
York, The New York City Economic Development Corporation, The South Street
Seaport Museum or The South Street Seaport Corporation, for the satisfaction of
any of Tenant's remedies against the Landlord.
24
<PAGE> 25
(b) Tenant hereby agrees for itself and its successors and assigns that in
the event of any actual or alleged failure, breach or default by Landlord under
the terms of this Lease occurring while Seaport Associates or any other limited
partnership (for purposes of this Section, "such limited partnership") is
Landlord hereunder:
(i) the sole and exclusive remedy shall be against such limited
partnership and its partnership assets;
(ii) no partner, general or limited, of such limited partnership
shall be sued or named as a party in any suit or action (except as may be
necessary to secure jurisdiction of such limited partnership);
(iii) no service of process shall be made against any partner,
general or limited, of such limited partnership (except as may be necessary to
secure jurisdiction of such limited partnership);
(iv) no partner, general or limited, of such limited partnership
shall be required to answer or otherwise plead to any service of process (except
as may be necessary to secure jurisdiction of such limited partnership);
(v) except as may be necessary to secure judgment against such
limited partnership, no judgment will be taken against any partner, general or
limited, of such limited partnership and any judgment taken against any partner,
general or limited, of such limited partnership may be vacated and set aside at
any time nunc pro tunc;
(vi) no writ of execution will ever be levied against the personal
assets of any partner, general or limited, of such limited partnership;
(vii) these covenants and agreements are enforceable both by such
limited partnership and also by any partner, general or limited, of such limited
partnership; and
(viii) any violation of this Section 35(b) or any of its subparts
shall entitle the aggrieved partner(s), general of limited, of such limited
partnership to recover damages (including, without limitation, legal fees and
expenses) from and against Tenant, its successors and assigns.
36. DISCHARGE OF LIENS; BONDS
(a) Tenant shall not create, suffer or permit to be created or to remain
any lien, encumbrance or charge upon the Demised Premises, or any part thereof,
or this Lease, and Tenant shall not suffer any other matter or thing whereby the
estate, rights or interest of Landlord or Fee Owner in the Demised Premises or
any part thereof or in this Lease might be impaired. Tenant shall, to the extent
permitted by law, obtain and deliver to Landlord, written and unconditional
waivers of mechanic's liens upon the real property in which the Demised Premises
are located, for all work, labor and services to be performed and materials to
be finished in connection with such work, signed by all contractors,
subcontractors, materialmen and laborers that become involved in such work.
25
<PAGE> 26
(b) If any mechanic's, laborer's or materialman's or other lien at any
time shall be filed against the Demised Premises or any part thereof, as a
result of Tenant's work, Tenant, within thirty (30) days after the filing
thereof, shall cause the same to be vacated or discharged of record by payment,
deposit, bond, order of a court of competent jurisdiction or otherwise. If
Tenant shall fail to cause such lien to be vacated or discharged within the
period aforementioned, and if such lien shall continue for an additional ten
(10) days after notice by Landlord to Tenant, then, in addition to any other
right or remedy of Landlord hereunder, Landlord may, but shall not be obligated
to, discharge the same either by paying the amount claimed to be due or by
procuring the discharge of such lien by deposit or by bonding proceedings, and
in any such event, Landlord shall be entitled, if Landlord shall so elect, to
compel the prosecution of an action for the foreclosure of such lien by the lien
or and to pay the amount of the judgment in favor of the lien or with interest,
costs and allowances. Any amount so paid by Landlord, and all costs and
expenses, including, but not limited to, attorneys' fees and disbursements,
incurred by Landlord in connection therewith, together with interest thereon
from the date of Landlords making of the payment or incurring of the costs and
expenses shall constitute Additional Rent payable by Tenant under this Lease and
shall be paid by Tenant to Landlord within ten (10) days of Landlords demand for
such payment.
37. ESTOPPEL CERTIFICATE
(a) Tenant agrees, at any time and from time to time upon not less than
five (5) business days' notice given by Landlord, The South Street Seaport
Corporation or Fee Owner, to execute, acknowledge and deliver to Landlord, The
South Street Seaport Corporation or Fee Owner (or any other parties specified by
either of them led by either of them) a statement certifying (i) whether this
Lease is unmodified and in full force and effect (or if there have been any
modifications or supplements or other agreements executed pursuant to the terms
of this Lease that the same, as modified and/or supplemented, is in full force
and effect and stating the modifications and/or supplements), (ii) the date to
which the Rent payable by Tenant hereunder has been paid, including Fixed Annual
Rent, Additional Rent, and any extra charges, (iii) whether to the best
knowledge of the person executing such certificate there is then any existing
default in the performance of Landlord's obligations under this Lease and, if
so, specifying each such default, (iv) whether to the best knowledge of the
person executing such certificate there then exists any setoffs or defenses to
the enforcement of this Lease by Landlord or any claims by Tenant against
Landlord, and (v) any other existing condition or status concerning this Lease,
it being intended that any such statement may be relied upon by Landlord, The
South Street Seaport Corporation, Fee Owner and/or such other parties as
Landlord, The South Street Seaport Corporation or Fee Owner shall have
designated.
(b) The foregoing provision shall inure to the benefit of Landlord, The
South Street Seaport Corporation, Fee Owner and any present or future permitted
mortgagees and their respective successors and assigns.
38. NO MEMORANDUM
Tenant acknowledges that it has been informed by Landlord that it may not
record this Lease or any memorandum hereof or cause the same to be placed of
record in any manner and
26
<PAGE> 27
agrees that any recording or attempted recording of this Lease shall constitute
a material default hereunder.
39. NO DISCRIMINATION
Tenant covenants and agrees that it shall neither commit nor permit
discrimination or segregation by reason of race, creed, color, religion,
national origin, ancestry, sex, age, disability or marital status in any
assignment of its interest under this lease or in the subletting, use or
occupancy of the Demised Premises or any part thereof, or in connection with the
maintenance, repair or alteration of the Demise Premises or any part thereof, or
in any other instrument, agreement or transaction affecting the premises, and
that it shall comply with all federal, state and municipal laws, ordinances,
rules, codes, orders, regulations and executive orders from time to time in
effect prohibiting any such discrimination or segregation and/or requiring
affirmative action with respect to the same.
40. NO MODIFICATION
Neither this lease nor any of its provisions may be waived, change,
modified or terminated orally, but only by a written instrument of waiver,
change, modification or termination executed by the party against whom
enforcement is sought.
41. BILLS AND NOTICES
Except as otherwise in this Lease expressly provided, any notice, bill,
statement, demand, consent, approval or other communication required or
permitted to be given, rendered or made by either party to the other party shall
be in writing and shall be deemed to have been properly given or rendered or
made if hand delivered, or delivered by any nationally recognized overnight
delivery service, or sent by registered or certified mail, return receipt
requested, to the respective party at the following address:
(a) If to Landlord: Seaport Associates L.P.
3000 Marcus Avenue, Suite IW5
Lake Success, New York 11042
Attention: Alan B. Wolpert
with a copy to: Hirsch & Katz, LLP
595 Stewart Avenue, Suite 400
Garden City, New York 11530
Attention: Steven C. Hirsch, Esq.
(b) If to Tenant: BigStar Entertainment, Inc.
19 Fulton Street
New York, New York 10038
with a copy to: Karp & Kalamotousakis, LLP
350 Fifth Avenue, Suite 703
New York, New York 10118
Attention: Chad Karp, Esq.
27
<PAGE> 28
Either party may change its address for the purpose of this Article 41 by
written notice to the other party.
42. SUCCESSORS AND ASSIGNS
The covenants, conditions and agreements contained in this Lease shall
bind and inure to the benefit of Landlord and Tenant and, except as otherwise
provided in this Lease, their respective successors and assigns.
43. EXECUTION AND DELIVERY OF LEASE
This Lease shall not be binding upon Landlord or Tenant until Landlord
shall execute and deliver to Tenant a fully executed counterpart.
44. QUIET ENJOYMENT
So long as Tenant pays the Fixed Annual Rent and Additional Rent and
observes and performs all the terms, covenants and conditions on Tenant's part
to be observed and performed under this Lease, Tenant may peaceably and quietly
enjoy the Demised Premises, subject, nevertheless, to the terms and conditions
of Us Lease and of any underlying leases.
45. INABILITY TO PERFORM
This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on the part of Tenant to be
performed shall in no wise be affected, impaired or excused because Landlord is
unable to fulfill any of its obligations under this Lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make or is delayed in making any repairs, additions, alterations or
decorations required or permitted under this Lease or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of strike or labor troubles or any other cause
whatsoever beyond the control of Landlord, including but not limited to,
government preemption in connection with a National Emergency, or any rule,
order or regulation of any department or subdivision of any government agency.
46. HOLDING OVER
If Tenant holds over in possession after the expiration or sooner
termination of the original Term or of any extended term of this Lease, such
holding over shall not be deemed to extend the term or renew the Lease, but such
holding over thereafter shall continue upon the covenants and conditions herein
set forth except that the charge for use and occupancy of such holding over for
each calendar month or part hereof (even if such part shall be a small fraction
of a calendar month) shall be the sum of:
(i) one twelfth (1/12th) of the highest annual rent provided for in
Article 3 of this Lease, times two (2), PLUS
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<PAGE> 29
(ii) one twelfth (1/12th) of all other items of annual Additional
Rent, which annual Additional Rent would have been payable pursuant to this
Lease had this Lease not expired, times two (2), PLUS
(iii) those other items of Additional Rent which would have been
payable monthly pursuant to this Lease, had this Lease not expired, times two
(2),
which total sum Tenants agree to pay Landlord promptly upon demand, in full,
without set-off or deduction. Neither the billing nor the collection of use and
occupancy charges in the above amount shall be deemed a waiver of any right of
Landlord to collect damages for Tenant's failure to vacate the Demised Premises
after the expiration or sooner termination of this Lease. The aforesaid
provisions of this Article shall survive the expiration or sooner termination of
this Lease.
47. USE OF SOUTH STREET SEAPORT TRADENAME
South Street Seaport is a registered trademark of the South Street
Seaport Museum, Tenant shall be permitted to use the name "South Street
Seaport" on its letterhead and in advertising or other promotional materials
solely as a means of identifying the location of the Tenant. Tenant shall not
use the name "South Street Seaport" or any variation thereof without the
prior written consent of the South Street Seaport Museum except as specified
in this Article.
48. AUTHORITY
(a) If Tenant is a corporatior-4 each person executing this Lease on
behalf of Tenant hereby covenants, represents and warrants that Tenant is duly
qualified to do business in the Sate of New York; and (i) that Tenant has full
right and authority to enter into this Lease, and (ii) that each person
executing this Lease on behalf of Tenant is an officer of Tenant and is duly
authorized to execute, acknowledge and deliver this Lease to Landlord.
(b) Landlord represents and warrants: (i) that it is a limited partnership
duly organized and in good standing under the laws of the State of New York,
(ii) that it has all requisite authority to execute and to enter into this Lease
and that the execution of this Lease will not constitute a violation of any
internal by-law, agreement or other rule of governance, (iii) that the
individual executing this Lease on behalf of Landlord is so authorized, and (iv)
that Landlord does not need bankruptcy court or any other approval to enter into
this Lease.
49. HEADINGS
Headings contained herein and the Table of Contents hereto are for
convenience and reference only and do not define, limit or describe the scope or
intent of any provision of this Lease.
50. SEVERABILITY
In the event any term, covenant or provision of this Lease or the
application thereof to a person or circumstance shall be to any extent illegal,
invalid or unenforceable, the remainder thereof or the application of such term,
covenant or provision to persons or circumstances other
29
<PAGE> 30
than those as to which it is held illegal, invalid or unenforceable shall not be
affected thereby and each term, covenant or provision of this Lease shall be
valid and enforceable to the full extent permitted by law.
50. GOVERNING LAW
This Lease shall be construed and interpreted according to the Laws of the
State of New York.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
SEAPORT ASSOCIATES, LP, Landlord,
By: Beacon General Partners, Inc., its
managing general partner
By: /s/ Alan B. Wolpert
---------------------------------------
Name: Alan B. Wolpert
Title: President
BIGSTAR ENTERTAINMENT, INC., Tenant
By: /s/ David Friedensohn
---------------------------------------
Name: David Friedensohn
Title: CEO
30
<PAGE> 31
LEASE AGREEMENT BETWEEN
SEAPORT ASSOCIATES, IF,
AS LANDLORD
AND
BIGSTAR ENTERTAINMENT, INC,
AS TENANT.
Premises:
19 FULTON STREET
FIFTH (5TH) FLOOR
NEW YORK, NEW YORK 10038
EXHIBIT "A"
PLAN OF THE DEMISED PREMISES
<PAGE> 32
[PLAN OF DEMISED PREMISES]
<PAGE> 33
LEASE AGREEMENT BETWEEN
SEAPORT ASSOCIATES, IF,
AS LANDLORD
AND
BIGSTAR ENTERTAINMENT, INC,
AS TENANT.
Premises:
19 FULTON STREET
FIFTH (5TH) FLOOR
NEW YORK, NEW YORK 10038
EXHIBIT "B"
LIMITED PERSONAL GUARANTY
<PAGE> 34
FOR VALUE RECEIVED, and as consideration for, and as an inducement for
the granting, execution and delivery of the lease between SEAPORT ASSOCIATES, LP
("Landlord") and BIGSTAR ENTERTAINMENT, INC, as Tenant, dated January ____, 1999
(the "Lease") for entire Fifth (5th) floor in building known as and located at
19 Fulton Street, New York, New York 10038 which shall be deemed to consist of
Seven Thousand, Two Hundred and Twenty-Four (7,224) rentable square feet (the
"Premises"), and in further consideration of the stun of One ($1.00) Dollar and
other good and valuable consideration paid by the Landlord to the undersigned
the receipt and sufficiency of which are hereby acknowledged, the undersigned,
DAVID FRIEDENSOHN, having an office at 100 Wall Street, New York, New York
10005, ("Guarantor") hereby guarantees to Landlord, its successors and assigns,
the full and prompt payment of Fixed Annual Rent, Electric Charge, and
Additional Rent (as such terms are defined in the Lease) under the Lease, and
hereby further guarantees the full and timely performance and observance of all
the covenants, terms, conditions and agreements therein provided to be performed
and observed by Tenant, its successors and assigns, and the Guarantor hereby
covenants and agrees to and with Landlord, it successors and assigns, that if
default shall at any time be made by Tenant, its successors or assigns, in the
payment of any Fixed Annual Rent, Electric Charge, or Additional Rent or if
Tenant should default in the performance and observance of any of the terms,
covenants and provisions or conditions contained in the Lease, the Guarantor
shall and will forthwith pay Fixed Annual Rent, Electric Charge, and Additional
Rent due to Landlord, its successors and assigns, and any arrears thereof, and
shall and will forthwith faithfully perform and fulfill all of such terms,
covenants, conditions and provisions, and will forthwith pay to Landlord all
damages that may arise in consequence of any default by Tenant, its successors
and assigns, under the Lease, including, without limitation, all attorneys' fees
and disbursements incurred by Landlord or caused by any such default and/or by
the enforcement of this Guaranty.
This Guaranty is an absolute and unconditional guaranty of payment and
of performance. It shall be enforceable against Guarantor, its successors and
assigns, without the necessity of any suit or proceedings on Landlords part of
any kind or nature whatsoever against Tenant, its successors and assigns and
without the necessity of any notice of non-payment, non-performance or
non-observance or of any notice of acceptance of this Guaranty or of any other
notice or demand to which Guarantor might otherwise be entitled, all of which
Guarantor hereby expressly waives; and Guarantor hereby expressly agrees that
the validity of this Guaranty and the obligations of Guarantor hereunder shall
not be terminated, affected, diminished or impaired by reason of the assertion
or the failure to assert by Landlord against Tenant, or against Tenant's
successors or assigns, of any of the rights or remedies reserved to Landlord
pursuant to the provisions of the Lease.
This Guaranty shall be a continuing guaranty, and the liability of the
Guarantor hereunder shall in no way be affected, modified or diminished by
reason of any assignments, renewal, modification or extension of the Lease or by
reason of any modification or waiver of or change in any of the terms,
covenants, conditions or provisions of the Lease by Landlord and Tenant, or by
reason of any extension of time that may be granted by Landlord to Tenant, its
successors or assigns, or by reason of any dealings or transactions or matter or
thing occurring between
<PAGE> 35
Landlord and Tenant, its successors or assigns, or by reason of any bankruptcy,
insolvency, reorganization, arrangements, assignment for the benefit of
creditors, receivership or trusteeship affecting Tenant, whether or not notice
thereof or of any thereof is given to the Guarantor.
All of Landlords right and remedies under the Lease or under this
Guaranty are intended to be distinct, separate and cumulative and no such right
or remedy therein or herein mentioned is intended to be an exclusion of or a
waiver of any of the others.
As a further inducement to Landlord to make and enter into the Lease
and in consideration thereof, Landlord and the Guarantor covenant and agree that
in any action or proceedings brought on, under or by virtue of this Guaranty,
Landlord and the Guarantor shall and do hereby waive trial by jury. This
Guaranty shall be governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and to be performed wholly
therein.
Notwithstanding the foregoing, Guarantors shall have no liability to
Landlord under this Guaranty in the event of default under the Lease by Tenant,
provided that: (i) Tenant surrenders possession of the Premises to Landlord in
accordance with the provisions of the Lease AND (ii) on the date that Tenant
surrenders possession of the Premises to Landlord in accordance with the
provisions of the Lease, all sums due and owing Landlord as of that date have
been paid in full. Landlord agrees to provide Guarantor with a statement of the
amount due on or before the date that Tenant surrenders possession of the
Premises to Landlord, provided, however, that furnishing such a statement shall
not be deemed a waiver of any of Landlords rights against Guarantor to collect
all sums due and owing Landlord as of the date that Tenant surrenders possession
of the Premises to Landlord.
IN WITNESS HEREOF, the undersigned Guarantors has executed and
delivered this Limited Personal Guaranty this day of January, 1999.
/s/ David Friedensohn
---------------------------------
Name: DAVID FRIEDENSOHN, Guarantor
STATE OF NEW YORK )
)SS.:
COUNTY OF NEW YORK )
On the 3 day of February, 1999, before me personally came DAVID
FRIEDENSOHN, to me known, who being by me duly sworn, did depose and say that he
maintains an office at 100 Wall Street, New York, New York 10005 and that he
executed the foregoing instrument, and to me such person duly acknowledged that
he executed the same.
/s/ Ronald Minias ------------------ Notary Public
<PAGE> 36
LEASE AGREEMENT BETWEEN
SEAPORT ASSOCIATES, IF,
AS LANDLORD
AND
BIGSTAR ENTERTAINMENT, INC,
AS TENANT.
Premises:
19 FULTON STREET
FIFTH (5TH) FLOOR
NEW YORK, NEW YORK 10038
EXHIBIT "C"
RULES AND REGULATIONS
<PAGE> 37
RULES AND REGULATIONS
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
Demised Premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Landlord. There shall not be used in any space, or in the public hall of the
Building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for
any purpose other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the Building, and no Tenant shall sweep or throw or permit to be swept
or thrown from the Demised Premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the Building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the Demised Premises, or permit or suffer
the Demised Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
Building. Smoking or carrying lighted cigars or cigarettes anywhere in the
Building is strictly prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the Building.
5. No Tenant shall mark, paint, drill into, or in any way deface any part
of the Demised Premises or the Building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. No Tenant shall lay carpet or
any other floor covering, so that the same shall come in direct contact with the
floor of the Demised Premises. If carpet or other similar floor covering is
desired to be used an interlining of builder's deadening felt and/or padding
approved by Landlord shall be first installed and the carpet or other floor
shall be installed using a tackless method. The use of cement or other similar
adhesive material is expressly prohibited.
6. No additional locks or bolts of any kind shall be placed upon any of the
doors or window by any Tenant, nor shall any changes be made in existing locks
or mechanisms thereof Each Tenant must, upon the termination of its tenancy,
restore to Landlord all keys of offices and toilet
<PAGE> 38
rooms, either furnished to, or otherwise procured by, such Tenant, and in the
event of the loss of any keys, so furnished, such Tenant shall pay to Landlord
the cost thereof.
7. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the Demised Premises
and/or Building only on the elevators and through the entrances and corridors
designated for such purposes by Landlord, and only during hours and in a manner
approved by Landlord. Landlord reserves the right to inspect all freight to be
brought into the Building and to exclude from the Building all freight which
violates any of these Rules and Regulations of the Lease or which these Rules
and Regulations are a part.
8. Canvasing, soliciting and peddling in the Building is prohibited and
each Tenant shall cooperate to prevent the same.
9. Landlord reserves the right to exclude from the Building between the
hours of 6:00 p.m. and 8:00 am. and at all hours on Sundays, and legal holidays
all persons who do not present a pass to the Building signed by Tenant. Landlord
will furnish passes to persons for whom any Tenant requests same in writing.
Each Tenant shall be responsible for all persons for whom he requests such pass
and shall be liable to Landlord for all acts of such persons.
10. Landlord shall have the right to prohibit any advertising by any Tenant
which in Landlords opinion, tends to impair the reputation of the Building or
its desirability as a Building of offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
11. Tenant shall not bring or permit to be brought or kept in or on the
Demised Premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the Demised Premises.
12. If the Building contains central air conditioning and ventilation,
Tenant agrees to keep all windows closed at all times and to abide by all rules
and regulations issued by the Landlord with respect to such services.
13. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the Demised Premises and/or the Building
without Landlords prior written consent. If such safe, machinery, equipment,
bulky matter or fixtures requires special handling, all work in connection
therewith shall comply with all legal requirements, insurance requirements
and/or Environmental Laws and shall be done during such hours as Landlord may
designate.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated May 5, 1999 for BigStar Entertainment, Inc. included in or made a
part of this registration statement.
ARTHUR ANDERSEN LLP
New York, New York
May 6, 1999
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