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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
SHOWSTAR ONLINE.COM, INC.
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(Name of Small Business Issuer in its Charter)
COL0RADO 13-4093341
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(State of Incorporation) (I.R.S. Employer
Identification No.)
521 West 23rd Street, 2nd Floor, New York, NY 10011
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(Address of Principal Executive Offices) (Zip Code)
(212) 647-9223
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, no par value per share
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND
Showstar Online.com, Inc. (the "Company," "ShowStar" and sometimes "we,"
"us," "our" and derivatives of such words), formerly named Showstar
Entertainment Corporation, was incorporated on July 14, 1995 in the State of
Colorado as Cerotex Holdings, Inc. The Company commenced business as a
developer of computer-based management systems and continued operations on a
limited basis until March 18, 1998.
On March 19,1998, Barry Forward and Gino Punzo gained control of the Company
through a cash purchase of Common Stock from founding stockholders. On April
23, 1998, the Company effected an agreement with all the stockholders of
Showstar Entertainment Corporation (formerly Nucom Productions, Inc.), a
Nevada Corporation ("Showstar/Nucom"), whereby the Company issued 3,367,000
shares of its no par Common Stock in exchange for 77% of the outstanding
common stock of Showstar/Nucom.
In May 1998 the Company changed its name to Showstar Entertainment
Corporation, assuming the name of its majority-owned subsidiary.
Effective August 25, 1998, the remaining 23% of Showstar/Nucom was acquired
through issuance of 999,066 shares of the Company's Common Stock.
On June 18, 1999, the stockholders of the Company approved a change in
corporate name to Showstar Online.com, Inc., which became effective on June
25, 1999.
From April 1998 to February 1999, the Company engaged in merchandising and
event promotion in secondary markets in the Western United States and Canada.
These operations were discontinued in February 1999.
The Company's United States headquarters and gallery operations are located
at 521 West 23rd Street, 2nd Floor, New York, N.Y. 10011, telephone (212)
647-9223. The Company also maintains administrative offices in an office park
at 90-10551 Shellbridge Way, Richmond, British Columbia, Canada V6X 2W9,
telephone (604) 244-3966. The Company's fiscal year end is April 30.
GENERAL
Showstar Online.com, Inc. is a developer of Internet websites and e-commerce
solutions. The Company has established a unique and scalable e-commerce
infrastructure by developing and integrating several leading edge
technologies. Showstar will design each of its unique websites to provide
information-enriched content that is directed at lucrative target market
segments.
The Company`s flagship website property is "Artstar.com," development of
which commenced in May 1999. The Company launched e-commerce and
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retail activities on the website in December 1999 and thus commenced
principal operations. A marketing and public relations program commenced in
November 1999.
Through the website, the Company offers a variety of products and services
under the domain name "Artstar.com." These are designed to attract viewer
traffic to the site and to generate revenue for the Company. The products and
services offered include auctions, authentication and appraisal consulting,
buyer (corporate and individual) representation, and education in art,
collectibles and restoration.
Currently, there are various websites on the Internet that provide art sales
and auctions to collectors and aficionados, with offerings ranging from
prints or lithographs to internationally renowned collections. In the past
year, the leading auction houses, such as Sotheby's, Christie's and
Butterfield and Butterfield, have invested significantly in the development
of online auction platforms. The Company believes, however, that there are
few, if any, websites providing a comprehensive scope of services in addition
to online sales and auctions.
Via the Internet, the Company provides a variety of entertainment and
education products and services to those interested in art and collectibles.
The Company's revenues are derived from a variety of sources, including
online auctions, appraisals & authentication, commissions, advertising,
content licensing, various consulting services, and merchandising. All of the
aforementioned products and services currently are marketed and sold on the
ArtStar.com website.
Contemporaneously, the Company also is developing the capability for in-house
on-line processing of credit cards and proprietary software applications
developed during creation of the Artstar.com website.
PRINCIPAL PRODUCTS AND MARKETS
The Company has developed an Internet website (portal) to market art and
related services. The site is known as Artstar.com and comprises the
following three general areas of services.
INFORMATION SERVICES
ARTSTAR.COM EXPLORER: Contains biographical information on thousands of
artists, tens of thousands of images, books, and related web links, all
searchable, carefully cross-referenced and linked and e-commerce transaction
enabled.
EVERYTHING ART - THE ARTSTAR.COM MAGAZINE: A forum for artists, art
historians, art technicians and art lovers. Inside its pages you'll find
reviews of national and international exhibits, current events related to
art, antiques and auctions worldwide, as well as factual and entertaining
articles covering many facets of art, from artistic creation to marketplace
tips
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PROFESSIONAL SERVICES
In conjunction with Artstar.com Vice Presidents and experienced art experts
Kenneth Jay Linsner and Abraham Joel, the Company offers a variety of art
consulting services, including:
APPRAISAL SERVICES: Artstar.com's network of appraisers is well qualified and
available across the country to provide accurate inventories and valuations
of property.
MEDIATION SERVICES: Artstar.com offers mediation and "umpire" services in the
realm of fine arts.
CORPORATE ART CONSULTING SERVICES: Artstar.com provides comprehensive art
consulting services to a wide variety of corporate clients. This service is
being managed by Connie Vick, the Company's senior corporate art consultant
with over 18 years experience working with major corporations.
RESTORATION & CONSERVATION: Artstar.com's experienced conservation and
restoration staff offer both practical suggestions for the collector, as well
as professional advice on how to care for works of art, including technical
information on the preservation of objects.
RETAIL & AUCTION SALES
SALE OF ART REPRODUCTIONS: Purchasing a reproduction of any of the tens of
thousands of pieces of art contained within the Artstar.com reference
databases is as simple as clicking on the image itself. New images and
reproductions for sale are constantly being added. Currently over 20,000
reproductions are available.
SALE OF ORIGINAL WORKS AND LIMITED EDITION ART: The original works of a
limited number of respected artists are currently available. Artstar.com
intends to add numerous additional artists (see "Planned and In-Process
Projects" below).
THE ARTSTAR.COM GIFT GALLERIA: Art is not limited only to fine art such as
oil paintings. Artstar.com sends certain staff members to various countries
throughout the world to seek out and secure items that are not only works of
art but which also often have function. These items make perfect gifts and
hundreds of them are available in the Artstar.com Gift Galleria.
ART-RELATED BOOKS: The Artstar.com bookstore contains new and rare
art-related books. Hundreds of new volumes are added monthly. Artstar.com
also has a large selection of fine press books.
DEVELOPMENT AFFILIATIONS
The Company has relationships with certain vendors that are intended to
expand the products and services offered by the Company. The following lists
those vendors and the products/services each provides:
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<TABLE>
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Vendor Product/Service
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Mindquake Software Back-end Database Development
Elecomm Auction Platform
Oracle Corporation Internet Commerce Server,
Database technologies
Shoptek E-Commerce Catalog & Shopping Cart Software
Tellan Software Transaction Processing Software
Starcom/AT&T Site Hosting
Tantalus E-Commerce Integration
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The above vendors are providing technological services to the Company. The
Company believes that while these companies are providing services integral
to the success of the Company's intended operations, the failure of any of
these companies would not have a material impact on the Company's ability to
complete the development of its portal and commence operations. The Company
believes that each of its technological relationships can be replaced with
minimal interruption.
PLANNED AND IN-PROCESS PROJECTS
Showstar Online.com, Inc. is presently developing additional systems and
services which will be offered to the market over the next 12 months. These
product offerings will further enhance the Artstar.com website and, where
appropriate, will be made available to third parties.
ONLINE TRANSACTIONS
In order to minimize the cost of processing transactions, Showstar is building
a proprietary credit card transaction server. This will allow Showstar to
offer the service to third parties, as well as to Artstar.com and artists,
galleries and museums who wish to do their own credit card processing. This
service is expected to come online in the second quarter of 2000.
SITE2SHOP.COM
In April 1999 the Company entered into an agreement with Site2Shop.com to
develop an e-commerce site/solution that would be a seller of products and
services. The first phase of the e-commerce solution is scheduled for launch
in the second quarter of 2000.
ORIGINAL WORKS AND LIMITED EDITION ART
Artstar.com is forming relationships with umbrella organizations that bring
together tens of thousands of artists whose works can be featured and sold on
the Artstar.com website.
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CHINA JOINT VENTURE
Showstar has entered into a one-year agreement dated October 29, 1999, with
Li Zhang to establish a joint venture in China. A copy of the agreement is
filed as an exhibit to this Form 10-SB. The Company's intention is to open an
Asian division of the Company`s art website Artstar.com. The Company intends
to use this relationship to explore additional opportunities in that region.
It is expected that once the joint venture is finalized (which cannot be
assured) and begins providing content for the Artstar.com website, it will
operate out of offices in Hong Kong and Beijing, thus providing Artstar.com
with a strong entry point into the Asian art market. It is intended that the
joint venture will give Artstar.com's clients access to some of the more
unique collections in China and lead to the establishment of Artstar.com
exhibitions throughout Asia.
SUBSCRIPTION INFORMATION SERVICES
Artstar.com also is negotiating the online rights to one of the world's
largest bodies of art auction sales records. This information includes the
details of over 2 million auctions of art since 1953 and is vital information
to anyone bidding on a serious work of art.
National Register Publishers, a division of Reed-Elsevier, Inc., has granted
to Artstar.com the online publishing and online subscription rights for the
11,600 entry WHO'S WHO OF AMERICAN ART-TM-, the AMERICAN ART DIRECTORY-TM- and
the OFFICIAL MUSEUM DIRECTORY-TM-.
ARTSTAR TRAVEL & TOURS
Artstar.com plans to offer domestic and international travel tours for the
viewing and appreciation of art & collectibles in galleries, museums and
studios, hosted and guided by art experts for the duration of the trip.
MARKETING AND ADVERTISING
As noted above, the Company believes that it's primary target market
comprises high income and high net worth potential customers. It is these
people who traditionally have been the most interested in the world of art
and collectibles.
The Company is in the process of developing its marketing strategy for 2000
for Artstar.com. In connection therewith, it has retained Neale-May &
Partners, a public relations firm based in Palo Alto, California experienced
in bringing high tech companies to market. This program is being designed to
build awareness of the Artstar.com name.
The Company has also retained the services of Bozell Worldwide Silicon
Valley, an established advertising firm, to develop and implement the
Company's advertising programs. This includes on and off-line advertising and
will focus on media consistent with its target demographics.
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COMPETITION
There are a number of competitors to the Company, both online and offline.
Some are better established and better financed. It is the Company's goal to
create, in Artstar.com, a website with greater breadth and depth than any of
the alternate sources for components of Artstar.com, both offline and online.
OFFLINE COMPETITION
Artstar.com's offline competition includes physical publications and physical
galleries. Artstar.com seeks to enhance, rather than compete with, these
traditional businesses by extending their reach to potential clients in new
markets.
ONLINE COMPETITION
Online competitors vary:
To the dealer and advanced collector, Artnet.com, icollector.com and,
more recently, Sothebys.com, have established presences.
To the general consumer, Art.com is the current market leader with a
focus on poster sales and framing. Art.com attracted roughly 400,000 visitors
per month in the first quarter of 1999 and has experienced more than 40
percent growth in orders per month since January 1999.
For art auctions, there are various sites, including Sotheby's and e-Bay
(which has purchased Butterfield & Butterfield). Christie's recently changed
its plans for online auctions from a full site to merely providing coverage
and bidding on existing live auctions.
Guild.com focuses mostly on crafts and claims over 6,000 visitors a day
and average sale prices between $1,000 and $5,000.
Additional art sites include sea-art.com (Morales Art Gallery),
howgreattheart.com, watkinsbrothers.com, louvreart.com (Petit Louvre),
wholesale-art.com, paintingclasses.com, karaartservers.ch, artprice.com and
philamuseum.org. This is only a small sample of available sites.
For general art searches, the major search engines are often used, as
well as a variety of small "indexes" and resource sites, often "one-man-show"
projects. Wwar.com is one example.
For information on museums, artists and galleries, there are thousands
of sites, most small and many difficult to find.
Many art websites are redesigning and launching "second generation"
versions.
DISTRIBUTION METHODS
In conducting auctions and on-line sales of artwork and other operations, the
individual content supplier, such as artists and collectors, will be
responsible for the packaging of the individual pieces. The Company will
arrange the actual shipping of the pieces on
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"FOB origin" terms through transportation companies it intends to contract
with. Accordingly, the buyers will be responsible for all freight and
shipping costs. In order to reduce costs to the customer and facilitate
shipping, the Company intends to enter into a contract with a shipper that
provides for a per piece reduction in cost through high volume use.
In order to minimize any legal issues to the Company if there is a "fail to
deliver", the Company intends to implement systems which monitors delivery.
Additionally, it will adopt a refund policy that provides for delayed
processing of credit card charges. The terms of sale will indicate the
responsibilities of all parties regarding shipment of all pieces.
The Company has established a customer service group to field inquiries and
to assist customers in resolving fulfillment concerns. Customer Service
procedures include: e-mail acknowledgement of customer order; e-mail
confirmation that item purchased has been shipping; e-mail follow-up thanking
customer for business; and telephone follow-up to ensure customer
satisfaction.
DISCONTINUED OPERATIONS
As noted above, until February 1999, the Company had been in the
merchandising and event promotion businesses with its primary offices in Los
Angeles, California. In connection therewith, the Company was planning to
earn revenue from the promotion of entertainment events, primarily in show
business in secondary event locations such as Native American Casinos, and
from sales of merchandise, primarily T-shirts, manufactured from its plant in
Culver City, California.
As part of its focus in the merchandising sector, the Company commenced
exploration of various ways it could benefit from the proliferation of
e-commerce. In September 1998, it entered into an agreement with a company
whereby it would've been the exclusive distributor of standalone kiosks for
Western United States. The kiosks were to be placed in high traffic areas and
linked to a dedicated network that would offer merchandising, tickets to
events and other products.
Realizing that its future should be focused on e-commerce development, and
after incurring significant losses in the period from acquisition of its
merchandising and event promotion subsidiary (April 27, 1998) to January 31,
1999, the Company initiated the process of discontinuing operations and
phasing out its Los Angeles office. As of April 30, 1999, this process was
substantially complete.
TRADEMARKS, COPYRIGHTS AND PROPRIETARY RIGHTS
Presently, the Company has not sought patent protection for its proprietary
software system, although it may apply for patents on various aspects of its
programs in the future. The Company, rather, will seek to maintain those
proprietary rights by trade secret protection, copyright notices,
non-competition and non-disclosure agreements with its employees and, as
required, with its vendors. The Company may file for further copyrights
and/or patents for its software program applications and obtain patents where
cost-effective and feasible. There can be no assurance that meaningful
proprietary
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protection can be attained as a result of such filing, and any proprietary
rights that the Company could choose to protect through legal action may
involve substantial costs.
The Company believes its core technical competence of computer programming
and knowledge and expertise of the art and collectible market will allow it
to maintain a leading edge product that will have value in the marketplace.
The Company is in the process of obtaining federal trademark protection for
use of the names "Artstar.com", "Everything Art" and other marketing brands
related to the Company.
An initial response has been received from the Patent and Trademark Office
refusing registration of the trademark "Artstar.com" because the mark is
similar to a prior registered mark. The Company, however, intends to file a
response to the refusal to register and to prosecute its trademark
application with respect to the mark "Artstar.com" on the basis that its mark
is distinguishable from the prior registered mark by reason of the Company's
addition of a design element (consisting of a stylized A and a star) used in
conjunction with the mark, and the differing and non-competitive nature of
the Company's goods and services in comparison with the goods and services
associated with the prior registered mark. If, following the Company's
response, registration of the mark is ultimately refused, the Company may
appeal to the Trademark Trial and Appeal Board, which has the final authority
to determine whether the Company is entitled to secure registration of its
mark. It is uncertain, however, whether such an appeal would result in a
favorable outcome.
No response has been received by the Company from the Patent and Trademark
Office with respect to the Company's other pending trademark applications.
GOVERNMENT REGULATION
The Company is subject, both directly and indirectly, to various laws and
governmental regulations relating to its business. The Company believes it is
currently in compliance with such laws and that they do not have a material
impact on its operations. Moreover, there are currently few laws or
regulations directly applicable to access to or commerce on the Internet.
However, due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet. Such laws and regulations may cover issues such as user
privacy, pricing and characteristics and quality of products and services.
The enactment of any such laws or regulations in the future may slow the
growth of the Internet, which could in turn decrease the demand for the
Company's services and increase the Company's cost of doing business or
otherwise have an adverse effect on the Company's business, results of
operations and financial condition.
EMPLOYEES
The Company currently has 20 full-time employees, of which 6 are in
administration/management, 6 are in sales and marketing, 8 are in programming
and related activities. In addition, the Company currently utilizes the
services of approximately 25 full-time and part-time
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independent contractors, of which 5 are in administration, 6 are in sales and
marketing and 24 are in programming and related activities.
RISK FACTORS
Readers should carefully consider the risks described below before deciding
whether to invest in shares of the Company's Common Stock.
If the Company does not successfully address the risks described below, there
could be a material adverse effect on the Company's business, financial
condition and results of operations. The trading price of the Company's
Common Stock also could decline significantly, in which event an investor
could lose all or part of the investment. The Company cannot assure any
investor that it will successfully address these risks.
THE COMPANY HAS A LIMITED OPERATING HISTORY UPON WHICH AN INVESTOR CAN
EVALUATE IT.
The Company has only a limited operating history upon which a potential
investor can evaluate our business and prospects. The Company commenced
operations in December 1999 (previous operations have been discontinued).
The Company does not have historical financial data for any significant
period of time on which an investor can base an evaluation of the Company's
performance and an investment in its Common Stock. An investor should
consider the Company's prospects in light of the risks, expenses and
difficulties the Company may encounter as an early stage company in the new
and rapidly evolving market for electronic commerce services.
THE COMPANY'S BUSINESS STRATEGY TO DEVELOP AND EXPAND ITS REVENUE SOURCES MAY
NOT BE PROFITABLE.
The Company's business strategy is to develop and expand its revenue sources
in e-commerce/art portal operations on the Internet. The Company can neither
assure the investor that it will be able to do this or that providing these
services will be profitable. Currently the Company's revenues are primarily
generated from sales of art, collectibles and related services. In the
future, the Company intends to generate increased revenues from multiple
sources, many of which are unproven, including the commercial sale of other
content which may or may not be art-related, and advertising on the Internet.
The Company expects its revenues for the foreseeable future will be dependent
on, among other factors:
- Sale of art and collectibles
- Offering of appraisal, authentication and restoration services in art
and collectibles
- User traffic levels
- Offering of art-related products, such as chat rooms, virtual tours,
publications
- Sale of Internet advertising and sponsorships
- Expansion of service offerings in the aforementioned areas
- Acquisition of content
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- The effect of competition, the regulatory and tax environment, ISP
rates, and transmission costs on our prices.
- The ability of the Company to effectively compete with other
companies, some with greater financial resources, offering services in
the same manner - such as auction platforms, sales of art, chat rooms
and publications. Well-established traditional auction houses such as
Sotheby's and Butterfield & Butterfield have initiated auction
services online. Companies such as Artnet.com have already established
themselves in the use of e-commerce to market and sell art, though
their offerings may be directed at a different market demographic than
the Company's.
- The ability of the Company to adopt fulfillment/delivery methods that
satisfactorily address customer needs. This will significantly impact
customer loyalty and the customer database.
THE COMPANY CANNOT ASSURE INVESTORS THAT A MARKET FOR ITS PRODUCTS AND
SERVICES WILL DEVELOP.
The Company is uncertain whether a market will develop for its on-line
offering of art and collectibles and related services. The use of e-commerce
for art and collectibles is new and rapidly evolving. Additionally, the
market for on-line appraisal and authentication services is without any
significant precedent. The Company's ability to sell its services to new
users may be inhibited by, among other factors, the reluctance of some users
to switch from traditional offerings of the aforementioned products and
services to the use of e-commerce. The Company will need to devote
substantial resources to educate and inform users about the benefits of its
products and services. This will include the devotion of both manpower and
financial resources for marketing, advertising and public relations.
Potential users may be reluctant to acquire art or use the Company's services
due to a lack of proven credibility for these services on-line. As a result,
the Company may not be able to generate revenues or attract significant
numbers of users in the future.
OUR FUTURE SUCCESS DEPENDS ON THE CONTINUED GROWTH IN USE OF THE INTERNET FOR
E-COMMERCE.
If the market for e-commerce, in general, and the Company's services in
particular does not grow at the rate the Company anticipates, the Company
will not be able to increase its number of users or generate revenues at the
rate it anticipates. To be successful, on-line art and collectible services
require validation as an effective, quality means of rendering such services
and as a viable alternative to traditional services in the Company's primary
industry. As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced services are subject to
a high level of uncertainty. The Internet may not prove to be a viable
alternative to traditional service for various reasons including:
- Traffic congestion on the Internet.
- Potentially inadequate development of the necessary infrastructure.
- Lack of acceptable security technologies.
- Inconsistent quality or speed of service.
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- Lack of timely development and commercialization of performance
improvements.
- Unavailability of cost-effective, high-speed access to the Internet
If Internet usage continues to grow, the Internet infrastructure may not be
able to support the demands placed on it by such growth, or its performance
or reliability may decline. In addition, Web sites may from time to time
experience interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, Internet usage, as well as
usage of the Company's portal and its services, could be adversely affected.
IF ESTABLISHMENT OF THE ARTSTAR.COM NAME AMD SITE IS NOT SUCCESSFUL, THE
COMPANY MAY NOT BE ABLE TO IMPLEMENT ITS STRATEGY OF BECOMING A LEADING ART
AND COLLECTIBLES PORTAL.
To become a leading portal in its primary industry, the Company must
establish and strengthen the brand awareness of the Artstar.com name. If the
Company fails to create and maintain brand awareness, it could be unable to
attract sufficient Web traffic, which would reduce its attractiveness to
advertisers. Brand recognition may become more important in the future with
the growing number of Internet sites offering similar products and services.
IF THE COMPANY FAILS TO ESTABLISH APPROPRIATE STRATEGIC ALLIANCES, IT MAY NOT
BE ABLE TO SUFFICIENTLY INCREASE ITS SALES, OR COST-EFFECTIVLEY MARKET ITS
PRODUCTS.
The Company believes that its success depends, in part, on its ability to
develop and maintain relationships with leading Internet companies, content
providers and marketing firms that will market and promote the Company's
services and build brand awareness. If the Company is unable to establish and
maintain these relationships, it may not be able to increase sales of its
services and it may lose users.
THE COMPANY WAS, UNTIL RECENTLY, A DEVELOPMENT STAGE COMPANY WITH A HISTORY
OF LOSSES; THE COMPANY ANTICIPATES THAT SUCH LOSSES WILL CONTINUE.
The Company has incurred significant losses since inception, and expects to
continue to incur significant losses for the foreseeable future. It reported
a net loss of approximately $3.1 million for the six months ended October 31,
1999 and a net loss of approximately $3.4 million for the year ended April
30, 1999, including $.8 million from discontinued operations. As of October
31, 1999, the Company reported an accumulated deficit of approximately $6.6
million. In addition, the Company has not generated any revenues (excluding
discontinued operations) since its inception. The first phase of its art
portal was launched in October 1999 with full operations having commenced on
December 7, 1999. It is not known whether revenues over the next 12 to 18
months will be sufficient to infer any conclusions as to the success of its
art portal. In addition, the Company expects operating expenses, primarily in
the content acquisition and marketing areas, and capital expenditures to
increase significantly as it develops and expands its
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business. As a result, the Company will need to generate significant revenues
to become profitable. In order to generate revenues, it needs to add users,
thereby increasing the fees and usage charges that it collects and enabling
it to generate additional advertising and sponsorship revenues as well as
direct marketing revenues. If the company does not produce revenues as much
as it expects, or if expenses increase at a greater pace than revenues, it
may never be profitable or, if it becomes profitable, it may not be able to
sustain or increase profitability on a quarterly or annual basis.
THE COMPANY NEEDS ADDITIONAL CAPITAL TO FINANCE ITS OPERATIONS AND EXPANSION
IN THE FUTURE.
The Company intends to continue to enhance and expand its art portal services
in order to maintain competitive position and meet the increasing demands for
service quality, content offerings and competitive pricing. Also, the portal
requires significant marketing and promotional expenditures. The Company
expects that cash flow from operations, if any, will not be sufficient to
meet capital expenditure and working capital requirements and therefore the
Company will need to raise additional capital from other sources. If the
Company is unable to obtain additional capital, it may be required to reduce
the scope of its business or anticipated growth, which would reduce revenues.
THE COMPANY MAY BE UNABLE TO MANAGE EFFECTIVELY ITS EXPANSION AND ANTICIPATED
GROWTH.
The Company anticipates rapid growth. This growth is likely to place a
significant strain on the Company's managerial, operational and financial
resources. To manage its growth, it must continue to implement and improve
operational and financial systems, as well as managerial controls and
procedures. It cannot assure an investor that it has made adequate allowances
for the costs and risks associated with this anticipated expansion, that its
systems, procedures or controls will be adequate to support operations or
that management will be able to successfully offer and expand services. If it
is unable to effectively manage its expanding operations, revenues may not
increase, its cost of operations may rise and it may not be profitable.
POTENTIAL FLUCTUATIONS IN QUARTERLY FINANCIAL RESULTS MAKE IT DIFFICULT FOR
INVESTORS TO PREDICT OUR FUTURE PERFORMANCE.
Quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's
control. These factors include:
- The rate at which the Company is able to attract users to purchase or
subscribe to its services.
- The amount and timing of expenses to enhance marketing and promotion
efforts and to expand the Company's infrastructure.
- The announcement or introduction of new or enhanced services by the
Company or its competitors.
- Technical difficulties or network interruptions.
- General economic and competitive conditions specific to the Company's
industry.
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The Company believes that quarter-to-quarter comparison of its historical
operating results may not be a good indication of future performance, nor
would operating results for any particular quarter be indicative of future
operating results. It is likely that in some future periods operating results
will be below the expectations of public market analysts and investors. If
this happens, the trading price of the Company's Common Stock likely would
fall.
OUR NETWORK MAY NOT BE ABLE TO ACCOMMODATE OUR CAPACITY NEEDS.
The Company expects the volume of traffic to its portal to increase
significantly as it expands its operations and service offerings. Its portal
may not be able to accommodate this additional volume. In the event that the
existing infrastructure is not able to handle additional traffic, the Company
may have to enter into agreements for increased capacity. If the Company is
unable to maintain sufficient capacity to meet the needs of its users, its
reputation could be damaged and it could lose users.
WE FACE A RISK OF FAILURE OF COMPUTER AND COMMUNICATIONS SYSTEMS USED IN OUR
BUSINESS.
The Company's business depends on the efficient and uninterrupted operation
of our computer and systems and server as well as those that connect to our
server. The Company's systems and those that connect to it are subject to
disruption from natural disasters or other sources of power loss,
communications failure, hardware or software malfunction, network failures
and other events both within and beyond the Company's control. Any system
interruptions that cause the Company's services to be unavailable, or
difficulties for users in communicating through the Company's server or
portal, could damage its reputation and result in a loss of users.
THE COMPANY'S COMPUTER SYSTEMS AND OPERATIONS MAY BE VULNERABLE TO SECURITY
BREACHES.
The Company's computer infrastructure is potentially vulnerable to physical
or electronic computer viruses, break-ins and similar disruptive problems and
security breaches, which could cause interruptions, delays or loss of
services to its users. The Company believes that the secure transmission of
confidential information over the Internet, such as credit card numbers, is
essential in maintaining user confidence in its services. The Company relies
on licensed encryption and authentication technology to effect secure
transmission of confidential information, including credit card numbers. It
is possible that advances in computer capabilities, new technologies or other
developments could result in a compromise or breach of the technology the
Company uses to protect user transaction data. A party that is able to
circumvent the Company's security systems could misappropriate proprietary
information or cause interruptions in its operations. Security breaches also
could damage the Company's reputation and expose it to a risk of loss or
litigation and possible liability. The Company cannot guarantee that its
security measures will prevent security breaches.
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<PAGE>
THE COMPANY'S FUTURE SUCCESS DEPENDS ON ITS KEY MANAGEMENT AND TECHNICAL
PERSONNEL.
The Company's future success depends, in significant part, on the continued
service of its senior management team and key technical personnel, as well as
its continuing ability to attract and retain highly qualified technical,
sales and managerial personnel. Competition for such personnel is intense,
and the Company cannot assure investors that it can retain our key employees
or that it can attract, assimilate or retain other highly qualified
technical, sales and managerial personnel. The inability to attract and
retain qualified personnel would substantially impair the Company's ability
to manage its operations and growth.
THE COMPANY RELIES ON DIFFERENT CONTENT SUPPLIERS TO FULFILL AUCTION AND ART
SALES.
The Company relies, in certain instances, on independent content suppliers to
deliver or ship art and collectibles to buyers through the Company's portal.
In addition, the Company uses independent shippers to ship to Artstar.com
customer around the world. While the Company has adopted returns and credit
policies and has procured insurance to ameliorate any problems with a
customer and mitigate any financial damage to the Company, inappropriately
shipped art and collectibles may result in costly and irreparable damage to a
work of art and cause loss of reputation and credibility. Additionally, any
disruption in shipping caused by such things as labor stoppage, catastrophe,
political insurrection may impact sales and the Company's profitability.
THE COMPANY'S PROFITABILITY COULD SUFFER IF THIRD PARTIES INFRINGE UPON ITS
PROPRIETARY TECHNOLOGY.
The Company's profitability could suffer if third parties infringe upon its
intellectual property rights or misappropriate its technologies and
trademarks for their own businesses. To protect the Company's rights to its
intellectual property, the Company relies on a combination of trademark and
patent law, trade secret protection, confidentiality agreements and other
contractual arrangements with its employees, affiliates, strategic partners
and others. The Company does not currently own any issued patents or
trademarks. It has pending applications for trademarks in the United States .
The protective steps it has taken may be inadequate to deter misappropriation
of its proprietary information. The Company may be unable to detect the
unauthorized use of, or take appropriate steps to enforce, its intellectual
property rights. Effective trademark, copyright and trade secret protection
may not be available in every country in which it offers or intends to offer
its services. Failure to adequately protect its intellectual property could
harm its brand, devalue its proprietary content and affect its ability to
compete effectively. Further, defending the Company's intellectual property
rights could result in the expenditure of significant financial and
managerial resources.
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<PAGE>
THE COMPANY'S SERVICES MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS.
Third parties may assert claims that the Company has violated a patent or
infringed a copyright, trademark or other proprietary right belonging to
them. The Company incorporates licensed third-party technology in some of its
services. In these license agreements, the licensors have generally agreed to
indemnify the Company with respect to any claim by a third party that the
licensed software infringes any patent or other proprietary right. The
Company cannot give any assurances that these provisions will be adequate to
protect it from infringement claims. Any infringement claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources.
OPERATING INTERNATIONALLY EXPOSES THE COMPANY TO ADDITIONAL AND UNPREDICTABLE
RISKS.
The Company intends to enter additional markets and to expand its operations
outside the United States. Additionally, the Company conducts its
administrative and technical operations in Richmond, Canada. International
operations are subject to inherent risks, including:
- Potentially weaker protection of intellectual property rights.
- Political instability.
- Unexpected changes in regulatory requirements and tariffs.
- Fluctuations in exchange rates.
- Varying tax consequences.
- Uncertain market acceptance due to language differences and other
factors.
- Different laws regarding content and protection of art.
- Censorship in readership.
INTENSE COMPETITION COULD REDUCE THE COMPANY'S MARKET SHARE AND HARM ITS
FINANCIAL PERFORMANCE.
Competition in the market for art and collectible auctions and sales is
becoming increasingly intense and is expected to increase significantly in
the future. The Company expects competition from companies in the traditional
auction market "going on-line" as well as from established Internet auction
platforms will have an impact on its business. Many of the Company's existing
competitors and potential competitors have longer operating histories,
broader portfolios of services, greater financial management and operational
resources, greater brand-name recognition and customer loyalty, larger
subscriber bases and more experience than the Company has. If the Company is
unable to provide competitive service offerings, it may lose existing users
and be unable to attract additional users. In addition, many of the Company's
competitors enjoy economies of scale that can result in a lower cost
structure for transmission and related costs, which could cause significant
pricing pressures within the industry.
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<PAGE>
THE COMPANY MAY NOT BE ABLE TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES ON
THE INTERNET.
The Internet is subject to rapid technological change. Accordingly, the
Company cannot predict the effect of technological changes on its business.
In addition, widely accepted standards have not yet developed for the
technologies the Company uses. The Company expects that new services and
technologies will emerge in the market in which it competes. These new
services and technologies may be superior to the services and technologies
that the Company employs, or these new services may render its services and
technologies obsolete. To be successful, the Company must adapt to its
rapidly changing market by continually improving and expanding the scope of
services it offers and by developing new services and technologies to meet
customer needs. The Company's success will depend, in part, on its ability to
license leading technologies and respond to technological advances and
emerging industry standards on a cost-effective and timely basis.
Furthermore, the Company will need to spend significant amounts of capital to
enhance and expand its services to keep pace with changing technologies.
POSSIBLE VOLATILITY OF THE COMPANY'S STOCK PRICE COULD ADVERSELY AFFECT ITS
SHAREHOLDERS.
The market price of the Company's Common Stock is highly volatile and could
be subject to wide fluctuations in response to factors such as:
- Actual or anticipated variations in quarterly operating results or
those of competitors;
- Announcements by the Company or its competitors of technological
innovations;
- New products or services;
- Changes in financial estimates by securities analysts;
- Conditions or trends in the Internet industry;
- Changes in the market valuations of other Internet companies;
- Announcements by the Company or its competitors of significant
acquisitions;
- Strategic partnerships or joint ventures;
- Additions or departures of key personnel;
- Sales of the Company's capital stock.
Many of these factors are beyond the Company's control and may materially
adversely affect the market price of the Company's Common Stock regardless of
the Company's financial performance.
Investors may not be able to resell their shares of the Company's Common
Stock following periods of volatility because of the market's adverse
reaction to such volatility. In addition, the stock market in general, and
the market for Internet-related and technology companies in particular, has
been highly volatile. The trading prices of many Internet related and
technology companies' stocks have reached historical highs within the last 52
weeks and have reflected relative valuations substantially above historical
levels. During the same period, such companies' stocks have also been highly
volatile and have recorded lows well below such historical highs. The Company
cannot give
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<PAGE>
any assurances that its stock will trade at the same levels of other Internet
stocks or that Internet stocks in general will sustain their current market
prices.
FORWARD-LOOKING STATEMENTS
This Form 10-SB contains forward-looking statements that address, among other
things: e-commerce strategy; communications strategy; development of
services; expansion strategy; use of proceeds; projected capital
expenditures; liquidity; development of additional revenue sources;
development and expansion of alliances; market acceptance of Internet
telephony; technological advancement; ability to develop "brand" awareness
and global expansion. These statements may be found in the sections of this
Form 10-SB entitled "Business" "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in this Form
10-SB generally. Our actual results could differ materially from those
anticipated in these forward-looking statements as of result of various
factors, including all the risks discussed in "Risk Factors" and elsewhere in
this Form 10-SB.
The Company urges readers to consider that statements which use the terms
"believe," "do not believe," "expect," "plan," "intend," "estimate,"
"anticipate" and similar expressions are intended to identify forward-looking
statements. These statements reflect the Company's current views with respect
to future events and are based on assumptions and are subject to risks and
uncertainties. The Company does not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Market data and forecasts used in this Form 10-SB, including, for example,
estimates of growth in the Internet, have been obtained from independent
industry sources. Although the Company believes that these sources are
reliable, it does not guarantee the accuracy and completeness of historical
data obtained from these sources, and has not independently verified these
data. Forecasts and other forward-looking information obtained from these
sources are subject to the same qualifications and the additional
uncertainties accompanying any estimates of future market size.
THE COMPANY HAS NO PLANS TO PAY DIVIDENDS.
The Company has never declared or paid any cash dividends on its capital
stock. The Company does not anticipate paying any cash dividends on its
capital stock in the foreseeable future. The Company currently intends to
retain future earnings, if any, to finance its operations and to expand its
business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, operating results, capital requirements and other
factors that the Company's Board of Directors considers appropriate.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
PLAN OF OPERATION
The Company is projecting a loss for it's upcoming fiscal Year ending April
30, 2000. In addition, it is anticipating losses and cash flow deficits from
operations for at least the next 12 months. It is expected that this loss and
cash flow deficit will be caused primarily by:
- development completion costs
- startup, including personnel, costs
- marketing costs
- content acquisition and development costs
The Company estimates that a total of $9,063,000 will be spent on the
aforementioned categories. The amount projected to be spent on each category
is as follows:
Technical Development Costs,
including hardware and software $1,317,000
Start-up Costs 2,232,000
Marketing Costs 5,514,000
----------
$9,063,000
==========
These amounts exclude any revenues to be received over the next 12 months,
which are estimated to be approximately $3,000,000.
The Company launched it's art portal in October 1999 and commenced full
operations in December 1999. Contemporaneous with the launch of these
operations, the Company implemented an advertising and publicity campaign to
establish and increase awareness of the portal within it's targeted
demographic market - affluent art aficionados. Consistent with other Internet
marketing organizations, expenditures are heavily weighted in favor of the
marketing effort. The company realizes that these expenditures are necessary
in order to develop a profitable Internet operation by allowing it to compete
for brand awareness more effectively.
The Company also expects to continue searching for and developing content
that either complements or is synergistic with it's existing content. At the
present time it is difficult for the Company to determine in detail, the
nature, source or value of the content it will attempt to acquire. In the
event that the Company targets a content acquisition or licensing content
candidate, it will in all likelihood require funding in addition to the
funding required for marketing and technical development costs.
The Company does not currently have sufficient financial resources to meet
the aforementioned funding requirements. Accordingly, the Company currently
is seeking funding from outside sources. At the date of filing this Form
10-SB, the Company has no firm commitments from anyone to provide additional
funding to the Company. Any funding that is obtained may take the form of
debt or equity or a combination thereof.
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<PAGE>
Should the Company not obtain funding sufficient to successfully complete the
operating plan described above, the Company intends to respond in the
following order:
- First and immediately, reduce marketing expenditures;
- Next, reduce the size of its operations;
- Last, reduce the resources allocated to technical development.
FORWARD-LOOKING STATEMENTS
This Form 10-SB includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. This Act provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from
the projected results. All statements other than statements of historical
fact made in this Form 10-SB are forward looking. In particular, the
statements herein regarding industry prospects and future results of
operations or financial position are forward-looking statements.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. The Company's actual results may differ significantly
from management's expectations. The following discussion and the section
entitled Risk Factors, describes some, but not all, of the factors that could
cause these differences.
ADDITIONAL EMPLOYEES REQUIRED
The launch of Artstar.com has created a need for additional staffing in
the technical (inputting of content), technical development, customer service
and financial areas. While demand for Internet skill-oriented personnel is
currently high, the Company believes that with its geographic location and
implementation of incentive and fringe benefit programs, it will be able to
retain its existing staff and compete effectively for additional personnel.
YEAR 2000 COMPLIANCE
The "Year 2000 issue" results from computer systems and programs using
two digits (rather than four) to identify a given year. Computer systems that
have time sensitive software may interpret the date code "00" as the year
1900 rather than the year 2000. This could result in a major system failure
or miscalculations or other computer errors causing disruptions of
operations. The potential for failures encompasses all aspects of our
business, including our computer systems and IP network, and could cause,
among other things, disruptions in the operation of the Internet and the
Artstr.com portal and a temporary inability to engage in normal business
activities.
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<PAGE>
SHOWSTAR'S STATE OF READINESS
The Company may be affected by the Year 2000 issue related to its information
technology (IT) systems and non-IT systems operated by the Company or third
parties.
The Company's non-IT systems include:
- Internal telephone systems
- Lease office spaces
- Office equipment
The Company believes that all hardware and software acquired by it in
connection with the development of Artstar.com is Y2K compliant. However it
is currently developing and implementing testing and validation procedures
for all software, hardware and other IT and non-IT systems that it believes
may be affected by Year 2000 issues. The Company also believes that the IT
systems that it has developed internally to operate its business are Year
2000 compliant because all of the software code for the systems that have
been internally developed is written with four digits to define the
applicable year. It expects, prior to December 31, 1999, to resolve any Year
2000 compliance issues relating to off-the-shelf commercial software used in
its business through upgrades of its software or, when necessary, through
replacement of existing software with Year 2000 compliant applications. In
addition, the Company has begun to assess its non-IT systems which it has
identified as containing embedded technology. At this point of its
assessment, the Company is not aware of any Year 2000 issues relating to its
non-IT systems which would cause disruptions in its operations or impede our
ability to provide services to our users.
Because third parties have developed and currently support many of the
systems we use, in addition to assessing our internal systems, a significant
part of its efforts have been to ensure that externally developed IT and
non-IT systems are Year 2000 compliant. The Company has obtained confirmation
from its principal third party vendors, suppliers and service providers,
either directly or via their Web sites, that they believe they have resolved
the Year 2000 issues relating to the systems, services and products supplied
to the Company.
RISKS OF YEAR 2000 ISSUES
The Company is not currently aware of any Year 2000 compliance issues
relating to its systems that would cause disruptions in its operations or
impede its ability to provide services. Furthermore, it cannot predict the
extent to which the Year 2000 issue will affect its vendors, suppliers or
service providers, or the extent to which it would be vulnerable if such
parties fail to resolve any Year 2000 issues on a timely basis. Any failures
or disruptions could prevent users from accessing the Company's portal and
services, which could result in loss of users, lost revenues, increased
operating costs and material disruptions in the operation of its business.
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<PAGE>
INFLATION
The Company does not believe that inflation has had a significant impact on
its consolidated results of operations or financial condition.
FOREIGN CURRENCY EXPOSURE
The Company is exposed to fluctuations in foreign currencies relative to the
U.S. dollar because it collects revenues in U.S. dollars and incurs certain
costs in foreign currencies, primarily the Canadian dollar. As the Company
expands its operations, it may begin to collect revenues from customers in
currencies other than the U.S. dollar. The Company does not currently engage
in any hedging activities.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" (SOP No. 98-1). This statement is applicable to the
Company's 1999 financial statements and requires it to capitalize certain
payroll and payroll related costs and other costs that are directly related
to the development of certain of its systems. It amortizes these costs over
the anticipated life of the systems. The adoption of SOP No. 98-1 did not
have a material impact on the Company's financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities."
Statement of Position 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. The Company
expensed these costs historically and therefore the adoption of this standard
had no impact on its results of operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and
Hedging Activities," (SFAS No. 133) which establishes accounting and
reporting standards for derivative instruments and hedging activities.
Generally, it requires that an entity recognize all derivatives as either an
asset or liability and measure those instruments at fair value, as well as
identify the conditions for which a derivative may be specifically designed
as a hedge. SFAS No. 133 is effective for all fiscal years beginning after
June 15, 2000. The Company does not currently engage or plan to engage in
derivative or hedging activities and therefore there will be no material
impact to its results of operations, financial position or cash flows upon
the adoption of this standard.
FRAUD PREVENTION
With the recent substantial growth of Internet use and e-commerce, the
Internet business community has been subject to significant credit card
fraud. It has attempted to reduce its exposure to such fraud by
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introducing various advanced procedures and proprietary fraud prevention
systems that monitor and identify patterns and sources of credit card fraud
and prevent fraudulent transactions. The Company cannot assure you that it
will continue to be successful in reducing or maintaining its current level
of credit card fraud exposure.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company maintains United States headquarters and gallery operations in
2,500 square feet of space at 521 West 23rd Street, 2nd Floor in New York
City. The lease provides for $1,875 per month of minimum lease payments, plus
pro-rata share of operating expenses and taxes, and contains a term of 1
year. The Company has entered into a letter of intent to lease 8,000 square
feet in a nearby area of New York City, to which the Company intends to move
its New York City headquarters and gallery once a lease is finalized. The
Company has administrative and technical operations in 7,900 square feet of
office space at 90-10551 Shellbridge Way, Richmond, British Columbia, Canada
under non-cancelable leases expiring in July 2004. The leases provide for a
five-year lease term, minimum annual lease payments and operating expense
escalations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned by (a) each person or group known to the Company to
be the beneficial owner of more than 5% of any class of the Company's voting
securities and (b) each of the Company's directors and executive officers,
individually and as a group, as of November 30, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(1) (2) (3) (4)
Title of Class Name and Amount and Percent
Address of Nature of of Class
Beneficial Beneficial
Owner Ownership
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Punzo Family Group(1) 3,196,666(3) 10.7%
John Punzo 1,433,333 Direct(2,3) 4.8%
Surrey, B.C.
Dean Punzo 58,333 Direct(2) 0.2%
Burnaby, B.C.
Ernesto Punzo 235,000 Direct(2) 0.8%
Coquitlam, B.C.
Barry Forward 855,000 Direct 2.9%
North Vancouver, B.C.
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<PAGE>
Kenneth Linsner 500,000 Direct 1.7%
Sloatsburg , NY
Abraham Joel 500,000 Direct 1.7%
New York, NY
Gary L. Diamond 310,000 Direct 1.1%
Los Angeles, CA
John Barson 300,000 Direct 1.0%
White Rock, B.C.
All Directors and
Officers as a Group 5,061,666(2) 17.3%
</TABLE>
(1) Various members of the Punzo family have agreed to invest in and to vote
their shares of the Company's Common Stock, owned directly and indirectly, as
a group in order to influence control and direction of the Company. Members
of the group include John Punzo, Dean Punzo, Ernesto Punzo, Steve Punzo, Gino
Punzo, Lynn Evans and Emma Piccolo. The group beneficially owns, directly and
indirectly, 2,596,666 shares of Company Common Stock, or 8.9% of all
outstanding Common Stock.
(2) Excludes shares beneficially owned by other members of the Punzo Family
Group.
(3) Includes 100,000 restricted shares that become vested in the next 60 days
and options on 300,000 shares that are or will become exercisable in the next
60 days.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth the names, positions with the Company and ages
of the directors and executive officers of the Company. Directors of the
Company were elected at the Company's annual meeting of stockholders in June
1999. All directors are elected at each annual meeting and serve for one year
and until their successors are elected and qualify. Officers are elected by
the Board of Directors and their terms of office are, except to the extent
governed by employment contract, at the discretion of the Board.
<TABLE>
<CAPTION>
Name of Director/Officer
Director Since Age Position(s) With Company
- ------------------------ --- -------------------------
<S> <C> <C>
John Punzo 44 (Chairman of the
January 14, 1999 Board), President & Chief
Executive Officer
Gary L. Diamond 44 Director, Chief Financial
January 7, 1999 Officer, Treasurer, Secretary
Barry Forward 40 Director, VP Communications
May 14, 1998
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John Barson 43 VP e-Commerce and
June 15, 1999 Chief Technical Officer
Kenneth J. Linsner 52 Vice President
April 14, 1999
Abraham Joel 56 Vice President
April 14, 1999
Dean Punzo 36 Director
May 14, 1998
Ernesto Punzo 54 Director
May 14, 1998
</TABLE>
JOHN PUNZO, DIRECTOR (CHAIRMAN), PRESIDENT & CHIEF EXECUTIVE OFFICER
Mr. Punzo has been the Company's President and Chief Executive Officer since
January 7, 1999. Since 1981, he has been a businessman and
entrepreneur,launching and operating several businesses, including a
successful restaurant operation in Vancouver, Canada. Mr. Punzo also has
played a key role in obtaining funding for a number of public and private
companies. In June 1997 Mr. Punzo filed for bankruptcy under Canadian
bankruptcy law as a result of one of his restaurant's local market
demographics changing adversely and the restaurant not being able to relocate
due to restrictive lease provisions. Mr. Punzo is a brother of Ernesto Punzo,
who is a director, and is an uncle of Dean Punzo, who also is a director.
GARY L. DIAMOND, DIRECTOR, CHIEF FINANCIAL OFFICER, TREASURER & SECRETARY
Mr. Diamond is a Certified Public Accountant in the State of New York and is
a qualified valuation expert in Florida. Prior to joining Showstar, Mr.
Diamond was self-employed as a financial consultant, providing transaction
advisory services. For the period from 1994 to 1997, he was chief financial
officer and treasurer of American Casino Entertainment Services, Ltd. From
1992-1994, he was chief financial officer of Nu-Image, Inc., a film
production and distribution company.
BARRY FORWARD, DIRECTOR, VICE PRESIDENT - COMMUNICATIONS
Mr. Forward is the past president of the Company and has been a director
since May 14, 1998. He has worked in the communications industry since 1983
as a consultant, programmer, on-air host and journalist. Mr. Forward has
developed Internet communications strategies for corporate clients and
non-profit groups. He also has developed several online marketing projects
and has operated his own websites since 1995.
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<PAGE>
JOHN BARSON, VICE PRESIDENT - E-COMMERCE & CHIEF TECHNICAL OFFICER
Mr. Barson was the founder and, from 1994 to 1999, served as president of
Savingsplus Internet Inc. and Shoptek e-commerce Solutions, an Internet
software developer providing end to end online electronic commerce solutions
for business. As President of Shoptek, he developed relationships with major
providers of the other components of the electronic commerce process
including major Internet providers, clearing services, banks, point of sale
and online billing services. During this period, Mr. Barson also served as an
instructor in electronic commerce at Langley College in Vancouver, B.C.,
Canada.
KENNETH J. LINSNER, VICE-PRESIDENT
Mr. Linsner has been an active self-employed art appraiser since 1970, and
has a long and illustrious client list including the Late Mrs. Aristotle
Onassis, the Rockefeller Family, the Vanderbilt Family, the Mars Family and
others. Linsner was retained in 1986 by Philippine president Corazon Aquino
to appraise the works of art purchased by the late president and Mrs. Marcos,
and to recover and sell those pieces. He also has been Appraisal Consultant
to the Imperial Palace Museum in China. A former Lecturer in Appraisal at New
York University, Ken Linsner is a senior member of the American Society of
Appraisers and a member of the Appraisers Association of America. Mr. Linsner
has agreed to join the Company's Board of Directors.
ABRAHAM JOEL, VICE PRESIDENT
Mr. Joel is a New York City based conservation and restoration expert, having
operated Fine Arts Conservation studio since 1984. Under Mr. Joel's
leadership, the studio specializes in a variety of art works, including old
masters, 19th Century and contemporary paintings, prints, drawings and
manuscripts. For seven years he was head of the Conservation Services
Laboratory at the Detroit Institute of Arts. At the Institute he directed and
expanded the conservation facility and was responsible for the care and
transportation of numerous international exhibitions. Prior to joining the
Company, Mr. Joel was self-employed. Mr. Joel is a member of the
International Institute of Conservators, as well as the American Institute of
Conservators. Mr. Joel has also agreed to join the Company's Board of
Directors.
ERNESTO PUNZO, DIRECTOR
Mr. Punzo is an entrepreneur and independent business owner who has started
several successful business ventures in Vancouver, Canada. He is currently
the chief executive officer of a company operating hair salons in the
Vancouver area. He has been a director of the Company since May 14, 1998
and is a brother of John Punzo.
DEAN PUNZO, DIRECTOR
Mr. Punzo has been part of the management team that has operated a fine
dining establishment in Vancouver, Canada. Most recently, he also has been
active in the Internet business, developing websites for third
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<PAGE>
parties. Mr. Punzo has been a director of the Company since May 14, 1998
and is a nephew of John and Ernesto Punzo.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate annual remuneration of the
Company's Chief Executive Officer and (unless it does not exceed $100,000) of
each of the four other most highly compensated executive officers
(collectively, the "named executive officers"), and of all officers and
directors as a group, as of April 30, 1999, our most recent and only
meaningful fiscal year end.
<TABLE>
<CAPTION>
Long-Term Comp
Annual Compensation Awards All
Name and ----------------------------- ---------------- Other
Principal Position Salary Bonus Other Res.Stk Options Comp
- ------------------ ---------- ----- ---------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
John Punzo 0(1) 0 $ 97,167(2) 0 0 0
Chief Executive
Officer
Gary L. Diamond $50,000(3) 0 $128,000(4) 0 0 0
Chief Financial
Officer
All Officers and $50,000(3) 0 $225,167 0 0 0
Directors as a
Group(2)
</TABLE>
(1) Mr. Punzo became President and Chief Executive Officer on January 7,
1999. During the fiscal year ended April 30, 1999, Mr. Punzo received no
compensation for his services as Chief Executive Officer and Director.
(2) Prior to becoming Chief Executive Officer, Mr. Punzo, or companies he
owned an interest in, received fees for providing various investor relations
and advisory services to the Company. These fees aggregated $97,167 in the
fiscal year ended April 30, 1999.
(3) Includes (a) $20,000 of fees received by Mr. Diamond for part-time
financial services performed for the Company prior to commencing full-time
employment with the Company and (b) $30,000 in salary received by Mr.
Diamond during the fiscal year ended April 30, 1999.
(4) Reflects the value at $0.32 per share of 400,000 shares of the Company's
Common Stock granted to Mr. Diamond as an inducement to join the Company.
EMPLOYMENT AGREEMENTS
In the first quarter (ended July 31, 1999) of the current fiscal year, the
Company executed employment agreements with Messrs. Punzo, Barson, Joel and
Linsner. The agreements are filed as exhibits to this Form 10-SB. The
following summaries of the agreements are qualified in their entirety by the
terms of the actual agreements, which are incorporated herein by reference.
26
<PAGE>
JOHN PUNZO executed an employment agreement with the Company, effective May
27, 1999, that provides for base salary of $150,000 per annum, a restricted
stock award of 1,000,000 shares that vests at the rate of 100,000 shares
every three months and stock options on 1,000,000 shares exercisable at $.50
per share that vest at the rate of 100,000 shares every three months. The
agreement is for an initial term of five years followed by automatic annual
renewals unless terminated at the end of any term by 90 days' prior written
notice from either party to the other.
JOHN BARSON executed an employment contract with the Company to serve for up
to three years as Chief Technical Officer of the Company. The agreement
provides for a base salary of CAN$120,000 per annum, which is equivalent to
US$84,000 based upon an exchange rate of $0.70. Pursuant to such employment
agreement, Mr. Barson also received 300,000 shares of the Company's Common
Stock in July 1999. The agreement further provides that Mr. Barson shall
receive another 200,000 shares of Common Stock upon the first anniversary of
his employment (March 2000), and options at $.50 and $1.00 to acquire another
150,000 shares on each subsequent anniversary of his employment.
ABRAHAM JOEL executed an employment agreement effective July 1999 that
provides for base annual compensation of US$120,000. In addition, Mr. Joel
received 500,000 shares of Company Common Stock as an incentive to join the
Company. The agreement provides for a term of 3 years and stock options on
250,000 shares.
KENNETH LINSNER executed an employment agreement effective July 1999 that
provides for base annual compensation of US$120,000. In addition, Mr. Linsner
received 500,000 shares of Company Common Stock as an incentive to join the
Company. The agreement provides for a term of 3 years and stock options on
250,000 shares.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended April 30, 1999, the Company paid $97,167 in
fees to John Punzo and a company in which he had an interest for investor
relations and advisory services to the Company. The Company also issued
119,600 common shares valued at $89,700 to that company as payment for
assisting the Company in its private stock placements during the year ended
April 30, 1999. The $89,700 has been deducted from the proceeds of the
placements as placement costs on the Company's financial statements.
During the fiscal year ended April 30, 1999, Flavio Bidese, Steve Punzo and
Bonnie Klassen, members of John and Gino Punzo's family, transferred
1,515,000 shares of the Company's Common Stock owned by them to various
companies and individuals in satisfaction of services rendered to the
Company. In connection therewith, the Company recorded an expense of $466,500
and included such amount in "Indebtedness to Related Parties" as of April 30,
1999.
During the fiscal year ended April 30, 1999, Gino Punzo, a director of the
Company until January 1999, advanced $40,300 for working capital and CAFE DE
MEDICI, a restaurant owned by Gino Punzo, provided meeting and catering
services to the Company. These services were valued at
27
<PAGE>
approximately $8,084. These amounts were included in "Indebtedness to Related
Parties" as of April 30, 1999.
During the year ended April 30, 1998, the Company's subsidiary received
$15,500 for working capital advances from a company owned by Barry Forward, a
director and executive officer of the Company. Also during the year ended
April 30, 1998 the Company received $12,000 from John Wardlow, a former
officer and director of the Company, of which the Company repaid $5,000
during the year ended April 30, 1999. Also during the year ended April 30,
1998, Mr. Forward forgave the $15,500 received for working capital advances.
Amounts accrued and unpaid totaling $7,000 are included in "Indebtedness to
Related Parties" as of April 30, 1999.
The Company's Nevada subsidiary, Showstar Entertainment Corporation, entered
into two different management contracts with Gordon Thompson, a former
officer, and Mr. Forward, whereby the subsidiary would pay these officers
$5,000 each per month commencing June 1, 1997 (as amended) for a period of
five years. Amounts accrued but unpaid totaling $65,000 are included in
"Indebtedness to Related Parties" as of April 30, 1998. During the fiscal
year ended April 30, 1999, Mr. Thompson entered into a settlement agreement
with the Company which provided for the cancellation of indebtedness of
$35,000, which is reflected as a reduction of administrative costs for the
year ended April 30, 1999. The remaining $30,000 is included as a liability
owing to Mr. Forward as of April 30, 1999.
ITEM 8. DESCRIPTION OF SECURITIES
Set forth below is a summary of the material provisions of the Company's
capital stock. This summary does not purport to be complete and is qualified
in its entirety by the terms of the Company's articles of incorporation and
bylaws, copies of which are filed as exhibits to this Form 10-SB and are
hereby incorporated by reference, and applicable provisions of Colorado law.
COMMON STOCK
GENERAL
The Company is authorized to issue up to 50,000,000 shares of its common
stock, no par value per share ("Common Stock"). At December 31, 1999, there
were 30,029,327 shares of Common Stock issued and outstanding.
The rights of holders of Common Stock are subject to the rights of holders of
any Preferred Stock that may be issued in the future. All outstanding shares
of Common Stock are duly authorized, validly issued, fully paid and
nonassessable. Upon liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all net assets
available for distribution to stockholders after payment to creditors. The
Common Stock is not redeemable and has no preemptive or conversion rights.
28
<PAGE>
VOTING RIGHTS
Holders of the Company's Common Stock are entitled to one vote per share on
all matters submitted for stockholder vote, except matters submitted to the
vote of another class or series of shares. Holders of a majority of shares
entitled to vote constitute a quorum and action is taken by a plurality of
votes cast.
DIVIDENDS
Holders of Common Stock are entitled to receive dividends out of assets
legally available for this purpose at the times and in the amounts as the
Board of Directors may from time to time determine. Holders of Common Stock
will share equally on a per share basis in any dividend declared by the Board
of Directors, subject to any preferential rights of any outstanding Preferred
Stock. Dividends consisting of shares of Common Stock may be paid only as
follows: (1) shares of Common Stock may be paid only to holders of Common
Stock; and (2) the number of shares so paid must be equal on a per share
basis with respect to each outstanding share of Common Stock.
The Company has not paid any dividends on its Common Stock and does not
anticipate paying any cash dividends on such stock in the foreseeable future.
See the section of Part I of this Form 10-SB entitled "The Company Has No
Plans to Pay Dividends" for more information.
MERGER OR CONSOLIDATION
In the event of a merger or consolidation, holders of Common Stock will vote
as a class, if a vote is required, with a vote of a majority of the shares
entitled to vote being necessary for approval. In any merger or
consolidation, holders of Common Stock must be treated equally per share.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred stock,
no par value per share ("Preferred Stock"). At December 31, 1999 and
presently, there are no outstanding shares of Preferred Stock.
The Board of Directors is empowered, without approval of the shareholders, to
cause shares of Preferred Stock to be issued from time to time in one or more
series, and the Board of Directors may fix the number of shares of each
series and the designation, powers, privileges, preferences and rights and
the qualifications, limitations and restrictions of the shares of each series.
The matters our Board of Directors may determine in connection with a series
of Preferred Stock include: designation of each series; the number of shares
of each series; the rate of any dividends; whether any dividends shall be
cumulative or non-cumulative; the terms of any redemption provisions; the
amount payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of affairs of the Company; the rights and terms of
any conversion or exchange features; any restrictions on the issuance of
shares of the same series or any other series; any voting rights.
29
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.
The Company's Common Stock is traded on the Over-the-Counter Bulletin Board
(OTCBB) market under the symbol "ABID" (prior to May 1999, the symbol was
"SHST"). The following table sets forth the high and low bid prices for the
Company's Common Stock during each quarter, as reported by Bloomberg LP.
<TABLE>
<CAPTION>
Quarter Ending High Bid Low Bid
-------------- -------- --------
<S> <C> <C>
July 31, 1998 $1.28 $0.75
October 31, 1998 $1.21 $0.36
January 31, 1999 $0.61 $0.10
April 30, 1999 $0.62 $0.26
July 31, 1999 $1.01 $0.44
October 31, 1999 $1.89 $0.64
</TABLE>
As of December 31, 1999, there were 184 holders of record of the Company's
Common Stock.
The Company never has paid, and has no present intention to pay in the
future, any dividends on its Common Stock. See "Dividend Policy" under Item
1, Description of Business, in Part I hereof.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
At December 31, 1999 there were 30,029,327 shares of Common Stock issued and
outstanding. Those shares were issued as follows.
In or about May 1996, a total of 1,800,000 shares of Common Stock was sold
for a total of $900 to twenty seven investors. The Company's majority
shareholder following the sale was Casa Bella Holdings Inc. controlling
1,710,000 shares. All of the shares of Common Stock were issued in reliance
on the exemption provided by Section 4(2) of the Securities Act of 1933, as
amended, or by Rule 504. Form D dated April 8, 1996 relating to the Rule 504
placement was filed with the Securities and Exchange Commission.
On March 21, 1998, the Company completed a private placement of 2,523,000
shares of Common Stock in consideration of $2,523 to eight accredited
investors in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act.
30
<PAGE>
On April 3, 1998, the Company completed the sale of 6,185,000 shares of
Common Stock in consideration of $6,185 to 12 investors made in reliance upon
Rule 504. Form D dated April 3, 1998 relating to the Rule 504 placement was
filed with the Securities and Exchange Commission.
On April 27, 1998, pursuant to a share exchange agreement of such date, the
Company issued 3,367,000 share of Common Stock to shareholders of Showstar
Entertainment Corporation, a Nevada corporation, in exchange for 3,367,000
shares of the new subsidiary's restricted common stock. The transaction was
done in reliance upon the exemption provided by Section 4(2).
On August 20, 1998, the Company completed the sale of 771,133 shares of
Common Stock in consideration of $578,350 to 32 investors in reliance upon
Rule 504. Form D dated August 20, 1998 relating to the Rule 504 placement was
filed with the Securities and Exchange Commission. In addition, on the same
date, the Company issued an additional 119,600 shares of Common Stock to an
accredited investor and consultant in consideration for services provided in
connection with the placement valued at $89,700; these additional shares were
reported on the same Form D relating to the Rule 504 placement.
Pursuant to an agreement dated August 25, 1998, the Company issued 999,066
shares to shareholders of the Company's Nevada subsidiary in exchange for
999,066 shares of the subsidiary's restricted common stock. This gave the
Company 100% ownership of the Nevada operating subsidiary. The transaction
was done in reliance upon the exemption provided by Section 4(2).
On November 20, 1998 the Company issued a $60,000 principal amount 8% Series
A Senior Subordinated Convertible Redeemable Debenture to an accredited
investor in reliance upon the exemption from registration afforded by Section
4(2). The Debenture was converted by the investor in three parts on November
28, 1998, December 15, 1998 and January 4, 1999. In accordance with the
conversion terms of the Debenture, the Company issued 98,039, 160,000 and
66,667 shares of Common Stock respectively. Issuance of the shares was made
in reliance upon the exemption provided by Section 3(9).
On January 21, 1999, the Company sold 2,422,120 shares of Common Stock in
consideration of $212,630 to 12 investors in reliance upon Rule 504. Form D
dated January 21, 1999 relating to the Rule 504 placement was filed with the
Securities and Exchange Commission.
On March 3, 1999, the Company sold 260,000 shares of Common Stock in
consideration of $52,000 to 2 investors in reliance upon Rule 504. Form D
dated March 3, 1999 relating to the Rule 504 placement was filed with the
Securities and Exchange Commission.
During calendar year 1999 the Company placed shares of its Common Stock with
accredited investors in the following amounts and on the following dates in
reliance upon the exemption provided by Section 4(2):
31
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Date Shares Consideration Accred. Investors
---- --------- ------------- ------------------
<S> <C> <C> <C>
April 15, 1999 40,000 $10,000 1
April 18, 1999 896,000 $224,000 1
May 4, 1999 307,143 $107,500 1
May 7, 1999 1,150,000 $402,480 1
May 25, 1999 230,770 $150,000 1
June 4, 1999 400,000 begin consulting 2
June 24, 1999 20,000 $10,000 of services 1
July 8, 1999 300,000 employ agmt terms 1
July 8, 1999 1,000,000 employ agmt terms 2
July 20, 1999 200,000 begin consulting 1
August 19, 1999 1,715,000 begin consulting 7
Sept 29 -
Nov 30, 1999 2,310,455 $2,050,000 1
December 22, 1999 125,000 begin consulting 1
</TABLE>
In addition, on July 8, 1999, the Company's Board of Directors approved the
issuance of 180,000 shares of Common Stock to eight employees of the Company
as incentive gifts from the Company. These gifts were made in reliance upon
the exemption from registration afforded by the "no sale" rule.
Also during calendar year 1999, the Company placed shares of its Common Stock
with accredited investors in the following amounts and on the following dates
in transactions outside the United States and with persons who were not "U.S.
Persons":
<TABLE>
<CAPTION>
Number of Number of
Date Shares Consideration Accred. Investors
---- --------- ------------- ------------------
<S> <C> <C> <C>
July 15, 1999 1,250,000 $625,000 1
August 25, 1999 1,000,000 $500,000 2
September 28, 199 133,334 $100,000 1
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that directors and officers shall be indemnified
by the Company to the fullest extent authorized by Colorado law, as it now
exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with services for or on behalf of the
Company. The Bylaws also authorize the Company to enter into one or more
agreements with any person that provide for indemnification greater or
different from that provided in the Bylaws. To the extent that
indemnification for liabilities arising under the Securities Act may be
permitted for directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
32
<PAGE>
PART F/S
Filed as Part F/S of this registration statement on Form 10-SB are the
following financial statements:
Consolidated balance sheets of Showstar Online.com, Inc. (formerly Showstar
Entertainment Corporation) (a development stage company) and its subsidiaries
as of April 30, 1999 and October 31, 1999 (unaudited);
Related consolidated statements of operations, shareholder' equity (deficit)
and cash flows for the two year period ended April 30, 1999 and six month
period ended October 31, 1999 (unaudited) and for the period July 14, 1995
(inception) through April 30, 1999 and October 31, 1999 (unaudited); and
The Independent Auditors' Report of Cordovano and Harvey, P.C. dated August
14, 1999 relating to the audited portions of the foregoing financial
statements.
PART III
ITEM 1. INDEX TO EXHIBITS
2. Articles of Incorporation and Bylaws.
2.01 Articles of Incorporation - Cerotex Holdings, Inc.
2.02 Amendment to the Articles of Incorporation -- Name Change from Cerotex
Holdings, Inc. to Showstar Entertainment Corporation
2.03 Amendment to the Articles of Incorporation -- Name Change from Showstar
Entertainment Corporation to Showstar Online.com, Inc.
2.04 Bylaws of the Company
6. Significant Contracts.
6.01 Content Licensing Agreement with National Register Publishing, a
division of Reed Elsevier Inc.
6.02 Supplier Agreement - Leiberman's Gallery, LLP
6.03 Agreement dated October 29, 1999 regarding Proposed China Joint Venture
6.04 John Punzo Employment Contract dated May 27, 1999.
6.05 Kenneth Jay Linsner Employment Contract dated April 14, 1999.
6.06 Abraham Joel Employment Contract dated April 14, 1999.
6.07 Connie Vick Employment Contract dated September 23, 1999.
6.08 John Barson Employment Contract dated August 30, 1999.
33
<PAGE>
6.09 David Udow Employment Contract dated March 15, 1999.
27. Financial Data Schedule.
ITEM 2. DESCRIPTION OF EXHIBITS
See the descriptions provided above.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
SHOWSTAR ONLINE.COM, INC.
--------------------------
(Registrant)
By: JOHN PUNZO
-----------------------
John Punzo,
Chairman, President
and Chief Executive
Officer
Date: January 11, 2000
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(Formerly Showstar Entertainment Corporation)
(A Development Stage Company)
Index to Consolidated Financial Statements
As of April 30, 1999 and October 31, 1999 (Unaudited)
For the years ended April 30, 1999 and 1998
For the period from July 14, 1995 (inception) through April 30, 1999
For the six months ended October 31, 1999 and 1998 (Unaudited)
For the period from July 14, 1995 (inception) through October 31,
1999 (Unaudited)
<TABLE>
<CAPTION>
Page
-------------
<S> <C>
Independent Auditors' Report.................................................................................... F-2
Consolidated Balance Sheets..................................................................................... F-3
Consolidated Statements of Operations........................................................................... F-4
Consolidated Statement of Shareholders' Equity (Deficit)........................................................ F-5
Consolidated Statements of Cash Flows........................................................................... F-6
Notes to Consolidated Financial Statements...................................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Showstar On-Line.com, Inc. (Formerly Showstar Entertainment Corporation)
We have audited the accompanying consolidated balance sheet of Showstar
On-Line.com, Inc. (formerly Showstar Entertainment Corporation) (a development
stage company) and its subsidiaries as of April 30, 1999 and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the two year period then ended and for the period July 14, 1995
(inception) through April 30, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Showstar
On-Line.com, Inc. (formerly Showstar Entertainment Corporation) and its
subsidiaries as of April 30, 1999 and the results of their operations and their
cash flows for the two year period then ended and for the period July 14, 1995
(inception) through April 30, 1999 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note A to the
consolidated financial statements, the Company has a substantial dependence on
the success of its development stage activities, significant losses since
inception, lack of liquidity and a working capital deficiency at April 30, 1999.
These factors raise a substantial doubt about the ability of the Company to
continue as a going concern. Management's plans in regard to these matters are
also described in Note A. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/
Cordovano and Harvey, P.C.
Denver, Colorado
August 14, 1999
F-2
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, 1999 October 31, 1999
------------------- ------------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash .......................................................................... $ 15,737 $ 1,011,260
Accounts receivable, former employee .......................................... 4,400 --
Prepaid expenses .............................................................. 10,923 25,500
----------- -----------
TOTAL CURRENT ASSETS ................................................... 31,060 1,036,760
EQUIPMENT AND FURNITURE, less $93 and $67,917 (unaudited) of
accumulated depreciation (Note C) ............................................. 11,891 800,893
INTANGIBLE ASSETS, less $108 and $668 (unaudited) of
accumulated amortization ...................................................... 5,492 4,932
----------- -----------
$ 48,443 $ 1,842,585
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable, trade ....................................................... $ - $ 75,691
Accrued expenses .............................................................. 58,701 --
Accrued stock compensation (Notes B and E) .................................... 760,275 242,775
Accrued interest payable ...................................................... 7,500 --
Due to related party (Note B) ................................................. 557,384 557,384
Advances payable (Note G) ..................................................... 210,500 110,500
----------- -----------
TOTAL CURRENT LIABILITIES .............................................. 1,594,359 986,350
----------- -----------
COMMITMENTS (NOTE I) ............................................................... -- --
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value, 5,000,000 shares
authorized, -0- and -0-, respectively issued and outstanding ............... -- --
Common stock, no par value, 50,000,000 shares
authorized, 18,771,625 and 29,316,092, respectively issued and outstanding . 1,665,255 7,169,555
Contributed capital ........................................................... 3,500 3,500
Outstanding common stock options .............................................. 239,750 239,750
Cumulative translation adjustments ............................................ (1,206) (1,206)
Deficit accumulated during development stage .................................. (3,453,216) (6,555,364)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) ................................... (1,545,917) 856,235
----------- -----------
$ 48,443 $ 1,842,585
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
July 14, 1995
For the Years Ended (Inception)
April 30, through
--------------------------------
1999 1998 April 30, 1999
------------------- -------------- --------------
<S> <C> <C> <C>
OPERATING EXPENSES
Stock based compensation (Note E) ........................................ $ 1,000,025 $ -- $ 1,000,025
Consulting ............................................................... 103,686 -- 103,686
Investor relations, related party (Note B) ............................... 107,067 -- 107,067
Investor relations ....................................................... 130,569 -- 130,569
Web-sit set up ........................................................... 18,303 -- 18,303
Professional fees ........................................................ 86,956 5,000 91,956
Consulting fees paid by shareholders (Note B) ........................... 466,500 -- 466,500
Travel and entertainment ................................................. 29,716 -- 29,716
Depreciation and amortization ............................................ 67,509 -- 67,509
General & administrative ................................................. 12,421 36 20,771
Advertising, marketing and selling ....................................... 13,500 -- 13,500
Technical development .................................................... 31,021 -- 31,021
------------ ------------ ------------
TOTAL OPERATING EXPENSES .......................................... (2,067,273) (5,036) (2,080,623)
OTHER (EXPENSE)
Interest ................................................................. (28,000) -- (28,000)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES ...................... (2,095,273) (5,036) (2,108,623)
INCOME TAXES (Note F)
Current .................................................................. 781,537 969 786,516
Deferred ................................................................. (1,283,070) (969) (1,288,049)
------------ ------------ ------------
NET LOSS FROM CONTINUING OPERATIONS ............................... (2,596,806) (5,036) (2,610,156)
DISCONTINUED OPERATIONS (Note A)
Net loss from entertainment division operations,
net of $137,000, $9,773 and $73,727 and $155,937 in income taxes ....... (230,293) -- (230,293)
Loss on disposal of entertainment division,
net of $364,533 in income taxes ........................................ (612,767) -- (612,767)
------------ ------------ ------------
NET LOSS .......................................................... $ (3,439,866) $ (5,036) $ (3,453,216)
============ ============ ============
NET LOSS PER COMMON SHARE:
Basic - continuing operations ............................................ $ (0.16) *
Diluted - continuing operations .......................................... $ (0.16) *
Basic - discontinued operations .......................................... $ (0.05) *
Diluted - discontinued operations ........................................ $ (0.05) *
NUMBER OF SHARES USED FOR COMPUTING NET LOSS PER SHARE:
Basic .................................................................... 15,906,801 2,525,667
Diluted .................................................................. 15,906,801 2,525,667
</TABLE>
<TABLE>
<CAPTION>
July 14, 1995
For the Six Months Ended (Inception)
October 31, through
-------------------------------
1999 1998 October 31, 1999
------------------ --------------- ---------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
OPERATING EXPENSES
Stock based compensation (Note E) ........................................ $ 1,364,800 $ 81,525 $ 2,364,825
Consulting ............................................................... 318,342 37,296 422,028
Investor relations, related party (Note B) ............................... -- 107,067 107,067
Investor relations ....................................................... 47,687 79,289 178,256
Web-sit set up ........................................................... 35,235 -- 53,538
Professional fees ........................................................ 53,976 46,292 145,932
Consulting fees paid by shareholders (Note B) ........................... -- -- 466,500
Travel and entertainment ................................................. 119,064 2,162 148,780
Depreciation and amortization ............................................ 68,384 36,674 135,893
General & administrative ................................................. 657,964 5,292 678,735
Advertising, marketing and selling ....................................... 247,638 -- 261,138
Technical development .................................................... 134,290 -- 165,311
------------ ------------ ------------
TOTAL OPERATING EXPENSES .......................................... (3,047,380) (395,597) (5,128,003)
OTHER (EXPENSE)
Interest ................................................................. (4,000) -- (32,000)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES ...................... (3,051,380) (395,597) (5,160,003)
INCOME TAXES (Note F)
Current .................................................................. 1,138,165 154,283 1,924,681
Deferred ................................................................. (1,147,938) (592,543) (2,445,151)
------------ ------------ ------------
NET LOSS FROM CONTINUING OPERATIONS ............................... (3,061,153) (833,857) (5,680,473)
DISCONTINUED OPERATIONS (Note A)
Net loss from entertainment division operations,
net of $137,000, $9,773 and $73,727 and $155,937 in income taxes ....... (40,995) (141,438) (262,124)
Loss on disposal of entertainment division,
net of $364,533 in income taxes ........................................ -- (612,767) (612,767)
------------ ------------ ------------
NET LOSS .......................................................... $ (3,102,148) $ (1,588,062) $ (6,555,364)
============ ============ ============
NET LOSS PER COMMON SHARE:
Basic - continuing operations ............................................ $ (0.13) $ (0.06)
Diluted - continuing operations .......................................... $ (0.13) $ (0.06)
Basic - discontinued operations .......................................... * $ (0.05)
Diluted - discontinued operations ........................................ * $ (0.05)
NUMBER OF SHARES USED FOR COMPUTING NET LOSS PER SHARE:
Basic .................................................................... 23,475,940 14,504,933
Diluted .................................................................. 23,475,940 14,504,933
</TABLE>
*Less than $.01 per share
See accompanying notes to consolidated financial statements
F-4
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Peferred Stock Common Stock
----------------------------- --------------------
Shares Amount Shares Amount
--------------- ------------ -------- --------
<S> <C> <C> <C> <C>
BALANCE, July 14, 1995 (inception) -- $ -- -- $ --
Issuance of preferred stock for cash .......................................... 350,000 3,500 -- --
----------- ----------- ----------- ---------
BALANCE AS OF APRIL 30, 1996 350,000 3,500 -- --
Sale of common stock, pursuant to private offering ............................ -- -- 1,800,000 900
NET LOSS FOR THE YEAR ENDED APRIL 30, 1997 -- -- -- --
----------- ----------- ----------- ---------
BALANCE AS OF APRIL 30, 1997 350,000 3,500 1,800,000 900
Sale of common stock, pursuant to private offering ............................ -- -- 2,523,000 2,523
Sale of common stock, pursuant to private offering ............................ -- -- 6,185,000 6,185
Issuance of common stock for outstanding shares of subsidiary ................. -- -- 3,367,000 3,367
Return and cancellation of preferred stock .................................... (350,000) (3,500) -- --
NET LOSS FOR THE YEAR ENDED APRIL 30, 1998 -- --
----------- ----------- ----------- ----------
BALANCE AS OF APRIL 30, 1998 -- -- 13,875,000 12,975
Issuance of common stock for outstanding shares of subsidiary ................. -- -- 999,066 749,300
Sale of common stock, pursuant to private offering, net of $89,700 offering
costs ............................ -- -- 890,733 578,350
Sale of common stock, pursuant to private offering ............................ -- -- 2,682,120 264,630
Outstanding stock options, 350,000 ............................................ -- -- -- --
Conversion of debenture for common stock ...................................... -- -- 324,706 60,000
Comprehensive loss
Net loss for the year ended April 30, 1999 .............................. -- -- -- --
Cumulative translation adjustment ....................................... -- -- -- --
Comprehensive loss ............................................................ -- -- -- --
----------- ----------- ----------- ---------
BALANCE AS OF APRIL 30, 1999 -- -- 18,771,625 1,665,255
Sale of common stock, pursuant to private offering,
net of $47,000 in offering costs (unaudited) ................................. -- -- 6,422,324 3,514,500
Stock issued for services valued at market price of stock (unaudited) ......... -- -- 2,335,000 1,132,600
Stock issued to employees valued at market price of stock (unaudited) ........ -- -- 430,000 232,200
Stock issued to employees for accrued stock compensation (unaudited) .......... -- -- 1,050,000 517,500
Stock issued for payment of third party advances (unaudited) .................. -- -- 307,143 107,500
Comprehensive loss
Net loss for the six months ended October 31, 1999(unaudited) ........... -- -- -- --
Cumulative translation adjustment (unaudited) ........................... -- -- -- --
Comprehensive loss (unaudited) ................................................ -- -- -- --
----------- ----------- ----------- ---------
BALANCE AS OF OCTOBER 31, 1999 (Unaudited) -- $ -- 29,316,092 $7,169,555
=========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Defict Translation Adj
Outstanding Accumulated Other
Contributed Common Stock During Comprehensive
Capital Options Dev. Stage Income (Loss) Total
---------------- ------------ ------------ ---------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, July 14, 1995 (inception) $ -- $ -- $ -- $ -- $ --
Issuance of preferred stock
for cash ............................................... -- -- -- -- 3,500
----------- ----------- ----------- ----------- -----------
BALANCE AS OF APRIL 30, 1996 ............... -- -- -- -- 3,500
Sale of common stock, pursuant to
private offering ...................................... -- -- -- -- 900
NET LOSS FOR THE YEAR ENDED APRIL 30, 1997 -- -- (8,314) -- (8,314)
----------- ----------- ----------- ----------- -----------
BALANCE AS OF APRIL 30, 1997 .............. -- -- (8,314) -- (3,914)
Sale of common stock, pursuant to
private offering ...................................... -- -- -- -- 2,523
Sale of common stock, pursuant to
private offering ...................................... -- -- -- -- 6,185
Issuance of common stock for outstanding
shares of subsidiary .................................. -- -- -- -- 3,367
Return and cancellation of preferred stock .............. 3,500 -- -- -- --
NET LOSS FOR THE YEAR ENDED APRIL 30, 1998 (5,036) (5,036)
----------- ----------- ----------- ----------- -----------
BALANCE AS OF APRIL 30, 1998 ............. 3,500 -- (13,350) -- 3,125
Issuance of common stock for outstanding
shares of subsidiary ................................... -- -- -- -- 749,300
Sale of common stock, pursuant to private
offering, net of $89,700 offering costs ................ -- -- -- -- 578,350
Sale of common stock, pursuant to private
offering ............................................... -- -- -- -- 264,630
Outstanding stock options, 350,000 ...................... -- 239,750 -- -- 239,750
Conversion of debenture for common stock ................ -- -- -- -- 60,000
Comprehensive loss
Net loss for the year ended April 30, 1999 ........ -- -- (3,439,866) -- (3,439,866)
Cumulative translation adjustment ................. -- -- -- (1,206) (1,206)
-----------
Comprehensive loss ...................................... -- -- -- -- (3,441,072)
----------- ----------- ----------- ----------- -----------
BALANCE AS OF APRIL 30, 1999 .............. 3,500 239,750 (3,453,216) (1,206) (1,545,917)
Sale of common stock, pursuant to private offering,
net of $47,000 in offering costs (unaudited) ........... -- -- -- -- 3,514,500
Stock issued for services valued at market price
of stock (unaudited) ................................... -- -- -- -- 1,132,600
Stock issued to employees valued at market price
of stock (unaudited) ................................... -- -- -- -- 232,200
Stock issued to employees for accrued stock
compensation (unaudited) ............................... -- -- -- -- 517,500
Stock issued for payment of third party
advances (unaudited) ................................... -- -- -- -- 107,500
Comprehensive loss
Net loss for the six months ended October
31, 1999(unaudited) ............................ -- -- (3,102,148) -- (3,102,148)
Cumulative translation adjustment (unaudited) ..... -- -- -- -- --
-----------
Comprehensive loss (unaudited) .......................... -- -- -- -- (3,102,148)
----------- ----------- ----------- ----------- -----------
BALANCE AS OF OCTOBER 31, 1999 (Unaudited) $ 3,500 $ 239,750 $(6,555,364) $ (1,206) $ 856,235
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 14, 1995
For the Years Ended July 14, 1995 For the Six Months Ended (Inception)
April 30, (Inception) October 31, through
------------------- through ------------------- October 31,
1999 1998 April 30, 1999 1999 1998 1999
------------ --------- --------- ------------ --------- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES ................
NET LOSS ............................ $(3,439,866) $ (5,036) $(3,453,216) $(3,102,148) $(1,388,062) $(6,555,364)
Transactions not requiring cash:
Depreciation
and amortization ............... 67,509 -- 67,509 68,384 36,674 135,893
Expenses paid by
principal shareholder .......... 466,500 -- 466,500 -- -- 466,500
Gain on forgiveness
of debt, related party
(Note B) ....................... (50,500) -- (50,500) -- -- (50,500)
Loss on disposal of
discontinued operations ........ 977,300 -- 977,300 -- 977,300 977,300
Write off of accounts
receivable ..................... 4,556 -- 4,556 -- -- 4,556
Stock compensation
expense ........................ 1,000,025 -- 1,000,025 1,364,800 81,525 2,364,825
Changes in current assets
and current liabilities:
Accounts receivable,
inventory and prepaid
expenses ....................... 3,706 -- 3,706 (10,177) 20,586 (6,471)
Accounts payable and
accrued expenses ............... 20,209 5,000 29,159 16,990 (34,250) 46,149
----------- ----------- ----------- ----------- ----------- -----------
NET CASH (USED IN)
OPERATING ACTIVITIES .......... (950,560) (36) (954,960) (1,662,151) (506,227) (2,617,111)
----------- ----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of
equipment ...................... 10,000 -- 10,000 -- -- 10,000
Cash acquired with
acquisition of
Showstar/Nucom ................. -- 20,815 20,815 -- -- 20,815
Purchases of property
and equipment and
domain name .................... (53,300) -- (53,300) (856,826) (36,481) (910,126)
----------- ----------- ----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES .......... (43,300) 20,815 (22,485) (856,826) (36,481) (879,311)
----------- ----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from advances,
related parties (Note B) ....... 40,300 -- 40,300 -- -- 40,300
Proceeds from advances
(Note G) ....................... 102,500 -- 102,500 -- -- 102,500
Repayments of advances,
related parties (Note B) ....... (5,000) -- (5,000) -- (5,000) (5,000)
Cash paid for stock
offering costs ................. -- -- -- (47,000) -- (47,000)
Proceeds from issuance
of preferred stock ............. -- -- 3,500 -- -- 3,500
Proceeds from issuance
of common stock ................ 790,980 8,708 800,588 3,561,500 578,350 4,362,088
Proceeds from issuance
of convertible debenture ....... 52,500 -- 52,500 -- -- 52,500
----------- ----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES .......... 981,280 8,708 994,388 3,514,500 573,350 4,508,888
----------- ----------- ----------- ----------- ----------- -----------
CUMULATIVE TRANSLATION
ADJUSTMENT .......................... (1,206) -- (1,206) -- -- (1,206)
NET CHANGE IN CASH ........... (13,786) 29,487 15,737 995,523 30,642 1,011,260
Cash, beginning of period ........... 29,523 36 -- 15,737 36 --
----------- ----------- ----------- ----------- ----------- -----------
CASH, END OF PERIOD .......... $ 15,737 $ 29,523 $ 15,737 $ 1,011,260 $ 30,678 $ 1,011,260
=========== =========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest ......... $ 5,000 $ -- $ 5,000 $ -- $ -- $ 5,000
=========== =========== =========== =========== =========== ===========
Cash paid for income
taxes .......................... $ -- $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
3,367,000 shares of
common stock issued
for acquisition
of subsidiary (Note D) ....... $ -- $ 3,367 $ 3,367 $ -- $ -- $ 3,367
=========== =========== =========== =========== =========== ===========
999,066 shares of
common stock issued for
acquisition
of subsidiary (Note D) ...... $ 749,300 $ -- $ 749,300 $ -- $ -- $ 749,300
=========== =========== =========== =========== =========== ===========
307,143 shares of common
stock issued for payment
of advances .................... $ -- $ -- $ -- $ 107,500 $ -- $ 107,500
=========== =========== =========== =========== =========== ===========
2,765,000 shares of common
stock issued for compensation .. $ -- $ -- $ -- $ 1,364,800 $ -- $ 1,364,800
=========== =========== =========== =========== =========== ===========
1,050,000 shares of common
stock issued for payment
of accrued stock
compensation ................... $ -- $ -- $ -- $ 517,500 $ -- $ 517,500
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE A: ORGANIZATION, BUSINESS, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION
Showstar Online.com, Inc. (the "Company") was incorporated under the laws of
Colorado as Cerotex Holdings, Inc. on July 14, 1995. On April 27, 1998 the
Company changed its name to Showstar Entertainment Corporation and on June 25,
1999 changed its name to Showstar Online.com, Inc. The Company was formed to
engage in the business of developing computer based real estate investment
programs. However, since its inception, the Company has engaged solely in
organizational activities, developing business segments related to the
entertainment industry and internet website development and, the sale of its no
par value preferred and common stock. The Company has been in the development
stage since its inception.
On March 19, 1998, new shareholders gained control of the Company and effected
an agreement, dated April 23, 1998, with the shareholders of Showstar
Entertainment Corporation (formerly Nucom Productions, Inc. "Showstar/Nucom")
whereby the Company would issue 3,367,000 shares of its no par value common
stock in exchange for 77% of the issued and outstanding common stock of
Showstar/Nucom. Showstar/Nucom was a development stage company in the
entertainment industry focusing on the integration of entertainment bookings,
merchandise and the creation of entertainment products. On August 28, 1998, the
Company acquired the remaining 23% of the outstanding common stock of
Showstar/Nucom. - See Note D.
NATURE OF BUSINESS - CONTINUING OPERATIONS
In May 1999, the Company began development of an Internet portal website
catering to art and collectibles. The Company's planned operation is to provide
a variety of entertainment and education products and services to those
interested in art and collectibles. As of April 30, 1999 the Company was in the
process of developing its Internet portal. No significant operations had
commenced as of April 30, 1999, therefore, the Company has remained in the
development stage.
NATURE OF BUSINESS - DISCONTINUED OPERATIONS
From April 23, 1998 to February 1999, the Company, through its wholly-owned
subsidiary, Showstar/Nucom, commenced limited operations in both merchandising
and concert event promotion. The operations of Showstar/Nucom were less than
planned principal operations, therefore the activities were accounted for as
though Showstar/Nucom was in the development stage.
F-7
<PAGE>
SHOWSTAR ONLINE.COM, INC.
-------------------------
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE A: ORGANIZATION, BUSINESS, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
NATURE OF BUSINESS - DISCONTINUED OPERATIONS, CONTINUED
In December 1998, the Company adopted a plan to abandon the operations in both
merchandising and concert events to focus on the development of e-commerce
Internet portals, primarily directed at art collectors and investors. The
Company abandoned the operations in February 1999 and sold all property and
equipment used in the discontinued abandoned operations.
The Company recorded a loss on the disposal of the discontinued operations of
$977,300. Where appropriate, the consolidated financial statements reflect the
operating results of the discontinued operations separately from continuing
operations. Operating results for the discontinued operations were:
<TABLE>
<CAPTION>
April 30,
-------------------------------------- Six months ended
1999 1998 October 31, 1999
------------------ ------------------ ----------------------
<S> <C> <C> <C>
(Unaudited)
Operating revenue......................... $ 265,416 $ - $ -
================== ================== ======================
Net loss from discontinued operations,
net of income taxes..................... $ (230,293) $ - $ (40,995)
================== ================== ======================
</TABLE>
The benefit for income taxes from operating losses generated from the
discontinued operations resulted in a net deferred tax asset, which was fully
allowed for in the deferred tax charge.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company is a development stage company
with no revenue as of April 30, 1999, and has incurred losses of $(3,439,866),
$(5,036) and $(6,555,364) for the years ended April 30, 1999 and 1998 and for
the period July 14, 1995 (inception) through October 31, 1999 (unaudited),
respectively. The Company has a lack of liquidity and a working capital
deficiency at April 30, 1999. These factors among others may indicate that the
Company will be unable to continue as a going concern for a reasonable period of
time.
F-8
<PAGE>
SHOWSTAR ONLINE.COM, INC.
-------------------------
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE A: ORGANIZATION, BUSINESS, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
BASIS OF PRESENTATION, CONTINUED
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon the planned principal
activities of its Internet portal producing sufficient cash flow to meet its
obligations on a timely basis, successfully completing additional financing and
ultimately to attain profitability. The Company plans to continue to finance its
operations with a combination of debt financing, stock sales and, in the longer
term, revenues from operations.
INTERIM FINANCIAL INFORMATION
The interim financial statements as of October 31, 1999 and the six months ended
October 31, 1999 and 1998 are unaudited, and certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
items, necessary to fairly present the financial position, results of operations
and cash flows with respect to the interim financial statements, have been
included. The results of operations for the interim period are not necessarily
indicative of the results for an entire fiscal year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE COMPANY
The Company is in the development stage in accordance with Statement of
Financial Accounting Standard (SFAS) No. 7.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Showstar
Online.com, Inc. and its wholly owned subsidiaries Showstar Entertainment
Corporation, a Nevada company that has done business as Showstar Productions,
Inc. and Showstar Online Canada, Inc. a Canadian registered company.
Substantially all activity of Showstar Entertainment Corporation is shown in the
accompanying consolidated financial statements as discontinued operations.
Showstar Online Canada, Inc. had no significant operations or accounting
transactions during the year ended April 30, 1999. All significant intercompany
balances and transactions have been eliminated in consolidation.
F-9
<PAGE>
SHOWSTAR ONLINE.COM, INC.
-------------------------
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE A: ORGANIZATION, BUSINESS, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable at April 30, 1999 are for advances due to a former employee.
All other receivables have been fully allowed for in the allowance for doubtful
accounts of $9,615.
EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, which is estimated to be three to five years.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the consolidated statements of operations.
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share" (SFAS 128). The Company adopted SFAS 128 for the
two-year period ended April 30, 1999. Under SFAS 128, net loss per share-basic
excludes dilution and is determined by dividing loss available to common
shareholders by the weighted average number of common shares outstanding during
the period. Net loss per share-diluted reflects the potential dilution that
could occur if securities and other contracts to issue common stock were
exercised or converted into common stock. As of April 30, 1999, there were
350,000 vested stock options outstanding and commitments to issue 1,725,000
common shares which were not included in the calculation net loss per
share-diluted because they were antidilutive.
F-10
<PAGE>
SHOWSTAR ONLINE.COM, INC.
-------------------------
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE A: ORGANIZATION, BUSINESS, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future income taxes.
ACCOUNTING AND TAX YEAR-END
The Company changed its year-end for financial accounting reporting and income
tax purposes from December 31 to April 30, commencing with the fiscal year
beginning May 1, 1997 and ending April 30, 1998.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation" permits the use of
either a fair value based method or the method defined in Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25") to
account for stock-based compensation arrangements. Companies that elect to use
the method provided in APB 25 are required to disclose pro forma net income and
earnings per share that would have resulted from the use of the fair value based
method. The Company has elected to continue to determine the value of
stock-based compensation arrangements under the provisions of APB 25 and,
accordingly, has included pro forma disclosures under SFAS No. 123 in Note E.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
Company has determined, based on available market information and appropriate
valuation methodologies, the fair value of its financial instruments
approximates carrying value. The carrying amounts of cash, accounts receivable,
prepaid expenses, accounts payable, accrued compensation, and other accrued
liabilities approximate fair value due to the short-term maturity of the
instruments.
F-11
<PAGE>
SHOWSTAR ONLINE.COM, INC.
-------------------------
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE A: ORGANIZATION, BUSINESS, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
INTANGIBLE ASSETS
Intangible assets consisted of goodwill associated with the acquisition of
Showstar/Nucom. The principal activities of Showstar/Nucom was the concert event
promotion and merchandising operations. Even though those operations had not
fully commenced, the Company discontinued the operations in February 1999.
Concurrent with the decision to discontinue the operations, the Company wrote
off all unamortized goodwill totaling $854,338 to loss on disposal of
discontinued operations. Remaining intangible assets consist of the cost to
acquire the domain name Artstar.com and will be amortized over sixty months.
Amortization expense for the year ended April 30, 1999 was $67,509.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of non-U.S. subsidiaries are translated to U.S. Dollars
at end-of-period exchange rates. The effects of this translation for non-U.S.
subsidiaries are reported in other comprehensive income (loss). Remeasurement of
assets and liabilities of non-U.S. subsidiaries that use a currency other than
the U.S. dollar as their functional currency are included in income as
transaction gains and losses. Income statement elements of all non-U.S.
subsidiaries are translated to U.S. Dollars at average-period exchange rates and
are recognized as part of revenues, costs and expenses. The functional currency
of the Company's foreign subsidiary is the local currency, the Canadian dollar.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted the following new accounting pronouncements for the year
ended April 30, 1999. There was no effect on the financial statements presented
from the adoption of the new pronouncements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is based on the "management" approach for reporting segments. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. SFAS No. 131 also requires
disclosure about the Company's products, the geographic areas in which it earns
revenue and holds long-lived assets, and its major customers.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits," requires additional disclosures about pension and other
post-retirement benefit plans, but does not change the measurement or
recognition of those plans.
F-12
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE A: ORGANIZATION, BUSINESS, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
requires an entity to recognize all derivatives on a balance sheet, measured at
fair value.
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This SOP requires that
entities capitalize certain internal-use software costs once certain criteria
are met.
SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 provides,
among other things, guidance on the reporting of start-up costs and organization
costs. It requires costs of start-up activities and organization costs to be
expensed as incurred.
The Company will continue to review these new accounting pronouncements over
time to determine if any additional disclosures are necessary based on evolving
circumstances.
NOTE B: RELATED PARTY TRANSACTIONS
During the year ended April 30, 1997, an officer advanced the Company $3,950, of
which was unpaid at April 30, 1997. During the year ended April 30, 1998 the
advances were repaid by the Company's subsidiary.
Amounts recorded at April 30, 1999 as due to related party totaling $557,384 are
unpaid amounts for the following:
During the year ended April 30, 1998, the Company's subsidiary received $15,500
from an affiliate for working capital advances. Also during the year April ended
April 30, 1998 the Company received $12,000 from a former officer and director
of the Company, of which the Company repaid $5,000 during the year ended April
30, 1999 and the affiliate forgave the $15,500 received for working capital
advances. Amounts accrued and unpaid totaling $7,000 are included in due to
related parties.
F-13
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE B: RELATED PARTY TRANSACTIONS, CONTINUED
The Company's subsidiary, Showstar/Nucom entered into a management contract with
a former officer and director of the Company, whereby the subsidiary would pay
the former officer $5,000 per month, each commencing January 1, 1997,
subsequently amended to June 1, 1997 and terminating in five years. The board of
directors and the former officer mutually terminated the agreement effective
August 26, 1998. The former officer forgave $35,000, related to the contract,
due from the Company.
Showstar/Nucom entered into a management contract with an officer and director
of the Company, whereby the subsidiary would pay the officer $5,000 per month,
each commencing January 1, 1997, subsequently amended to June 1, 1997 and
terminating in five years. The board of directors and the officer mutually
terminated the agreement effective August 26, 1998, at which time the Company
owed the officer $30,000 for services rendered pursuant to the management
contract. The officer also advanced the Company $5,500 for working capital
during the year ended April 30, 1999. Amounts accrued and unpaid totaling
$35,500 are included in due to related parties.
During the year ended April 30, 1999 an officer advanced the Company $40,300 for
working capital. An entity controlled by the officer provided meals on behalf of
the Company totaling $8,084. $48,384 is included in current liabilities as due
to related parties.
During the year ended April 30, 1999, three shareholders transferred, from their
own portfolios, 1,515,000 shares of the Company's common stock to third parties
who performed certain consulting and promotional services. The Company has
recognized $466,500 of expense, based on the fair value of the Common Stock and
a corresponding liability to the shareholders. At April 30, 1999, $466,500 is
included in indebtedness to related parties in the accompanying consolidated
financial statements.
The Company engaged an entity controlled by a director of the Company to assist
with public and investor relations and to assist the Company in its fund
raising. The Company paid the entity $107,067 for public and investor relations
fees which is included in the financial statements as investor relations,
related party. The Company also issued the entity 119,600 common shares valued
at $89,700 as payment for assisting the Company in its private stock offering
during the year ended April 30, 1999. The $89,700 has been deducted from the
proceeds of the offering as offering costs.
F-14
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE C: PROPERTY AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
April 30, 1999 October 31, 1999
------------------- ------------------
(Unaudited)
<S> <C> <C>
Office equipment and furniture..... $ 1,668 $ 78,120
Computer equipment................. 9,014 380,294
Software........................... 1,302 410,396
-------------- ----------------
11,984 868,810
Less accumulated depreciation...... (93) (67,917)
---------------- --------------------
$ 11,891 $ 800,893
================ =====================
</TABLE>
Depreciation expense for the years ended April 30, 1999 and 1998 and for the
period July 14, 1995 (inception) through October 31, 1999 (unaudited) totaled
$93, $0, and $67,917, respectively.
NOTE D: ACQUISITION OF SUBSIDIARY
On April 23, 1998 the Company entered into an agreement with the shareholders of
Showstar/Nucom to purchase approximately 77% of the outstanding common stock of
Showstar/Nucom (3,367,000 shares) in exchange for 3,367,000 newly issued shares
of the Company. The transaction closed May 14, 1998 and was recorded as though
it occurred on April 30, 1998. It was accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16, "Accounting for Business
Combinations". At April 30, 1998, the fair value of the net assets of
Showstar/Nucom approximated the book value of ($111,562), of which 77 percent
totaled ($85,903). There was substantially no activity recorded in the
accounting records of Nucom during the period April 23, 1998 through April 30,
1998.
The board of directors of the Company valued the 3,367,000 shares at $.001 per
share for a total fair value of $3,367. At the time of the valuation the
Company's stock was not trading and did not have a market value. The excess of
the purchase price over the fair value of net assets received totaled $89,270
and has been recorded as goodwill on the consolidated financial statements of
the Company. The goodwill was amortized on a straight-line basis over sixty
months.
F-15
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE D: ACQUISITION OF SUBSIDIARY, CONTINUED
On August 28, 1998, the Company purchased the remaining 23% outstanding common
shares of Showstar/Nucom in exchange for 999,066 shares of the Company's common
stock. The transaction was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Accounting for Business
Combinations". The total purchase price of $749,300 was based on the market
value of the Company's common stock which was considered to be $.75 per share as
during the period of the acquisition the Company was in the midst of an offering
of its shares for $.75. The excess of the purchase price over the fair value of
net assets received totaled $832,469 and has been recorded as goodwill on the
consolidated financial statements of the Company. On August 28, 1998 the fair
value of the minority interest in Showstar/Nucom's net assets was ($83,169). The
goodwill was amortized on a straight-line basis over sixty months.
During February 1999 the Company discontinued the operations of Showstar/Nucom
and wrote of the remaining unamortized goodwill of $854,338. See Note A.
NOTE E: STOCK BASED COMPENSATION
On October 19, 1998 the Company entered into a consulting agreement with an
unrelated third party to provide investor communications services to the
Company. Upon signing the agreement, the Company agreed to issue the consultant
75,000 shares of the Company's common stock. The market price of the stock as of
October 19, 1998 was $.437, therefore the Company has recorded stock
compensation of $32,775. The Company also granted the consultant 150,000 options
that were fully vested as of October 19, 1998. The options are exercisable at
$.75 and expire on October 15, 2001. The Company determined the fair value of
the options in accordance with SFAS 123 to be $.325 and have accordingly
recorded compensation expense of $48,750.
On March 15, 1999, pursuant to an employment agreement, the Company issued
200,000 shares of the Company's common stock to its Vice President of Internet
Marketing. The Company has recorded stock compensation expense of $70,000 based
on the $.35 market price of the Company's free-trading common stock as of the
date of the grant. The shares were issued as a signing bonus. Further the
Company granted the officer options to purchase 800,000 shares of the Company's
common stock for $.50 per share. The options begin vesting on April 11, 2001 and
expire on April 11, 2009. In accordance with APB 25, the Company did not
recognize any compensation expense in connection with the granting of the
options.
F-16
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE E: STOCK BASED COMPENSATION, CONTINUED
On March 25, 1999 the Company entered into a consulting agreement with an
unrelated third party to provide financial public relations services to the
Company. Upon signing the agreement, the Company agreed to issue the consultant
350,000 shares of the Company's common stock. The market price of the stock as
of March 25, 1999 was $.35, therefore the Company has recorded stock
compensation of $122,500.
On March 24, 1999 the Company entered into a consulting agreement with an
unrelated third party to provide marketing, sales and public relations services
to the Company. Upon signing the agreement, the Company agreed to issue the
consultant 100,000 shares of the Company's common stock. The market price of the
stock as of March 24, 1999 was $.35, therefore the Company has recorded stock
compensation of $35,000. The Company also granted the consultant 200,000 options
that were fully vested as of March 24, 1999. The options are exercisable at
100,000 for $1.25 and 100,000 for $2.00 and expire on March 24, 2004. The
Company determined the fair value of the options in accordance with SFAS 123 to
be $.69 and $1.22, respectively and have accordingly recorded compensation
expense of $191,000.
On April 14, 1999 the Company entered into agreements with two officers of the
Company for the officers to provide art expertise with respect to the Company's
new division Artstar.com. Each officer was granted 500,000 shares as of April
14, 1999 when the Company's market price for its common stock was $.50. In
accordance with APB 25, the Company recorded compensation expense of $500,000.
Further the Company granted each of the officers options to purchase 250,000
shares of the Company's common stock for $1.00 per share. The options begin
vesting on October 14, 1999 and expire on April 14, 2009. In accordance with APB
25, the Company did not recognize any compensation expense in connection with
the granting of the options.
F-17
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE E: STOCK BASED COMPENSATION, CONTINUED
STOCK BASED COMPENSATION FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED)
NON-EMPLOYEES
On June 4, 1999 the Company issued 400,000 shares of its common stock to two
individuals as payment for financial services rendered to the Company. The
transaction was valued at $.67 per share which was the market price on that
date. $268,000 was recorded as stock based compensation.
On June 24, 1999 the Company issued 20,000 shares of its common stock to an
individual as payment for consulting services rendered to the Company. The
transaction was valued at $.50 per share which was the market price on that
date. $10,000 was recorded as stock based compensation.
On July 20, 1999 the Company issued 200,000 shares of its common stock to an
entity as payment for investor relations services rendered to the Company. The
transaction was valued at $.62 per share which was the market price on that
date. $124,000 was recorded as stock based compensation.
On August 19, 1999 the Company issued 1,715,000 shares of its common stock to
various entities as payment for investor relations, financial consulting and
computer services rendered to the Company. The transactions were valued at $.25
to $.68 per share which was the market price on the date that the services were
rendered which were from June 1999 to August 1999. $730,600 was recorded as
stock based compensation.
EMPLOYEES
On July 20, 1999 the Company issued 430,000 shares of its common stock to
various employees. The transactions were valued at $.54 per share, which was the
market price on that date. $232,200 was recorded as stock based compensation.
F-18
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE E: STOCK BASED COMPENSATION, CONTINUED
SUMMARY
A summary of the status of the Company's stock option awards as of April 30,
1999, and the changes during the year ended April 30, 1999 is presented below:
Fixed Options Number
------------------------------------------------------
Outstanding at April 30, 1998.......... -
Granted................................ 1,650,000
Exercised.............................. -
Canceled............................... -
-----------------
Outstanding at April 30, 1999.......... 1,650,000
=================
The weighted average exercise price per share for the fully-vested 350,000
outstanding options at April 30, 1999 was $1.25. The weighted average exercise
price per share for the non-vested 1,300,000 outstanding options at April 30,
1999 was $.69. No pro forma information is presented for the non-vested options
at April 30, 1999, as the expense would be charged to future periods as the
options vest.
SFAS 123
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting form Stock-Based
Compensation". SFAS 123 encourages the use of a fair value based method of
accounting for compensation expense associated with stock option awards and
similar plans. SFAS 123 permits the continued use of the intrinsic value based
method prescribed by APB 25, but requires additional disclosures, including pro
forma calculations of net earnings and earnings per share, as if the fair value
method of accounting prescribed by SFAS 123 had been applied for the applicable
periods.
The fair value of each option granted has been estimated as of the grant date
using the Black-Scholes option-pricing model with the following weighted-average
assumptions: risk-free interest rate of 5.63 percent, expected volatility of 60
percent, expected life of two to five years, and no expected dividends. During
the year ended April 30, 1999, the weighted-average exercise price and fair
values of options granted were $1.25 and $.685, respectively on the date of
grant for options granted with an exercise price greater than the market price
of the stock. There were no options granted with exercise prices that equaled or
were less than the market price of the underlying stock on date of grant.
F-19
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE E: STOCK BASED COMPENSATION, CONTINUED
Had compensation expense been determined based on the fair value at the grant
date, and charged to expense over vesting periods, consistent with the
provisions of SFAS 123, the Company's net loss and net loss per share would have
equaled the pro forma amounts indicated below:
Amount
------------------
As reported:
Net loss...................................... $(3,439,866)
Net loss per share - basic and diluted....... $ (0.22)
Pro Forma:
Net loss...................................... $(3,439,866)
Net loss per share - basic and diluted........ $ (0.22)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. Option valuation models also require the input of highly
subjective assumptions such as expected option life and expected stock price
volatility. Because the Company's stock-based awards have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, the
Company believes that the existing option valuation models do not necessarily
provide a reliable single measure of the fair value of its stock-based awards.
NOTE F: INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate at April 30, follows:
1999 1998
------------ -----------
U.S. statutory federal rate....................... 34.00% 15.00%
State income tax, net of federal benefit.......... 3.30% 4.25%
Net operating loss for which no tax benefit
is currently benefit............................ -37.30% -19.25%
------------ ------------
0.00% 0.00%
============ =============
F-20
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE F: INCOME TAXES, CONTINUED
Income taxes from operations for the years ended April 30, 1999 and 1998,
consisted of the following components: (1) current tax benefit resulting from
the net loss before income taxes, and (2) deferred tax expense resulting from
the valuation allowance recorded against the deferred tax asset (which is
substantially comprised of net operating losses). The change in the valuation
allowance from April 30, 1998 to April 30, 1999 was $1,282,101. Net operating
loss carryforwards will expire in 2019.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
NOTE G: ADVANCES PAYABLE
On April 15, 1998, the Company received $100,000 as a non-interest bearing,
working capital advance from an unaffiliated individual. As of April 30, 1999
the advance was not repaid and the Company accrued $8,000 in interest. The
advance is due upon demand.
During the year ended April 30, 1999 the Company received working capital
advances from an unrelated third party totaling $100,000. The Company accrued
interest on the advances of $12,500. Prior to April 30, 1999 the Company repaid
$5,000, leaving an unpaid balance of $7,500 for interest and the $100,000
principal balance. Subsequent to April 30, 1999 the Company satisfied the unpaid
principal and accrued interest by issuing 307,143 shares of the Company's common
stock to the individual. The number of shares was based on the $.35 market price
of the common stock on the date the Company converted the advances to equity.
The Company also received $2,500 in working capital advances from an individual.
The amount was unpaid as of April 30, 1999.
During the year ended April 30, 1999 the Company issued a $60,000 convertible
debenture to an unrelated third party. Total cash proceeds from the debenture
was $52,500, with the $7,500 difference being recorded as interest expense. The
Company converted the debenture to 324,706 shares of the Company's common
stock..
F-21
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE H: PRIVATE STOCK SALES
On March 31, 1998 the Company sold 2,523,000 shares of its restricted common
stock at $.001 per share for total proceeds of $2,523.
On April 1, 1998, pursuant to an exemption under Rule 504, Regulation D of the
Securities and Exchange Act of 1933, the Company sold 6,185,000 of its
restricted common stock at $.001 per share for total proceeds of $6,185.
From May 15, 1998 to July 23, 1998, pursuant to an exemption under Rule 504,
Regulation D of the Securities and Exchange Act of 1933, the Company sold
771,133 common shares at $.75 per share for total proceeds of $578,350. The
Company also issued 119,600 shares of common stock to a related party for
offering costs valued at $89,700.
From January to March 1999, the Company sold 2,682,120 common shares for total
proceeds of $264,630.
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED)
During the six months ended October 31, 1999 the Company sold 6,422,324 shares
of its common stock for total cash proceeds of $3,561,500.
NOTE I: COMMITMENTS
LEASES
The Company conducts its administrative and technical operations from leased
premises located in Richmond, British Columbia under a non-cancelable lease
expiring in April 2004. The lease provides for a five year lease term, minimum
annual lease payments and operating expense escalations. Minimum annual lease
payments for each of the succeeding five years ending April 30 are as follows:
2000..............$28,900
2001..............$28,900
2002..............$28,900
2003..............$28,900
2004..............$28,900
F-22
<PAGE>
SHOWSTAR ONLINE.COM, INC.
(FORMERLY SHOWSTAR ENTERTAINMENT CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
NOTE J: SUBSEQUENT EVENTS
On May 26, 1999 the Company entered into an employment agreement with John Punzo
the Company's President, Chief Executive Officer and Chairman of the Board. The
agreement is effective as of May 26, 1999 and expires on December 31, 2004, with
one-year automatic renewal privileges. The Company agreed to pay Mr. Punzo a
base salary of $12,500 per month and a cash bonus based on 5% of pretax profits.
The Company granted Mr. Punzo a 1,000,000 restricted stock bonus which vests at
the rate of 100,000 shares at the end of each successive three-month period
during the term of the agreement with the result that all 1,000,000 grant shares
will vest after thirty months from the date of the agreement. In the event of
termination, all unvested grant shares will vest immediately. The Company also
granted Mr. Punzo options to purchase 1,000,000 shares of the Company's common
stock exercisable at $.50 per share. The options vest at the rate of 100,000
shares at the end of each successive three-month period during the term of the
agreement with the result that all 1,000,000 grant shares will vest after thirty
months from the date of the agreement.
NOTE K: YEAR 2000 COMPLIANCE
The Year 2000 issue ("Y2K") is the result of computer programs written using two
digits rather than four to define the applicable year. Any of the Company's
computer and telecommunications programs that have date sensitive software may
recognize a date using "00" as the year 1900 instead of 2000. This could result
in system failure or miscalculations causing disruptions in operations,
including the ability to process transactions, send invoices, or engage in
similar normal business activities. The Company has assessed its current
computer systems and has determined, based on the opinions of its software and
hardware vendors, the overall systems to be Y2K compliant. However, there is no
certainty that the Company will not experience Y2K issues.
The Company cannot determine the extent to which the Company is vulnerable to
third parties' failure to remediate their own Y2K problems. As a result, there
can be no guarantee that the systems of other companies on which the Company's
business relies will be timely converted, or that failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
have a material adverse affect on the Company. In view of the foregoing, there
can be no assurance that the Y2K issue will not have a material adverse effect
on the Company's business.
F-23
<PAGE>
SHOWSTAR ONLINE.COM, INC.
FORM 20-F
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page
Number
Charter and Bylaws
<S> <C> <C>
2.01 Articles of Incorporation
Cerotex Holdings, Inc.
2.02 Articles of Amendment
(Cerotex Holdings, Inc.)
2.03 Articles of Amendment
(Showstar Entertainment Corporation)
2.04 Bylaws of Showstar Online.com
Material Contracts
6.01 Content Licensing Agreement - National
Register Publishing, a division of Reed
Elsevier Inc.
6.02 Supplier Agreement - Lieberman's Gallery LLP
6.03 Proposed Joint Venture Agreement (China)
6.04 Employment Agreement - John Punzo
6.05 Employment Agreement - Kenneth Jay Linsner
6.06 Employment Agreement - Abraham Joel
6.07 Employment Agreement - Connie Vick
6.08 Employment Agreement - John Barson
6.09 Employment Agreement - David Udow
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 2.01
ARTICLES OF INCORPORATION
OF
CEROTEX HOLDINGS, INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned Incorporator being a natural
person of the age of eighteen years of age or older and desiring to form a body
corporate under the laws of the State of Colorado does hereby sign, verify and
deliver in duplicate to the Secretary of State of the State of Colorado these
Articles of incorporation:
ARTICLE I
Name
The name of the Corporation is CEROTEX HOLDINGS, INC.
ARTICLE II
Period of Duration
This Corporation shall exist in perpetuity, from and after the date of filing
these Articles of Incorporation with the Secretary of State of Colorado unless
and until dissolved according to the laws of the State of Colorado.
ARTICLE III
Purposes
Section 1. Specific Purposes
A. To engage in the business of developing computer based real estate property
management systems.
B. To provide management services to corporations utilizing real estate
management systems.
Section 2. General Purposes
A. To own, operate and maintain such real or personal property as may be
necessary to conduct such business and to do all of the things in connection
with the real or personal property which might be done by an individual.
B. To hire and employ agents and employees, and to enter into agreements of
employment and collective bargaining agreements for the purpose of advancement
and performance of the purposes of this Corporation.
C. To carry on any other business, whether or not related to the foregoing,
including the transaction of all lawful business for which corporations may be
organized pursuant to the Colorado Corporation Act, to have and exercise all
powers, privileges and immunities now or hereafter conferred upon or permitted
to corporations by the laws of the State of Colorado, and to do any and all
things herein set forth to the same extent as natural persons could do insofar
as permitted by the laws of the State of Colorado.
D. To do those things which are authorized and permitted by the Colorado
Corporations Code.
<PAGE>
E. To do all things authorized by law or incidental thereto.
ARTICLE IV
Powers
The powers of the Corporation shall be those powers granted by Article Two of
the Colorado Corporation Code under which this Corporation is formed. In
addition, the Corporation shall have the following specific powers:
Section 1. Officers. The Corporation shall have the power to elect or appoint
officers and agents of the Corporation and to fix their compensation.
Section 2. Capacity. The Corporation shall have the power to act as an agent
for any individual, association, partnership, corporation or other legal entity,
and to act as general partner for any limited partnership.
Section 3. Acquisitions. The Corporation shall have the power to receive,
acquire, hold, exercise rights arising out of the ownership or possession
thereof, sell, or otherwise dispose of, shares or other interests in, or
obligations of, individuals, associations, partnerships, corporations or
governments.
Section 4. Earned Surplus. The Corporation shall have the power to receive,
acquire, hold, pledge, transfer, or otherwise dispose of shares of the
Corporation, but such shares may only be purchased, directly or indirectly, out
of earned surplus.
Section 5. Gifts. The Corporation shall have the power to make gifts or
contributions for the public welfare or for charitable, scientific or
educational purposes.
ARTICLE V
Capital Structure
Section 1. Authorized Capital. The aggregate number of shares and the amount of
the total authorized capital of said Corporation shall consist of 50,000,000
shares of common stock, no par value per share, and 5,000,000 shares of
non-voting preferred stock, no Par value per share.
Section 2. Share Status. All common shares will be equal to each other, and when
issued, shall be fully paid and nonassessable, and the private property of
shareholders shall not be liable for corporate debts. Preferred shares shall
have such preferences as the Directors may assign to them prior to issuance.
Each holder of a common share of record Shall have one vote for each share of
stock outstanding in his name on the books of the Corporation and shall be
entitled to vote said stock.
Section 3. Consideration for Shares. The common stock of the Corporation shall
be issued for such consideration as shall be fixed from time to time by the
Board of Directors. In the absence of fraud, the judgment of the Directors as to
the value of any property or services received in full or partial payment for
shares shall be conclusive. When shares are issued upon payment of the
consideration fixed by the Board of Directors, such shares shall be taken to be
fully paid stock and shall be nonassessable.
Section 4. Pre-Emptive Rights. Except as may otherwise be provided by the Board
<PAGE>
of Directors, holders of shares of stock of the Corporation shall have no
preemptive right to purchase, subscribe for or otherwise acquire shares of stock
of the Corporation, rights, warrants or options to purchase stocks or securities
of any kind convertible into stock of the Corporation.
Section 5. Dividends. Dividends in cash, property or shares of the Corporation
may be paid, as and when declared by the Board of Directors, out of funds of the
Corporation to the extent and in the manner permitted by law.
Section 6. Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, and after paying or adequately providing for the
payment of all its obligations, the remainder of the assets of the Corporation
shall be distributed, either in cash or in kind, pro rata to the holders of the
common stock, subject to preferences, if any, granted to holders of the
preferred shares. The Board of Directors may, from time to time, distribute to
the shareholders in partial liquidation from stated capital of the Corporation,
in cash or property, without the vote of the shareholders, in the manner
permitted and upon compliance with limitations imposed by law.
ARTICLE VI
Voting by Shareholders
Section 1. Voting Rights: Cumulative Voting. Each outstanding share of common
stock is entitled to one vote and each fractional share of common stock is
entitled to a corresponding fractional vote on each matter submitted to a vote
of shareholders. Cumulative voting shall not be allowed in the election of
Directors of the Corporation and every shareholder entitled to vote at such
election shall have the right to vote the number of shares owned by him for as
many persons as there are Directors he has a right to vote. Preferred shares
have no voting rights unless granted by amendment to these Articles of
Incorporation.
Section 2. Majority Vote. When, with respect to any action to be taken by the
Shareholders of the Corporation, the Colorado Corporation Code requires the
vote or concurrence of the holders of two-thirds of the outstanding shares
entitled to vote thereon, or of any class or series, any and every such
action shall be taken, notwithstanding such requirements of the Colorado
Corporation Code, by the vote or concurrence of the holders of a majority of
the outstanding shares entitled to vote thereon, or of any class or series.
ARTICLE VII
Registered and Initial Principal Office and Registered Agent
The registered office and initial principal office of the Corporation is located
at 1291 South Lincoln Street, Denver, Colorado 80210, and the name of the
registered agent of the Corporation at such address is Edward H. Hawkins.
ARTICLE VIII
Incorporator
The name and address of the Incorporator is Edward H. Hawkins, 1291 South
Lincoln Street, Denver, Colorado 80210.
ARTICLE IX
Board of Directors
Section 1. The corporate powers shall be exercised by a majority of the Board of
<PAGE>
Directors. The number of individuals to serve on the Board of Directors shall be
set forth in the Bylaws of the Corporation; provided, however, that the initial
Board of Directors shall consist of one person below-named to manage the affairs
of the Corporation until such time as he resigns or his successor is elected by
a majority vote of the Shareholders:
Name of Director Address
Edward H. Hawkins 1291 So. Lincoln St.
Denver, CO 80210
Section 2. If in the interval between the annual meetings of shareholders of the
Corporation, the Board of Directors of the Corporation deems it desirable that
the number of Directors be increased, additional Directors may be elected by a
unanimous vote of the Board of Directors of the Corporation then in office, or
as otherwise set forth in the Bylaws of the Corporation.
Section 3. The number of Directors comprising the whole Board of Directors may
be increased or decreased from time to time within such foregoing limit as set
forth in the Bylaws of the Corporation.
ARTICLE X
Powers of the Board of Directors
In furtherance and not in limitation of the powers conferred by the State of
Colorado, the Board of Directors is expressly authorized and empowered:
Section 1. Bylaws. To make, alter, amend and repeal the Bylaws, subject to the
power of the shareholders to alter or repeal the Bylaws made by the Board of
Directors.
Section 2. Books and Records. Subject to the applicable provisions of the Bylaws
then in effect, to determine, from time to time, whether and to what extent, and
at what times and places, and under what conditions and regulations, the
accounts and books of the Corporation or any of them, shall be open to
shareholder inspection. No shareholder shall have any right to inspect any of
the accounts, books, or documents of the Corporation, except as permitted by
law, unless and until authorized to do so by resolution of the Board of
Directors or of the shareholders of the Corporation.
Section 3. Power to Borrow. To authorize and issue, without shareholder consent,
obligations of the Corporation, secured and unsecured, under such terms and
conditions as the Board, in its sole discretion, may determine, and to pledge,
or mortgage, as security therefor, any real or personal property of the
Corporation, including after-acquired property.
Section 4. Dividends. To determine whether any and, if so, what part, of the
earned surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and disposition of any such
earned surplus.
Section 5. Profits. To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other lawful purposes.
Section 6. Employees' Plans. From time to time to provide and carry out and to
<PAGE>
recall, abolish, revise, amend, alter, or change a plan or plans for the
participation by all or any of the employees, including Directors and
officers of this Corporation or of any corporation in which or in the welfare
of which the Corporation has any interest, and those actively engaged in the
conduct of this Corporation's business, in the profits of this Corporation or
of any branch or division thereof, as a part of this Corporation's legitimate
expenses, and for the furnishing to such employees and persons, or any of
them, at this Corporation's expense, of medical services, insurance against
accident, sickness or death, pensions during old age, disability, or
unemployment, education, housing, social services, recreation, or other
similar aids for their relief or general welfare, in such manner and upon
such terms and conditions as may be determined by the Board of Directors.
Section 7. Warrants and Options. The Corporation, by resolution or resolutions
of its Board of Directors, shall have power to create and issue, whether or not
in connection with the issue and sale of any shares of any other securities of
the Corporation, warrants, rights, or options entitling the holders thereof to
purchase from the Corporation any shares of any class or classes of any other
securities of the Corporation, such warrants, rights or options to be evidenced
by or in such instrument or instruments as shall be approved by the Board of
Directors. The terms upon which, the time or times (which may be limited or
unlimited in duration), and the price or prices (not less than the minimum
amount prescribed by law, if any) at which any such warrants, rights, or options
may be issued and any such shares or other securities may be purchased from the
Corporation upon the exercise of such warrant, right, or option shall be such as
shall be fixed and stated in the resolution or resolutions of the Board of
Directors providing for the creation and issue of such warrants, rights or
options. The Board of Directors is hereby authorized to create and issue any
such warrants, rights or options from time to time for such consideration, and
to such persons, firms, or corporations, as the Board of Directors may
determine.
Section 8. Compensation. To provide for the reasonable compensation of its own
members, and to fix the terms and conditions upon which such compensation will
be paid.
Section 9. Not in Limitation. In addition to the powers and authority
hereinabove, or by statute expressly conferred upon it, the Board of Directors
may exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, subject, nevertheless, to the provisions of the laws
of the State of Colorado, of these Articles of Incorporation and of the Bylaws
of the Corporation.
ARTICLE XI
Right of Directors to Contract with Corporation
No contract or other transaction between this Corporation and one or more of its
Directors or any other corporation, firm, association, or entity in which one or
more of its Directors are directors or officers or are financially interested
shall be either void or voidable solely because of such relationship or interest
or solely because such directors are present at the meeting of the Board of
Directors or a committee thereof which authorizes, approves, or ratifies such
contract or transaction or solely because their votes are counted for such
purpose if:
<PAGE>
A. The fact of such relationship or interest is disclosed or known to the
Board of Directors or committee which authorizes, approves, or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes of consents of such interested Directors, or
B. The fact of such relationship or interest is disclosed or known to the
shareholders entitled to vote and they authorize, approve, or ratify such
contract or transaction by vote or written consent; or
C. The contract or transaction is fair and reasonable to the Corporation.
ARTICLE XII
Corporate Opportunity
The officers, Directors and other members of management of this Corporation
shall be subject to the doctrine of "corporate opportunities" only insofar as
it applies to business opportunities in which this Corporation has expressed
an interest as determined from time to time by this Corporation's Board of
Directors as evidenced by resolutions appearing in the Corporation's minutes.
Once such areas of interest are delineated, all such business opportunities
within such areas of interest which come to the attention of the officers,
Directors, and other members of management of this Corporation shall be
disclosed promptly to this Corporation and made available to it. The Board of
Directors may reject any business opportunity presented to it and thereafter
any officer, Director or other member of management may avail himself of such
opportunity. Until such time as this Corporation, through its Board of
Directors, has designated an area of interest, the officers, Directors and
other members of management of this Corporation shall be free to engage in
such areas of interest on their own and this doctrine shall not limit the
right of any officer, Director or other member of management of this
Corporation to continue a business existing prior to the time that such area
of interest is designated by the Corporation. This provision shall not be
construed to release any employee of this Corporation (other than an officer,
Director or member of management) from any duties which he may have to this
Corporation.
ARTICLE XIII
Indemnification of Officers, Directors and Others
The Board of Directors of the Corporation shall have the power to:
A. Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation), by reason of the fact that he is or was
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 expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Corporation and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding, by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
<PAGE>
be in the best interests of the Corporation and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
B. Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judment in its favor by reason of the fact that
he is or was 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 the Corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
the best interests of the Corporation; but no indemnification shall be made in
respect of any claim, issue or matter as to which such person has been adjudged
to be liable for negligence or misconduct in the performance of his duty to the
Corporation unless and, only to the extent that the court in which such action
or suit was brought determines upon application that, despite the adjudication
of liability, but in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnification for such expenses which such
court deems proper.
C. Indemnify a Director, officer, employee or agent of the Corporation to the
extent that such person has been successful on the merits in defense of any
action, suit or proceeding referred to in Subparagraph A or B of this Article or
in defense of any claim, issue, or matter therein, against expenses (including
attorney's fees) actually and reasonably incurred by him in connection
therewith.
D. Authorize indemnification under Subparagraph A or B of this Article (unless
ordered by a court) in the specific case upon a determination that
indemnification of the Director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
said Subparagraph A or B. Such determination shall be made by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or, if such a quorum is not
obtainable or even if obtainable a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or by the shareholders.
E. Authorize payment of expenses (including attorney's fees) incurred in
defending a civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding as authorized in Subparagraph D
of this Article upon receipt of an undertaking by or on behalf of the Director,
officer, employee or agent to repay such amount unless it is ultimately
determined that he is entitled to be indemnified by the Corporation as
authorized in this Article.
F. Purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or who 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 entereprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the provision
of this Article.
The indemnification provided by this Article shall not be deemed exclusive of
<PAGE>
any other rights to which those indemnified may be entitled under these Articles
of Incorporation, and the Bylaws, agreement, vote of shareholders or
disinterested directors or otherwise, and any procedure provided for by any of
the foregoing, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of heirs, executors and administrators of such a person.
ARTICLE XIV
Right to Amend
The right is expressly reserved to amend, alter, change, or repeal any provision
or provisions contained in these Article of Incorporation or any Article herein
by a majority vote of the members of the Board of Directors, and a majority vote
of the shareholders of the Corporation.
IN WITNESS WHEREOF, the undersigned has set his hand and seal this 13th day of
July, 1995.
/s/
Edward H. Hawkins, Incorporator
CONSENT OF AGENT
The undersigned hereby consents to the appointment as agent for the above named
corporation under the Section 105 of the Colorado Business Corporation Act,
until such time as he resigns such position.
/s/
Edward H. Hawkins, Agent
1291 So. Lincoln St., Denver, CO 80210
<PAGE>
EXHIBIT 2.02
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
CEROTEX HOLDINGS, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is Cerotex Holdings, Inc.
SECOND: The following amendment to the Articles of Incorporation was adopted on
May 19, 1998, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
________ No shares have been issued or Directors Elected - Action by
Incorporators.
________ No shares have been issued but Directors Elected - Action by
Directors.
________ Such amendment was adopted by the of directors where shares have
been issued.
X
-------- Such amendment was adopted by a vote of the shareholders. The
number of shares voted for the amendment was sufficient for approval.
Article I of the Articles of Incorporation shall be amended so that,
as amended, Article I will read in its entirety as follows:
ARTICLE I
Name
The name of the corporation is SHOWSTAR ENTERTAINMENT CORPORATION.
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification or cancellation of issued shares provided for in the amendment
shall be effected, is as follows: None.
If these amendments are to have a delayed effective date, please list that date:
Not applicable
(Not to exceed ninety (90) days from the date of filing)
CEROTEX HOLDINGS, INC.
By: /s/
Gino Punzo, Director
<PAGE>
EXHIBIT 2.03
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
SHOWSTAR ENTERTAINMENT CORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is Showstar Entertainment Corporation.
SECOND: The following amendment to the Articles of Incorporation was adopted on
June 21, 1999, as prescribed by the Colorado Business Corporation Act in the
manner marked with an X, below:
________ No shares have been issued or Directors Elected - Action by
Incorporators.
________ No shares have been issued but Directors Elected - Action by
Directors.
________Such amendment was adopted by the of directors where shares have
been issued.
X
--------Such amendment was adopted by a vote of the shareholders. The
number of shares voted for the amendment was sufficient for approval.
Article I of the Corporation's Articles of Incorporation shall be
amended so that, as amended; Article I reads in its entirety as follows:
ARTICLE I
Name
The name of the Corporation is SHOWSTAR ONLINE.COM, INC.
THIRD: The manner, if not set forth in such amendment in which any
exchange, reclassification or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: None.
If these amendments are to have a delayed effective date, please list that date:
Not applicable.
(Not to exceed ninety (90) days from the date of filing)
SHOWSTAR ENTERTAINMENT CORPORATION
June 21, 1999 By: /s/
Gary Diamond, Secretary
<PAGE>
BYLAWS
OF
CEROTEX HOLDINGS, INC.
ARTICLE I
OFFICES
The principal office of the Corporation in Colorado shall initially
be located in Denver, Colorado. The Corporation may have such other offices,
either within or outside the State of Colorado, as the Board of Directors may
designate, or as the business of the Corporation may require from time to
time.
The registered office of the Corporation required by the Colorado
Business Corporation Act to be maintained in the State of Colorado may be,
but need not be, identical with the principal office, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING.
The annual meeting of the shareholders shall be held pursuant to
notice given by the Board of Directors for the purpose of electing directors
and for the transaction of such other business as may come before the meeting.
Section 2. SPECIAL MEETINGS.
Special meetings of the shareholders, for any purpose, unless
otherwise prescribed by statute, may be called by the President or by the
Board of Directors, and shall be called by the President at the request of
the holders of not less than ten (10%) percent of all the outstanding shares
of the Corporation entitled to vote at the meeting. Such request shall state
the purposes of the proposed meeting.
Section 3. ADJOURNMENT.
a. When the annual meeting is convened, or when any special
meeting is convened, the presiding officer may adjourn it for such period of
time as may be reasonably necessary to reconvene the meeting at another place
and another time.
b. The presiding officer shall have the power to adjourn any
meeting of the shareholders for any proper purpose, including, but not
limited to, lack of a quorum, to secure a more adequate meeting place, to
elect officials to count and tabulate votes, to review any shareholder
proposals or to pass upon any challenge which may properly come before the
meeting.
c. When a meeting is adjourned to another time or place, it
shall not be necessary to give any notice of the adjourned meeting if the
time and place to which the meeting is adjourned are announced at the meeting
at which the adjournment is taken, and any business may be transacted at the
adjourned meeting that might have been transacted on the original date of the
meeting. If, however, after the adjournment the Board fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given
in compliance with Subsection (4)(a) of this Article II to each shareholder
of record on the new record date entitled to vote at such meeting.
Section 4. NOTICE OF MEETING; PURPOSE OF MEETING; WAIVER.
<PAGE>
a. Each shareholder of record entitled to vote at any meeting
shall be given in person, or by first class mail, postage prepaid, written
notice of such meeting which, in the case of a special meeting, shall set
forth the purpose(s) for which the meeting is called, not less than ten (10)
or more then fifty (50) days before the date of such meeting. If mailed, such
notice is to be sent to the shareholder's address as it appears on the stock
transfer books of the Corporation unless the shareholder shall have requested
of the Secretary in writing at least fifteen (15) days prior to the
distribution of any required notice that any notice intended for him to be
sent to some other address, in which case the notice may be sent to the
address so designated. Notwithstanding any such request by a shareholder,
notice sent to a shareholder's address as it appears on the stock transfer
books of this Corporation as of the record date shall be deemed properly
given. Any notice of a meeting sent by the United States mail shall be deemed
delivered when deposited with proper postage thereon with the United States
Postal Service or in any mail receptacle under its control.
b. A shareholder waives notice of any meeting by attendance,
either in person or by proxy, at such meeting or by waiving notice in writing
either before, during or after such meeting: Attendance at a meeting for the
express purpose of objecting that the meeting was not lawfully called or
convened, however, will not constitute a waiver of notice by a shareholder
stating at the beginning of the meeting, his objection that the meeting is
not lawfully called or convened.
c. Whenever the holders of at least eighty (80%) percent of the
capital stock of the Corporation having the right to vote shall be present at
any annual or special meeting of shareholders, however called or notified,
and shall sign a written consent thereto on the minutes of such meeting, the
meeting shall be valid for all purposes.
d. A Waiver of Notice signed by all shareholders entitled to
vote at a meeting of shareholders may also be used for any other proper
purpose including, but not limited to, designating any place within or
without the State of Colorado as the place for holding such a meeting.
e. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of shareholders need be specified in any
written Waiver of Notice.
Section 5. CLOSING OF TRANSFER BOOKS; RECORD DATE; SHAREHOLDERS'
LIST.
a. In order to determine the holders of record of the capital
stock of the Corporation who are entitled to notice of meetings, to vote at a
meeting or adjournment thereof, or to receive payment of any dividend, or for
any other purpose, the Board of Directors may fix a date not more than fifty
(50) days prior to the date set for any of the above-mentioned activities for
such determination of shareholders.
b. If the stock transfer books shall be closed for the purpose
of determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
c. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the date for such determination of
shareholders, such date in any case to be not more than fifty (50) days and,
in case of a meeting of shareholders, not less than ten (10) days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken.
d. If the stock transfer books are not closed and no record
date is fixed for the determination of shareholders entitled to notice or to
vote at a meeting of shareholders, or to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders.
e. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date under this section for the adjourned
meeting.
2
<PAGE>
f. The officer or agent having charge of the stock transfer books of
the Corporation shall make, as of a date at least ten (10) days before each
meeting of shareholders, a complete list of the shareholders entitled to vote
at such meeting or any adjournment thereof, with the address of each
shareholder and the number and class and series, if any, of shares held by
each shareholder. Such list shall be kept on file at the registered office
of the Corporation or at the office of the transfer agent or registrar of the
Corporation for a period of ten (10) days prior to such meeting and shall be
available for inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place
of any meeting of shareholders and shall be subject to inspection by any
shareholder at any time during the meeting.
g. The original stock transfer books shall be prima facie evidence
as to the shareholders entitled to examine such list or stock transfer books
or to vote at any meeting of shareholders.
h. If the requirements of Subsection 5(f) of this Article II have
not been substantially complied with then, on the demand of any shareholder
in person or by proxy, the meeting shall be adjourned until such requirements
are complied with.
i. If no demand pursuant to Section 5(h) is made, failure to comply
with the requirements of this Section shall not affect the validity of any
action taken at such meeting.
j. Subsection 5(g) of this Article II shall be operative only at
such time(s) as the Corporation shall have six (6) or more shareholders.
Section 6. QUORUM.
a. At any meeting of the shareholders of the Corporation, the
presence, in person or by proxy, of shareholders owning a majority of the
issued and outstanding shares of the capital stock of the Corporation
entitled to vote thereat shall be necessary to constitute a quorum for the
transaction of any business. If a quorum is present the affirmative vote of
a majority of the shares represented at such meeting and entitled to vote on
the subject matter shall be the act of the shareholders. If there shall not
be a quorum at any meeting of the shareholders of the Corporation, then the
holders of a majority of the shares of the capital stock of the Corporation
who shall be present at such meeting, in person or by proxy, may adjourn such
meeting from time to time until holders of a majority of the shares of the
capital stock shall attend. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally scheduled.
b. The shareholders at a duly organized meeting having a quorum may
continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 7. PRESIDING OFFICER; ORDER OF BUSINESS.
a. Meetings of the shareholders shall be presided over by the
Chairman of the Board, or, if he is not present, by the President or, if he
is not present, by a Vice President or, if none of the Chairman of the Board,
the President, or a Vice President is present, the meeting shall be presided
over by a Chairman to be chosen by a plurality of the shareholders entitled
to vote at the meeting who are present, in person or by proxy. The presiding
officer of any meeting of the shareholders may delegate the duties and
obligations of the presiding officer of the meeting as he sees fit.
b. The Secretary of the Corporation, or, in his absence, an
Assistant Secretary shall act as Secretary of every meeting of shareholders,
but if neither the Secretary nor an Assistant Secretary is present, the
presiding officer of the meeting shall choose any person present to act as
Secretary of the meeting.
c. The order of business shall be as follows:
1. Call of meeting to order.
3
<PAGE>
2. Proof of notice of meeting.
3. Reading of minutes of last previous shareholders meeting
or a Waiver thereof.
4. Reports of officers.
5. Reports of committees.
6. Election of directors.
7. Regular and miscellaneous business.
8. Special matters.
9. Adjournment.
d. Notwithstanding the provisions of Article II, Section 7,
Subsection c, the order and topics of business to be transacted at any
meeting shall be determined by the presiding officer of the meeting in his
sole discretion. In no event shall any variation in the order of business or
additions and deletions from the order of business as specified in Article
II, Section 7, Subsection c, invalidate any actions properly taken at any
meeting.
Section 8. VOTING.
a. Unless otherwise provided for in the Certificate of
Incorporation, each shareholder shall be entitled, at each meeting and upon
each proposal to be voted upon, to one vote for each share of voting stock
recorded in his name on the books of the Corporation on the record date fixed
as provided for in Article II, Section 5.
b. The presiding officer at any meeting of the shareholders shall
have the power to determine the method and means of voting when any matter is
to be voted upon. The method and means of voting may include, but shall not
be limited to, vote by ballot, vote by hand or vote by voice. However, no
method of voting may be adopted which fails to take account of any
shareholder's right to vote by proxy as provided for in Section 10 of this
Article II. In no event may any method of voting be adopted which would
prejudice the outcome of the vote.
Section 9. ACTION WITHOUT MEETING.
a. Any action required to be taken at any annual or special meeting
of shareholders of the Corporation, or any action which may be taken at any
annual or special meeting of such shareholders, 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 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. If any class of shares is entitled to vote thereon as a class,
such written consent shall be required of the holders of a majority of the
shares of each class of shares entitled to vote thereon.
b. Within ten (10) days after obtaining such authorization by
written consent, notice must be given to those shareholders who have not
consented in writing. The notice shall fairly summarize the material
features of the authorized action and, if the action be a merger,
consolidation or sale or exchange of assets for which dissenters' rights are
provided under the Colorado Business Corporation Act, the notice shall
contain a clear statement of the right of the shareholders dissenting
therefrom to be paid the fair value of their shares upon compliance with
further provisions of the Colorado Business Corporation Act regarding the
rights of dissenting shareholders.
c. In the event that the action to which the shareholders' consent
is such as would have required the filing of a certificate under the Colorado
Business Corporation Act if such action had been voted on by shareholders at
a meeting thereof, the certificate filed under such other section shall state
that written consent has been given in accordance with the provisions of this
Article II, Section 9.
Section 10. PROXIES.
4
<PAGE>
a. Every shareholder entitled to vote at a meeting of shareholders
or to express consent or dissent without a meeting, or his duly authorized
attorney-in-fact may authorize another person or persons to act for him by
proxy.
b. Every proxy must be signed by the shareholder or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it,
except as otherwise provided in this Article II, Section 10.
c. The authority of the holder of a proxy to act shall not be
revoked by the incompetence or death of the shareholder who executed the
proxy unless, before the authority is exercised, written notice of an
adjudication of such incompetence or of such death is received by the
corporate officer responsible for maintaining the list of shareholders.
d. Except when other provisions shall have been made by written
agreement between the parties, the record holder of shares held as pledges or
otherwise as security or which belong to another, shall issue to the pledgor
or to such owner of such shares, upon demand therefor and payment of
necessary expenses thereof, a proxy to vote or take other action thereon.
e. A proxy which states that it is irrevocable when it is held by
any of the following or a nominee of any of the following: (i) a pledgee;
(ii) a person who has purchased or agreed to purchase the shares; (iii) a
creditor or creditors of the Corporation who extend or continue to extend
credit to the Corporation in consideration of the proxy, if the proxy states
that it was given in consideration of such extension or continuation of
credit, the amount thereof, and the name of the person extending or
continuing credit; (iv) a person who has contracted to perform services as an
officer of the Corporation, if a proxy is required by the contract of
employment, if the proxy states that it was given in consideration of such
contract of employment and states the name of the employee and the period of
employment contracted for, and (v) a person designated by or under an
agreement as provided in Article XI hereof.
f. Notwithstanding a provision in a proxy stating that it is
irrevocable, the proxy becomes revocable after the pledge is redeemed, or the
debt of the Corporation is paid, or the period of employment provided for in
the contract of employment has terminated, or the agreement under Article XII
hereof, has terminated and, in a case provided for in Subsection 10(e)(iii)
or Subsection 10(e)(iv) of this Article II becomes irrevocable three years
after the date of the proxy or at the end of the period, if any, specified
therein, whichever period is less, unless the period of irrevocability is
renewed from time to time by the execution of a new irrevocable proxy as
provided in this Article II, Section 10. This Subsection 10(f) does not
affect the duration of a proxy under Subsection 10(b) of this Article II.
g. A proxy may be revoked, notwithstanding a provision making it
irrevocable, by a purchaser of shares without knowledge of the existence of
the provision unless the existence of the proxy and its irrevocability is
noted conspicuously on the face or back of the certificate representing such
shares.
h. If a proxy for the same shares confers authority upon two (2) or
more persons and does not otherwise provide a majority of such persons
present at the meeting, or if only one is present, then that one may exercise
all the powers conferred by the proxy. If the proxy holders present at the
meeting are equally divided as to the right and manner of voting in any
particular case, the voting of such shares shall be prorated.
i. If a proxy expressly so provides, any proxy holder may appoint
in writing a substitute to act in his place.
Section 11. VOTING OF SHARES BY SHAREHOLDERS.
a. Shares standing in the name of another corporation, domestic or
foreign, may be voted by the officer, agent or proxy designated by the Bylaws
of the corporate shareholder, or, in the absence of any applicable Bylaw, by
such person as the Board of Directors of the corporate shareholder may
designate. Proof of such designation may be made by presentation of a
certified copy of the Bylaws or other instrument of the corporate
shareholder. In the absence of any such designation, or in case of
conflicting designation by the corporate shareholder, the Chairman of the
Board, President, any
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vice president, secretary and treasurer of the corporate shareholder, in that
order shall be presumed to possess authority to vote such shares.
b. Shares held by an administrator, executor, guardian or
conservator may be voted by him, either in person or by proxy, without a
transfer of such shares into his name. Shares standing in the name of a
trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such
shares into his name.
c. Shares standing in the name of a receiver may be voted by such
receiver. Shares held by or under the control of a receiver but not standing
in the name of such receiver, may be voted by such receiver without the
transfer thereof into his name if authority to do so is contained in an
appropriate order of the court by which such receiver was appointed.
d. A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the
pledge.
e. Shares of the capital stock of the Corporation belonging to the
Corporation or held by it in a fiduciary capacity shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares.
ARTICLE III
DIRECTORS
Section 1. BOARD OF DIRECTORS; EXERCISE OF CORPORATE POWERS.
a. All corporate powers shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors except as may be
otherwise provided in the Articles of Incorporation. If any such provision is
made in the Articles of Incorporation, the powers and duties conferred or
imposed upon the Board of Directors shall be exercised or performed to such
extent and by such person or persons as shall be provided in the Articles of
Incorporation.
b. Directors need not be residents of the state of incorporation
unless the Articles of Incorporation so require.
c. The Board of Directors shall have authority to fix the
compensation of Directors unless otherwise provided in the Articles of
Incorporation.
d. A Director shall perform his duties as a Director, including his
duties as a member of any committee of the Board upon which he may serve, in
good faith, in a manner he reasonably believes to be in the best interests of
the Corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
e. In performing his duties, a Director shall be entitled to rely
on information, opinions, reports or statments, including financial data, in
each case prepared or presented by: (i) one or more officers or employees of
the Corporation whom the Director reasonably believes to be reliable and
competent in the matters presented; (ii) counsel, public accountants or other
persons as to matters which the Director reasonably believes to be within
such persons' professional or expert competence; or (iii) a committee of the
Board upon which he does not serve, duly designated in accordance with a
provision of the Articles of Incorporation or the Bylaws, as to matters
within its designated authority, which committee the Director reasonably
believes to merit confidence.
f. A Director shall not be considered to be acting in good faith if
he has knowledge concerning the matter in question that would cause such
reliance described in Subsection 1(c) of this Article III to be unwarranted.
g. A person who performs his duties in compliance with this Article
III, Section 1 shall have no liability by
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reason of being or having been a Director of the Corporation.
h. A Director of the Corporation who is present at a meeting of the
Board of Directors at which action on any corporate matter is taken consents
thereto unless he votes against such action or abstains from voting in
respect thereto because of an asserted conflict of interest.
Section 2. NUMBER; ELECTION; CLASSIFICATION OF DIRECTORS; VACANCIES.
a. The Board of Directors of this Corporation shall consist of not
less than three (3) nor more than seven (7) members, unless the number of
shareholders is less than three, in which the Corporation shall have as many
directors as there are shareholders. The number of directors shall be fixed
by the initial Board of Directors. The number of directors constituting the
initial Board of Directors shall be fixed by the Articles of Incorporation.
The number of directors may be increased from time to time by the Board of
directors, but no decrease shall have the effect of shortening the term of
any incumbent director.
b. Each person named in the Articles of Incorporation as a member
of the initial Board of Directors, shall hold office until the first annual
meeting of shareholders, and until his successor shall have been elected and
qualified or until his earlier resignation, removal from office or death.
c. At the first annual meeting of shareholders and at each annual
meeting thereafter the shareholders shall elect directors to hold office
until the next succeeding annual meeting, except in case of the
classification of directors as permitted by the Colorado Business Corporation
Act. Each director shall hold office for the term for which he is elected and
until his successor shall have been elected and qualified or until his
earlier resignation, removal from office or death.
d. The shareholders, by amendment to these Bylaws, may provide that
the directors be divided into not more than four classes, as nearly equal in
number as possible, whose terms of office shall respectively expire at
different times, but no such term shall continue longer than four (4) years,
and at least one-fifth (1/5) in number of the directors shall be elected
annually.
e. If directors are classified and the number of directors is
thereafter changed, any increase or decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly equal in
number as possible.
f. Any vacancy occurring in the Board of Directors including any
vacancy created by reason of an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. A director elected to
fill a vacancy shall hold office only until the next election of directors by
the shareholders.
Section 3. REMOVAL OF DIRECTORS.
a. At a meeting of shareholders called expressly for that purpose,
directors may be removed in the manner provided in this Article III, Section
3. Any director or the entire Board of Directors may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors.
b. If the Corporation has cumulative voting, if less than the
entire Board is to be removed, no one of the directors may be removed if the
votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire Board of Directors, or, if
there be classes of directors, at an election of the class of directors of
which he is a member.
Section 4. DIRECTOR QUORUM AND VOTING.
a. A majority of the number of directors fixed in the manner
provided in these Bylaws shall constitute a
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quorum for the transaction of business unless a greater number if required
elsewhere in these Bylaws.
b. A majority of the members of an Executive Committee or other
committee shall constitute a quorum for the transaction of business at any
meeting of such Executive Committee or other committee.
c. The act of the majority of the directors present at a Board
meeting at which a quorum is present shall be the act of the Board of
Directors.
d. The act of a majority of the members of an Executive Committee
present at an Executive Committee meeting at which a quorum is present shall
be the act of the Executive Committee.
e. The act of a majority of the members of any other committee
present at a committee meeting at which a quorum is present shall be the act
of the committee.
Section 5. DIRECTOR CONFLICTS OF INTEREST.
a. No contract or other transaction between this Corporation and
one or more of its directors or any other Corporation, firm, association or
entity in which one or more of its directors are directors or officers or are
financially interested, shall be either void or voidable because of a
relationship or interest or because such director or directors are present at
the meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction or because his
or their votes are counted for such purpose, if:
(i) The fact of such relationship or interest is disclosed or
known to the Board of Directors or committee which authorizes, approves or
ratifies the contract or transaction by a vote or consent sufficient for the
purpose without counting the votes or consents of such interested directors;
or
(ii) The fact of such relationship or interest is disclosed or
known to the shareholders entitled to vote and they authorize, approve or
ratify such contract or transaction by vote or written consent; or
(iii) The contract or transaction is fair and reasonable as to
the Corporation at the time it is authorized by the Board, a committee, or
the shareholders.
b. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
Section 6. EXECUTIVE AND OTHER COMMITTEES; DESIGNATION; AUTHORITY.
a. The Board of Directors, by resolution adopted by a majority of
the full Board of Directors, may designate from among its members an
Executive Committee and one or more other committees each of which, to the
extent provided in such resolution or in the Articles of Incorporation or
these Bylaws, shall have and may exercise all the authority of the Board of
Directors, except that no such committee shall have the authority to: (i)
approve or recommend to shareholders actions or proposals required by the
Colorado Business Corporation Act to be approved by shareholders; (ii)
designate candidates for the office of director for purposes of proxy
solicitation or otherwise; (iii) fill vacancies on the Board of Directors or
any committee thereof; (iv) amend the Bylaws; or (v) authorize or approve the
issuance or sale of, or any contract to issue or sell, shares or designate
the terms of a series of class of shares, unless the Board of Directors,
having acted regarding general authorization for the issuance or sale of
shares, or any contract therefor, and, in the case of a series, the
designation thereof, has specified a general formula or method by resolution
or by adoption of a stock option or other plan, authorized a committee to fix
the terms upon which shares may be issued or sold, including, without
limitation, the price, the rate or manner of payment of dividends, provisions
for redemption, sinking fund, conversion, and voting preferential rights, and
provisions for other features of a class of shares, or a series of class of
shares, with full power in such committee to adopt any final resolution
setting forth all the terms thereof and to authorize the statement of the
terms of a
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series for filing with the Secretary of State under the Colorado Business
Corporation Act.
b. The Board, by resolution adopted in accordance with Article III,
Subsection 6(a) may designate one or more directors as alternate members of
any such committee, who may act in the place and stead of any absent member
or members at any meeting of such committee.
c. Neither the designation of any such committee, the delegation
thereto of authority, nor action by such committee pursuant to such authority
shall alone constitute compliance by any member of the Board of Directors,
not a member of the committee in question, with his responsibility to act in
good faith, in a manner he reasonably believes to be in the best interests of
the Corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
Section 7. PLACE, TIME, NOTICE, AND CALL OF DIRECTORS' MEETINGS.
a. Meetings of the Board of Directors, regular or special, may be held
either within or without this state.
b. A regular meeting of the Board of Directors of the Corporation shall
be held for the election of officers of the Corporation and for the
transaction of such other business as may come before such meeting as
promptly as practicable after the annual meeting of the shareholders of this
Corporation without the necessity of other notice than this Bylaw. Other
regular meetings of the Board of Directors of the Corporation may be held at
such times and at such places as the Board of Directors of the Corporation
may from time to time resolve without other notice than such resolution.
Special meetings of the Board of Directors may be held at any time upon call
of the Chairman of the Board or the President or a majority of the Directors
of the Corporation, at such time and at such place as shall be specified in
the call thereof. Notice of any special meeting of the Board of Directors
must be given at least two (2) days prior thereto, if by written notice
delivered personally; or at least five (5) days prior thereto, if mailed; or
at least two (2) days prior thereto, if by telegram; or at least two (2) days
prior thereto, if by telephone. If such notice is given by mail, such notice
shall be deemed to have been delivered when deposited with the United States
Postal Service addressed to the business address of such director with
postage thereon prepaid. If notice be given by telegram, such notice shall be
deemed delivered when the telegram is delivered to the telegraph company. If
notice is given by telephone, such notice shall be deemed delivered when the
call is completed.
c. Notice of a meeting of the Board of Directors need not be given to
any director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the
meeting, the time of the meeting, or the manner in which it has been called
or convened, except when a director states, at the beginning of the meeting,
any objection to the transaction of business because the meeting is not
lawfully called or convened.
d. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
e. A majority of the directors present, whether or not a quorum exists,
may adjourn any meeting of the Board of Directors to another time and place.
Notice of any such adjourned meeting shall be given to the directors who were
not present at the time of the adjournment and, unless the time and place of
the adjourned meeting are announced at the time of the adjournment, to the
other directors.
f. Members of the Board of Directors may participate in a meeting of
such Board by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 8. ACTION BY DIRECTORS WITHOUT A MEETING.
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Any action required by the Colorado Business Corporation Act to be taken
at a meeting of the directors of the Corporation, or a committee thereof, may
be taken without a meeting if a consent in writing, setting forth the action
so to be taken, signed by all of the directors, or all of the members of the
committee, as the case may be, is filed in the minutes of the proceedings of
the Board or of the committee. Such consent shall have the same effect as a
unanimous vote.
Section 9. COMPENSATION.
The directors and members of the Executive and any other committee of
the Board of Directors shall be entitled to such reasonable compensation for
their services and on such basis as shall be fixed from time to time by
resolution of the Board of Directors. The Board of Directors and members of
any committee of the Board of Directors shall be entitled to reimbursement
for any reasonable expenses incurred in attending any Board or committee
meeting. Any director receiving compensation under this section shall not be
prevented from serving the Corporation in any other capacity and shall not be
prohibited from receiving reasonable compensation for such other services.
Section 10. RESIGNATION.
Any Director of the Corporation may resign at any time without
acceptance by the Corporation. Such resignation shall be in writing and may
provide that such resignation shall take effect immediately or on any future
date stated in such notice.
Section 11. REMOVAL.
Any Director of the Corporation may be removed for cause by a majority
vote of the other members of the Board of Directors as then constituted or
with or without cause by the vote of the holders of a majority of the
outstanding shares of capital stock shareholders of the Corporation called
for such purpose.
Section 12. VACANCIES.
In the event that a vacancy shall occur on the Board of Directors of the
Corporation whether because of death, resignation, removal, an increase in
the number of directors or any other reason, such vacancy may be filled by
the vote of a majority of the remaining directors of the Corporation even
though such remaining directors represent less than a quorum. An increase in
the number of directors shall create vacancies for the purpose of this
section. A director of the Corporation elected to fill a vacancy shall hold
office for the unexpired term of his predecessor, or in the case of an
increase in the number of directors, until the election and qualification of
directors at the next annual meeting of the shareholders.
ARTICLE IV
OFFICERS
Section 1. ELECTION; NUMBER; TERMS OF OFFICE.
a. The officers of the Corporation shall consist of a Chairman of the
Board, a President, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors at such time and in such manner as may be
prescribed by these Bylaws. Such other officers and assistant officers and
agents as may be deemed necessary may be elected or appointed by the Board of
Directors.
b. All officers and agents, as between themselves and the Corporation,
shall have such authority and perform such duties in the management of the
Corporation as are provided in these Bylaws, or as may be determined by
resolution of the Board of Directors not inconsistent with these Bylaws.
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c. Any two (2) or more offices may be held by the same person except the
offices of the President and Secretary.
d. A failure to elect a Chairman of the Board, President, a Secretary
and a Treasurer shall not affect the existence of the Corporation.
Section 2. REMOVAL.
An officer of the Corporation shall hold office until the election and
qualification of his successor; however, any officer of the Corporation may
be removed from office by the Board of Directors whenever in its judgment the
best interests of the Corporation will be served thereby. Such removal shall
be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of any officer shall not of itself create
any contract right to employment or compensation.
Section 3. VACANCIES.
Any vacancy in any office from any cause may be filled for the unexpired
portion of the term of such office by the Board of Directors.
Section 4. POWERS AND DUTIES.
a. The Chairman of the Board shall be the Chief Executive Officer of the
Corporation. The Chairman of the Board shall preside at all meetings of the
shareholders and of the Board of Directors. Except where by law the
signature of the President is required or unless the Board of Directors shall
rule otherwise, the Chairman of the Board shall possess the same power as the
President to sign all certificates, contracts and other instruments of the
Corporation which may be authorized by the Board of Directors. Unless a
Chairman of the Board is specifically elected, the President shall be deemed
to be the Chairman of the Board.
b. The President shall be the Chief Operating Officer of the
Corporation. He shall be responsible for the general day-to-day supervision
of the business and affairs of the Corporation. He shall sign or countersign
all certificates, contracts or other instruments of the Corporation as
authorized by the Board of Directors. He may, but need not, be a member of
the Corporation and shall preside at all meetings of the shareholders and the
Board of Directors. He shall make reports to the Board of Directors and
shareholders. He shall perform such other duties as are incident to his
office or are properly required of him by the Board of Directors. The Board
of Directors will at all times retain the power to expressly delegate the
duties of the President to any other officer of the Corporation.
c. The Vice-President(s), if any, in the order designated by the Board
of Directors, shall exercise the functions of the President during the
absence, disability, death, or refusal to act of the President. During the
time that any Vice-President is properly exercising the functions of the
President, such Vice-President shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice-President shall have such
other duties as are assigned to him from time to time by the Board of
Directors or by the President of the Corporation.
d. The Secretary of the Corporation shall keep the minutes of the
meetings of the shareholders of the Corporation and, if so requested, the
Secretary shall keep the minutes of the meetings of the Board of Directors of
the Corporation. The Secretary shall be the custodian of the minute books of
the Corporation and such other books and records of the Corporation as the
Board of Directors of the Corporation may direct. The Secretary shall make
or cause to be made all proper entries in all corporate books that the Board
of Directors of the Corporation may direct. The Secretary shall have the
general responsibility for maintaining the stock transfer books of the
Corporation, or of supervising the maintenance of the stock transfer books of
the Corporation by the transfer agent, if any, of the Corporation. The
Secretary shall be the custodian of the corporate seal of the Corporation and
shall affix the corporate seal of the Corporation on contracts and other
instruments as the Board of Directors of the Corporation may direct. The
Secretary shall perform such other duties as are assigned to
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him from time to time by the Board of Directors or the President of the
Corporation.
e. The Treasurer of the Corporation shall have custody of all funds and
securities owned by the Corporation. The Treasurer shall cause to be entered
regularly in the proper books of account of the Corporation full and accurate
accounts of the receipts and disbursements of the Corporation. The Treasurer
of the Corporation shall render a statement of cash, financial and other
accounts of the Corporation whenever he is directed to render such a
statement by the Board of Directors or by the President of the Corporation.
The Treasurer shall at all reasonable times make available the Corporation's
books and financial accounts to any Director of the Corporation during normal
business hours. The Treasurer shall perform all other acts incident to the
office of the Treasurer of the Corporation, and he shall have such other
duties as are assigned to him from time to time by the Board of Directors or
the President of the Corporation.
f. Other subordinate or assistant officers appointed by the Board of
Directors or by the President, if such authority is delegated to him by the
Board of Directors, shall exercise such powers and perform such duties as may
be delegated to them by the Board of Directors or by the President, as the
case may be.
g. In case of the absence or disability of any officer of the
Corporation and of any person authorized to act in his place during such
period of absence or disability, the Board of Directors may from time to time
delegate the powers and duties of such officer to any other officer or any
director or any other person whom it may select.
Section 5. SALARIES.
The salaries of all Officers of the Corporation shall be fixed by the
Board of Directors. No officer shall be ineligible to receive such salary by
reason of the fact that he is also a Director of the Corporation and
receiving compensation therefor.
ARTICLE V
LOANS TO EMPLOYEES AND OFFICERS;
GUARANTY OF OBLIGATIONS OF EMPLOYEES AND OFFICERS
This Corporation may lend money to, guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of a
subsidiary, including any officer or employee who is a Director of the
Corporation or of a subsidiary, whenever, in the judgment of the Directors,
such loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest, and may be unsecured, or secured in such manner as the Board of
Directors shall approve including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Article shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of this Corporation at
common law or under any statute.
ARTICLE VI
STOCK CERTIFICATES; VOTING TRUSTS; TRANSFERS
Section 1. CERTIFICATES REPRESENTING SHARES.
a. Every holder of shares in this Corporation shall be entitled to one
or more certificates, representing all shares to which he is entitled and
such certificates shall be signed by the President or a Vice President and
the Secretary or an Assistant Secretary of the Corporation and may be sealed
with the seal of the Corporation or a facsimile thereof. The signatures of
the President or Vice President and the Secretary or Assistant Secretary may
be facsimiles if the certificate is manually signed on behalf of a transfer
agent or a registrar, other than the Corporation itself or an employee of the
Corporation. In case any officer who signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
such certificate is issued, it may be used by the Corporation with the same
effect as if he were such officer at the date of its issuance.
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b. Each certificate representing shares shall state upon the face
thereof: (i) the name of the Corporation; (ii) that the Corporation is
organized under the laws of this state; (iii) the name of the person or
persons to whom issued; (iv) the number and class of shares, and the
designation of the series, if any, which such certificate represents; and (v)
the par value of each share represented by such certificate, or a statement
that the shares are without par value.
c. No certificate shall be issued for any shares until such shares are
fully paid.
Section 2. TRANSFER BOOK.
The Corporation shall keep at its registered office or principal place of
business or in the office of its transfer agent or registrar, a book (or
books where more than one kind, class, or series of stock is outstanding) to
be known as the Stock Book, containing the names, alphabetically arranged,
addresses and Social Security numbers of every shareholder, and the number of
shares of each kind, class or series of stock held of record. Where the
Stock Book is kept in the office of the transfer agent, the Corporation shall
keep at its office in the State of Colorado copies of the stock lists
prepared from said Stock Book and sent to it from time to time by said
transfer agent. The Stock Book or stock lists shall show the current status
of the ownership of shares of the Corporation provided, if the transfer agent
of the Corporation be located elsewhere, a reasonable time shall be allowed
for transit or mail.
Section 3. TRANSFER OF SHARES.
a. The name(s) and address(s) of the person(s) to whom shares of stock
of this Corporation are issued, shall be entered on the Stock Transfer Books
of the Corporation, with the number of shares and date of issuance.
b. Transfer of shares of the Corporation shall be made on the Stock
Transfer Books of the Corporation by the Secretary or the transfer agent,
only when the holder of record thereof or the legal representative of such
holder of record or the attorney-in-fact of such holder of record, authorized
by power of attorney duly executed and filed with the Secretary or transfer
agent of the Corporation, shall surrender the Certificate representing such
shares for cancellation. Lost, destroyed or stolen Stock Certificates shall
be replaced pursuant to Section 5 of this Article VI.
c. The person or persons in whose names shares stand on the books of
the Corporation shall be deemed by the Corporation to be the owner of such
shares for all purposes, except as otherwise provided pursuant to Section 10
and 11 of Article II, or Section 4 of this Article VI.
Section 4. VOTING TRUSTS.
a. Any number of shareholders of the Corporation may create a voting
trust for the purpose of conferring upon a trustee or trustees the right to
vote or otherwise represent their shares, for a period not to exceed ten (10)
years, by: (i) entering into a written voting trust; (ii) depositing a
counterpart of the agreement with the Corporation at its registered office;
and (iii) transferring their shares to such trustee or trustees for the
purposes of this Agreement. Prior to the recording of the Agreement, the
shareholder concerned shall tender the stock certificate(s) described therein
to the corporate secretary who shall note on each certificate:
"This Certificate is subject to the provisions of a voting trust
agreement dated __________________, recorded in Minute Book __________________,
of the Corporation.
-----------------------
Secretary"
b. Upon the transfer of such shares, voting trust certificates shall be
issued by the trustee or trustees to the shareholders who transfer their
share in trust. Such trustee or trustees shall keep a record of the holders
of the voting trust certificates evidencing a beneficial interest in the
voting trust, giving the names and addresses of all such holders and the
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number and class of the shares in respect of which the voting trust
certificates held by each are issued, and shall deposit a copy of such record
with the Corporation at its registered office.
b. Upon the transfer of such shares, voting trust certificates shall be
issued by the trustee or trustees to the shareholders who transfer their
shares in trust. Such trustee or trustees shall keep a record of the holders
of the voting trust certificates evidencing a beneficial interest in the
voting trust, giving the names and addresses of all such holders and the
number and class of the shares in respect of which the voting trust
certificates held by each are issued, and shall deposit a copy of such record
with the Corporation at its registered office.
c. The counterpart of the voting trust agreement and the copy of such
record so deposited with the Corporation shall be subject to the same right
of examination by a shareholder of the Corporation, in person or by agent or
attorney, as are the books and records of the Corporation, and such
counterpart and such copy of such record shall be subject to examination by
any holder of record of voting trust certificates either in person or by
agent or attorney, at any reasonable time for any proper purpose.
d. At any time before the expiration of a voting trust agreement as
originally fixed or as extended one or more times under this Article VI,
Subsection 4(d) one or more holders of voting trust certificates may, by
agreement in writing, extend the duration of such voting trust agreement,
nominating the same or substitute trustee or trustees, for an additional
period not exceeding ten (10) years. Such extension agreement shall not
affect the rights or obligations of persons not parties to the agreement, and
such persons shall be entitled to remove their shares from the trust and
promptly to have their stock certificates reissued upon the expiration date
of the original term of the voting trust agreement. The extension agreement
shall in every respect comply with and be subject to all the provisions of
this Article VI, Section 4 applicable to the original voting trust agreement
except that the ten (10) year maximum period of duration shall commence on
the date of adoption of the extension agreement.
e. The trustees under the terms of the agreements entered into under
the provisions of this Article VI, Section 4 shall not acquire the legal
title to the shares but shall be vested only with the legal right and title
to the voting power which is incident to the ownership of the shares.
Section 5. LOST, DESTROYED, OR STOLEN CERTIFICATES.
No certificate representing shares of the stock in the Corporation shall
be issued in place of any Certificate alleged to have been lost, destroyed,
or stolen except on production of evidence, satisfactory to the Board of
Directors, of such loss, destruction or theft, and, if the Board of Directors
so requires, upon the furnishing of an indemnity bond in such amount (but not
to exceed twice the fair market value of the shares represented by the
Certificate) and with such terms and with such surety as the Board of
Directors may, in its discretion, require.
ARTICLE VII
BOOKS AND RECORDS
a. The Corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders, Board
of Directors and committees of Directors.
b. Any books, records and minutes may be in written form or in any
other form capable of being converted into written form within a reasonable
time.
c. Any person who shall have been a holder of record of one quarter of
one percent of all shares or of voting trust certificates therefor at least
six months immediately preceding his demand or shall be the holder of record
of, or the holder of record of voting trust certificates for, at least five
(5%) percent of the outstanding shares of any class or series of the
Corporation, upon written demand stating the purpose thereof, shall have the
right to examine, in person or by agent or
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attorney, at any reasonable time or times, for any proper purpose, its
relevant books and records of account, minutes and record of shareholders and
to make extracts therefrom.
d. No shareholder who within two (2) years has sold or offered for sale
any list of shareholders or of holders of voting trust certificates for
shares of this Corporation or any other Corporation; has aided or abetted any
person in procuring any list of shareholders or of holders of voting trust
certificates for any such purpose; or has improperly used any information
secured through any prior examination of the books and records of account,
minutes, or record of shareholders or of holders of voting trust certificates
for shares of the Corporation or any other Corporation; shall be entitled to
examine the documents and records of the Corporation as provided in
Subsection (c) of this Article VII. No shareholder who does not act in good
faith or for a proper purpose in making his demand shall be entitled to
examine the documents and records of the Corporation as provided in
Subsection (c) of this Article VII.
e. Unless modified by resolution of the shareholders, this Corporation
shall prepare not later than four (4) months after the close of each fiscal
year:
(i) A balance sheet showing in reasonable detail the financial
conditions of the Corporation as of the date of its fiscal year.
(ii) A profit and loss statement showing the results of its
operation during its fiscal year.
f. Upon the written request of any shareholder or holder of voting trust
certificates for shares of the Corporation, the Corporation shall mail to
such shareholder or holder of voting trust certificates a copy of its most
recent balance sheet and profit and loss statement.
g. Such balance sheets and profit and loss statements shall be filed and
kept for at least five (5) years in the registered office of the Corporation
in this state and shall be subject to inspection during business hours by any
shareholder or holder of voting trust certificates.
ARTICLE VIII
DIVIDENDS
The Board of Directors of the Corporation may, from time to time,
declare and the Corporation may pay dividends on its shares in cash, property
or its own shares, except when the Corporation is insolvent or when the
payment thereof would render the Corporation insolvent subject to the
following provisions:
a. Dividends in cash or property may be declared and paid, except as
otherwise provided in this Article VIII, only out of the unreserved and
unrestricted earned surplus of the Corporation or out of capital surplus,
however arising, but each dividend paid out of capital surplus shall be
identified as a distribution of capital surplus, and the amount per share
paid from such capital surplus shall be disclosed to the shareholders
receiving the same concurrently with the distribution.
b. Dividends may be declared and paid in the Corporation's treasury
shares.
c. Dividends may be declared and paid in the Corporation's authorized
but unissued shares out of any unreserved and unrestricted surplus of the
Corporation upon the following conditions:
(i) If a dividend is payable in the Corporation's own shares
having a par value, such shares shall be issued at not less than the par
value thereof and there shall be transferred to stated capital at the time
such dividend is paid an amount of surplus equal to the aggregate par value
of the shares to be issued as a dividend.
(ii) If a dividend is payable in the Corporation's own shares
without par value, such shares shall be issued at such stated value as shall
be fixed by the Board of Directors by resolution adopted at the time such
dividend is
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declared, and there shall be transferred to stated capital at the time such
dividend is paid an amount of surplus equal to the aggregate stated value so
fixed in respect of such shares; and the amount per share so transferred to
stated capital shall be disclosed to the shareholders receiving such dividend
concurrently with the payment thereof.
d. No dividend payable in shares of any class shall be paid to the
holders of shares of any other class unless the Articles of Incorporation so
provide or such payment is authorized by the affirmative vote or written
consent of the holders of at least a majority of the outstanding shares of
the class in which the payment is to be made.
e. A split up or division of the issued shares of any class into a
greater number of shares of the same class without increasing the stated
capital of the Corporation shall not be construed to be a stock dividend
within the meaning of this Article VIII.
ARTICLE IX
INDEMNIFICATION
Section 1. ACTION, ETC OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding or investigation, whether civil, criminal or
administrative, and whether external or internal to the Corporation, (other
than a judicial action or suit brought by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the Corporation, or that, being or having been such a director,
officer, employee or agent, he is or was serving at the request of the
Corporation as a director, officer, employee, or trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise (all such
persons being referred to hereafter as an "Agent"), against expenses
(including attorney's fees), judgements, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding, or any appeal therein, if such person acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful.
The termination of any action, suit or proceeding -- whether by judgment,
order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equivalent -- shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, that such person had reasonable cause to
believe that his conduct was unlawful.
Section 2. ACTION, ETC., BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
judicial action or suit brought by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was an
Agent (as defined above) against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense,
settlement or appeal of such action or suit if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable for gross negligence or willful misconduct in the
performance of his or her duty to the Corporation unless and only to the
extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 3. DETERMINATION OF RIGHT OF INDEMNIFICATION.
Any indemnification under Section 1 or 2 (unless ordered by a court)
shall be made by the Corporation unless a determination is reasonably and
promptly made (i) by the Board by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders,
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that such person acted in bad faith and in a manner that such person did not
believe to be in or not opposed to the best interests of the Corporation, or,
with respect to any criminal proceeding, that such person believed or had
reasonable cause to believe that his conduct was unlawful.
Section 4. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent that
an Agent has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice or the settlement of
an action without admission of liability, in defense of any proceeding or in
defense of any claim, issue or matter therein, or on appeal from any such
proceeding, action, claim or matter, such Agent shall be indemnified against
all expenses incurred in connection therewith.
Section 5. ADVANCES OF EXPENSES.
Except as limited by Section 6 of this Article, costs, charges and
expenses (including attorneys' fees) incurred in any action, suit, proceeding
or investigation or any appeal therefrom shall be paid by the Corporation in
advance of the final disposition of such matter, if the Agent shall undertake
to repay such amount in the event that it is ultimately determined, as
provided herein, that such person is not entitled to indemnification.
Notwithstanding the foregoing, no advance shall be made by the Corporation if
a determination is reasonably and promptly made by the Board of Directors or
if a majority vote of a quorum of disinterested directors cannot be obtained,
then by independent legal counsel in a written opinion, that, based upon the
facts known to the Board or counsel at the time such determination is made,
such person acted in bad faith and in a manner that such person did not
believe to be in or not opposed to the best interest of the Corporation, or,
with respect to any criminal proceeding, that such person believed or had
reasonable cause to believe his conduct was unlawful. In no event shall any
advance be made in instances where the Board or independent legal counsel
reasonably determines that such person deliberately breached his duty to the
Corporation or its shareholders.
Section 6. RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION;
PROCEDURE UPON APPLICATION.
Any indemnification under Sections 1, 2 and 4 or advance under Section 5
of this Article, shall be made promptly, and in any event within ninety (90)
days, upon the written request of the Agent, unless with respect to
applications under Sections 1, 2 or 5, a determination is reasonably and
promptly made by the Board of Directors by a majority vote of a quorum of
disinterested directors that such Agent acted in a manner set forth in such
Sections as to justify the Corporation's not indemnifying or making an
advance to the Agent. In the event no quorum of disinterested directors is
obtainable, the Board of Directors shall promptly direct that independent
legal counsel shall decide whether the Agent acted in the manner set forth in
such Sections as to justify the Corporation's not indemnifying or making an
advance to the Agent. The right to indemnification or advances as granted by
this Article shall be enforceable by the Agent in any court of competent
jurisdiction, if the Board or independent legal counsel denies the claim, in
whole or in part, or if no disposition of such claim is made within ninety
(90) days. The Agent's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part,
in any such proceeding shall also be indemnified by the Corporation.
Section 7. CONTRIBUTION.
In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in this Article is held by a court
of competent jurisdiction to be unavailable to an indemnitee in whole or
part, the Corporation shall, in such an event, after taking into account,
among other things, contributions by other directors and officers of the
Corporation pursuant to indemnification agreements or otherwise, and, in the
absence of personal enrichment, acts of intentional fraud or dishonesty or
criminal conduct on the part of the Agent, contribute to the payment of
Agent's losses to the extent that, after other contributions are taken into
account, such losses exceed: (i) in the case of a director of the Corporation
or any of its subsidiaries who is not an officer of the Corporation or any of
such subsidiaries, the amount of fees paid to him for serving as a director
during the 12 months preceding the commencement of the suit, proceeding or
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investigation; or (ii) in the case of a director of the Corporation or any of
its subsidiaries who is also an officer of the Corporation or any of such
subsidiaries, the amount set forth in clause (i) plus 5% of the aggregate
cash compensation paid to said director for service in such office(s) during
the 12 months preceding the commencement of the suit, proceeding or
investigation; or (iii) in the case of an officer of the Corporation or any
of its subsidiaries, 5% of the aggregate cash compensation paid to such
officer of service in such office(s) during the 12 months preceding the
commencement of such suit, proceeding or investigation.
Section 8. OTHER RIGHTS AND REMEDIES.
The indemnification provided by this Article shall not be deemed
exclusive of, and shall not affect, any other rights to which an Agent
seeking indemnification may be entitled under any law, Bylaw, or charter
provision, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be an Agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. All rights to indemnification
under this Article shall be deemed to be provided by a contract between the
Corporation and the Agent who serves in such capacity at any time while these
Bylaws and other relevant provisions of the general corporation law and other
applicable law, if any are in effect. Any repeal or modification thereof
shall not affect any rights or obligations then existing.
Section 9. INSURANCE.
Upon resolution passed by the Board, the Corporation may purchase and
maintain insurance on behalf of any person who is or was an Agent against any
liability asserted against such person and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify such person against such
liability under the provisions of this Article. The Corporation may create a
trust fund, grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of such sums as may
become necessary to effect indemnification as provided herein.
Section 10. CONSTITUENT CORPORATION.
For the purposes of this Article, references to the "Corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporation, so that any person who is or
was a director, officer, employee, agent or trustee of such a constituent
corporation or who, being or having been such a director, officer, employee
or trustee, is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or trustee of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting
or surviving corporation as such person would if he had served the resulting
or surviving corporation in the same capacity.
Section 11. OTHER ENTERPRISES, FINES AND SERVING AT CORPORATION'S REQUEST.
For purposes of this Article, references to "other enterprise" in
Sections 1 and 10 shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service by Agent as director, officer,
employee, trustee or agent of the Corporation which imposes duties on, or
involves services by, such Agent with respect to any employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and
in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article.
Section 12. SAVINGS CLAUSE.
If this Article or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each Agent as to expenses (including attorneys' fees),
judgments, fines and
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amounts paid in settlement with respect to any action, suit, appeal,
proceeding or investigation, whether civil, criminal, administrative, and
whether internal or external, including a grand jury proceeding and an action
or suit brought by or in [illegible] right of the Corporation, to the full
extent permitted by any applicable portion of this Article that shall not
have [illegible] invalidated, or by any other applicable law.
ARTICLE X
AMENDMENT OF BYLAWS
a. The Board of Directors shall have the power to amend, alter, or
repeal these Bylaws, and to adopt [illegible] Bylaws, from time to time.
b. The shareholders of the Corporation, may, at any annual meeting of
the shareholders of the Corporation, or at any special meeting of the
shareholders of the Corporation called for the purpose of amending these
Bylaws, amend, alter, or repeal these Bylaws, and adopt new Bylaws, from time
to time.
c. The Board of Directors shall not have the authority to adopt or
amend any Bylaw if such new Bylaw or such amendment would be inconsistent
with any Bylaw previously adopted by the shareholders of the Corporation. The
shareholders may prescribe in any Bylaw made by them that such Bylaw shall
not be altered, amended or repealed by the Board of Directors.
ARTICLE XI
SHAREHOLDER AGREEMENTS
Unless the shares of this Corporation are listed on a national
securities exchange or are regularly quoted by licensed securities dealers
and brokers, all the shareholders of this Corporation may enter into
agreements relating to any phase [illegible] business and affairs of the
Corporation and which may provide for, among other things, the election of
directors of the Corporation in a manner determined without reference to the
number of shares of capital stock of the Corporation owned by its
shareholders, the determination of management policy, and division of
profits. Such agreement may restrict the discretion of the Board of Directors
and its management of the business of the Corporation or may treat the
Corporation as if it were a partnership or may arrange the relationships of
the shareholders in a manner that would be appropriate only among partners.
In the event such agreement shall be inconsistent in whole or in part with
the Articles of Incorporation and/or Bylaws of the Corporation, the terms of
such agreement shall govern. Such agreement shall be binding upon any
transferee of shares of this corporation provided such transferee has actual
notice thereof or a legend referring to such agreement is noted on the face
or back of the certificate or certificates representing the shares
transferred to such transferee.
ARTICLE XII
FISCAL YEAR
The Fiscal Year of this Corporation shall be determined by the Board of
Directors.
Date: Nov 5, 1995 /s/
-------------- ------------------
Secretary
[S E A L]
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EXHIBIT 6.01
CONTENT LICENSE AGREEMENT
THIS CONTENT LICENSE AGREEMENT ("Agreement") is made and entered into as of
October 1, 1999 ("Effective Date") by and between National Register Publishing,
a division of Reed Elsevier Inc., a Massachusetts corporation ("NRP") and
Showstar Online.com, Inc., a Delaware corporation ("Showstar"), under the
following circumstances:
A. Showstar is an Internet development company which is developing a Web Site
which will be owned and operated solely by Showstar and will be available on the
World Wide Web as an art mega-site targeted toward art collectors, enthusiasts
and novices;
B. NRP publishes and owns certain publications related to the art industry; and
C. Showstar desires to include such NRP publications on the art mega-site which
it is developing and NRP desires to provide such NRP publications to Showstar
solely for such purpose.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1. "ArtStar Web Site" means the electronic art mega-site which is owned,
operated and maintained by Showstar, is available through the World Wide Web and
provides art-related information and services directed toward art collectors,
enthusiasts and novices.
1.2. "Intellectual Property Rights" means any patent, design right, copyright,
trademark, service mark (and any application or registration respecting the
foregoing), database right, trade secret, know-how and/or other present or
future intellectual property right of any type, wherever in the world enjoyable.
1.3. "Licensed Materials" means the art related publications owned and published
by NRP which are described on Schedule A to this Agreement.
1.4. "Listing" means any biographical listing for an individual which is
published in Who's Who in American Art and any listing for an institution which
is published in the American Art Directory
1.5. "NRP Marks" means the following marks: National Register Publishing -TM-,
Marquis Who's Who -Registered Trademark-, Marquis Who's Who in American Art -TM-
and the names of the publications specified on Schedule A.
1.6. "Showstar Marks" means the following marks: Artstar.COM-TM- , ABID.COM-TM-,
Showstar Online.com Inc.
1.7. "Showstar Net Advertising Revenues" means the gross revenues received by
Showstar in connection with advertising which is placed in any portion of the
ArtStar Web Site where any portion of the Licensed Materials is contained on the
same screen (including in margins and frames around any portion of the Licensed
Materials) less the amounts actually paid to the independent advertising
agency(ies), if any, directly for placing such advertising.
1.8. "Showstar Net Revenue from NRP Related E-commerce" means revenue received
<PAGE>
by Showstar from e-commerce transactions conducted through or in connection with
the ArtStar Web Site in which any party to the transaction is listed in any
portion of the Licensed Materials less all applicable sales taxes shown
separately on Showstar's invoices and actually paid by Showstar in connection
with such transactions.
1.9. "Single Line Listing" means the name and other elements from a Listing
which take no more than one line of print (in normal size type) on the ArtStar
Web Site but which may not include the full address or telephone number of the
person or entity which is the subject of the Listing from which the Single Line
Listing is taken.
1.10. Additional terms maybe defined in the text of this Agreement.
2. GRANT OF LICENSE
2.1. Subject to the terms and conditions of this Agreement, NRP hereby grants to
Showstar a non-exclusive, non-transferable worldwide license to (a) use and
display the Licensed Materials on the ArtStar Web Site, (b) permit users of the
ArtStar, Web Site limited access to the Licensed Materials including the ability
to search the Licensed Materials on the ArtStar Web Site and download
insubstantial portions of the Licensed Materials for their personal use, and
(c) alter the format (but not the content) of the Licensed Materials as
reasonably necessary in order to display the Licensed Materials on the ArtStar
Web Site. This license granted by this Section 2.1 shall be exclusive until
April 1, 2000 and shall be non-exclusive at all times thereafter.
2.2. The license granted in Section 2.1 above includes the right to (a) load the
Licensed Materials on servers owned and controlled by Showstar for the purpose
of making the Licensed Materials available on the ArtStar Web Site, (b) make up
to two back-up copies of the Licensed Materials as are reasonably necessary,
(c) display, download or print Licensed Materials for purposes of Showstar's
internal testing, development and maintenance of the ArtStar Web Site, (d) use
insubstantial portions of the Licensed Materials (i.e., two or three listings at
any one time) for purposes of marketing the ArtStar Web Site and availability of
the Licensed Materials thereon and (e) place advertising in or around the
Licensed Materials as permitted by Section 5 below.
2.3. Showstar shall (a) not permit the Licensed Materials provided to it under
this Agreement to reside anywhere but on servers owned and controlled by
Showstar, or (b) use or display the Licensed Materials other than on the ArtStar
Web Site.
2.4. Showstar shall use and display the Licensed Materials on the ArtStar Web
Site only in a manner whereby the Licensed Materials are accessible to users (a)
only in response to discreet searches for specific criteria such as the name of
an individual artist or institution or a particular location, or (b) in a manner
whereby the user is able to view and/or download no more than 15 Single Line
Listings or 1 full Listing at any one time.
2.5. NRP expressly reserves to itself all rights not expressly granted to
Showstar in this Agreement and Showstar may not use the Licensed Materials in
any manner or for any other purpose than expressly set forth in Sections 2.1 and
2.2. above.
2.6. Showstar shall use its best efforts to prevent users of the Licensed
Materials from copying, downloading or printing any portion of the Licensed
<PAGE>
Materials for anything other than personal use.
3. DELIVERY OF LICENSED MATERIALS
3.1. NRP will, within 60 days after the Effective Date, deliver Licensed
Materials to the Showstar delivery address set forth on Schedule C hereto via
magnetic media in the form and format determined by NRP (or as otherwise agreed
between NRP and Showstar).
3.2. Subsequent to the delivery of Licensed Materials as specified in Section
3.1, no updates or enhancements to the Licensed Materials will be delivered
during the Initial Term. In the event that this Agreement is renewed after the
Initial Term, NRP will deliver to Showstar subsequent editions of the Licensed
Materials within 3 months after initial commercial publication thereof.
4. COPYRIGHT
4.1. Whenever the Licensed Materials (or any portion thereof) are displayed or
downloaded, Showstar shall cause such materials (as displayed and as downloaded)
to bear a notice comprised of the following elements: (a) the word "Copyright"
or the abbreviation "Copr." Or the symbol c (the letter c in a circle); (b) the
year of first publication of such document as specified by NRP; (c) the name of
the copyright holder as specified on Schedule A; and (d) the phrase "All Rights
Reserved", or such other notice as NRP may reasonably request.
5. PRESENTATION OF LICENSED MATERIALS; ADVERTISING
5.1. Showstar will be responsible for the design, layout, posting and overall
manner in which the Licensed Materials will be made available on the ArtStar Web
Site and any modifications or alterations thereto (collectively "Manner of
Presentation"). Such Manner of Presentation (including all modifications and
alterations) shall be subject to the prior review and approval of NRP and prior
to initial release of any Licensed Materials on the ArtStar Web Site (and prior
to any modification in the Manner of Presentation), Showstar shall provide or
make available to NRP a demonstration of the Manner of Presentation, will
implement such reasonable changes as may be required by NRP and will not release
the Licensed Materials on the ArtStar Web Site or implement the modification at
issue until NRP has granted its approval thereof, which will not be
unreasonably delayed.
5.2. Showstar will position the Licensed Materials in a prominent location on
the ArtStar Web Site.
5.3. Showstar shall have the right to sell advertising in and around the
Licensed Materials as made available on the ArtStar Web Site, provided that such
advertising is tasteful, does not reflect negatively on NRP, and does not
contain or advertise any material which is actually or potentially obscene,
indecent, defamatory, unlawful, infringing of third-party Intellectual Property
Rights, third-party contractual rights, or otherwise objectionable or unsuitable
("Offensive Content"). Should NRP notify Showstar that it believes any
advertising in or around the Licensed Materials contains Offensive Content,
Showstar shall remove such advertising from in and around the Licensed
Materials. Showstar shall use reasonable commercial efforts to sell advertising
in and around the Licensed Materials and at a rate comparable to or better than
that being charged for advertising placed on other portions of the ArtStar Web
<PAGE>
Site.
5.4. Showstar will not include any advertising on pages containing Licensed
Materials that falsely implies to the user that the advertiser is associated
with NRP, Reed Elsevier or the Licensed Materials.
6. OTHER OBLIGATIONS
6.1. Prior to the initial release of Licensed Materials on the ArtStar Web Site:
a. Showstar will perform commercially reasonable testing of the delivery of
the Licensed Materials to users through the ArtStar Web Site to ensure quality
of the delivered Licensed Materials;
b. Showstar shall allow appropriate NRP personnel to review the ArtStar Web Site
to verity its compliance with this Agreement and will cooperate with NRP in such
review by providing such information as reasonably requested by NRP; and
c. Showstar will implement a system which limits access to the Licensed
Materials to ensure that users cannot retrieve or print more than 15 Single Line
Listings or 1 full Listing from any single search of the Licensed Materials.
6.2. Showstar will, subject to the parties agreeing upon the terms of a mutually
acceptable "Supplier Agreement" under which Showstar is provided nonexclusive
rights to be an online sales agent for the Licensed Materials on a nonexclusive
basis, provide users of the ArtStar Web Site with the opportunity to purchase
the hardcopy version of the Licensed Materials through the Bookstore feature of
ArtStar Web Site and through a "click and buy" feature available to users on
each screen on which any Licensed Materials are accessed.
6.3. Showstar shall be responsible for compliance with all applicable local,
state and federal laws, rules and regulations and shall use reasonable
commercial efforts to ensure that the ArtStar Web Site and the operation thereof
are in compliance with all applicable laws, rules and regulations.
6.4. Showstar shall prominently include NRP's marks, in the manner and style
reasonably designated by NRP, on pages of the ArtStar Web Site on which Licensed
Materials appear, together with a notice (as agreed between NRP and Showstar)
indicating that the Licensed Materials are provided by NRP or Marquis Who's Who.
7. COMPENSATION; AUDIT RIGHTS
7.1. In consideration for the rights granted to it under this Agreement,
Showstar shall pay to NRP:
7.1.1. During the initial Term:
a. A nonrefundable initial payment in the amount of $70,000 which shall be
paid in full upon the full execution of this Agreement by NRP and Showstar;
b. on a monthly basis, (i) until Showstar has paid NRP $250,000 (including the
<PAGE>
$70,000 payment under (a) above), an amount equal to the greater of (1) 40% of
the Showstar Net Advertising Revenue received by Showstar during such month plus
10% of the Showstar Net Revenue from NRP Related E-Commerce received by Showstar
during such month or (2) $10,000; and (ii) once Showstar has paid NRP $250,000,
an amount equal to 40% of the Showstar Net Advertising Revenue received by
Showstar during such month and plus 10% of the Showstar Net Revenue from NRP
Related E-Commerce received by Showstar during such month.
c. During the Initial Term Showstar shall pay NRP a minimum payment of $250,000
under this Section 7, and all amounts paid to NRP under a. and b. above shall
apply to such minimum.
7.1.2. During any Renewal Term:
7.1.3. On a monthly basis, an amount equal to the greater of (i) 40% of the
Showstar Net Advertising Revenue received by Showstar during such month plus 10%
of the Showstar Net Revenue from NRP Related E-Commerce received by Showstar
during such month or (ii) $13,900.
7.1.4. Amounts to be paid on a monthly basis under Section 7.1 above shall be
delivered to NRP within 30 days after the end of the month for which the payment
is due. All payments shall be made in U.S. Dollars and will be delivered to NRP
at the Payment Address set forth on Schedule C. Each payment shall be
accompanied by a detailed report, certified by an officer of Showstar, setting
forth the Showstar Net Advertising Revenues and the Showstar Net Revenues from
NRP Related E-Commerce on which the payment is based.
7.1.5. Showstar shall also provide to NRP such additional information related to
the amounts paid under Section 7.1 and the methods used by Showstar to calculate
such amounts as may be reasonably requested by NRP from time to time.
7.1.6. Showstar shall keep true and accurate records, files, and books of
account containing all the data reasonably required for the full computation and
verification of the fees to be paid and the statements to be given pursuant to
this Section 7. NRP, at its expense, and on not less than seven (7) days prior
written notice to Showstar, will have the right, not more than twice in any
calendar year, to designate and direct independent auditors or accountants to
inspect and audit all of the books and records of Showstar in order to verify
the figures reported to NRP in any monthly report(s) and the amounts owed to NRP
pursuant to this Agreement. Such books and records will be made available to
such auditors or accountants at the place where the records are kept in the
ordinary course of business or such other location as mutually agreed upon by
the parties. All audits will be conducted during normal business hours and in
such a manner as not to unreasonably interfere with normal business activities.
If, as a result of such examination or audit, such auditors or accountants
determine that Showstar mis-reported any figure or underpaid any amount, NRP
will furnish to Showstar a copy of the report of its auditors or accountants
setting forth the discrepancy, and showing, in reasonable detail, the bases upon
which the same was determined. Showstar will remit to NRP a sum equal to the
amount of any underpayment within 30 days after notification of the discrepancy.
It such discrepancy is greater than 5% of the total amount reported by Showstar
for the period audited, then Showstar will reimburse NRP for the cost of the
<PAGE>
audit.
8. USE OF MARKS; PUBLICITY
8.1. Subject to Section 8.3, NRP hereby grants Showstar a non-exclusive,
nontransferable, worldwide limited license to use, reproduce, publish and
display the NRP Marks (a) on the ArtStar Web Site in connection with posting and
maintaining the Licensed Materials thereon; and (b) to promote the availability
of Licensed Materials on the ArtStar Web Site in promotional and marketing
materials, content directories and indexes, and electronic and printed
advertising, publicity, press releases, newsletters and mailings.
8.2. Subject to Section 8.3, Showstar hereby grants to NRP a non-exclusive,
nontransferable, worldwide limited license to use, reproduce, publish and
display the Showstar Marks to promote the availability of Licensed Materials on
the ArtStar Web Site in promotional and marketing materials, content directories
and indexes, and electronic and printed advertising, publicity, press releases,
newsletters and mailings.
8.3. Neither party shall use or exploit in any manner the other party's Marks
except in such manner and media as such other party may consent to in writing,
which consent shall not be unreasonably withheld or delayed. Each request for
such approval shall be accompanied by (a) a rough sketch or layout of the
proposed material, indicating the placement and context of placement of the
parties' names, trademarks, service marks or logos; and (b) a copy of the
proposed narrative accompaniment. Requests for approval of NRP will be sent to
NRP via U.S. Mail, overnight delivery or fax to the following address or fax
number:
ATTN Marketing Director
Marquis Who's Who
121 Chanlon Road
New Providence NJ 07974
Fax 908-464-3553
With a copy to:
ATTN Permissions Coordinator - Legal Department
LEXIS-NEXIS
9443 Springboro Pike
Miamisburg OH 45342
Fax 937-865-1211
or such other address or fax number as NRP may specify by notice to Showstar.
Requests for approval of Showstar will be sent to Showstar by U.S. Mail,
overnight delivery or fax to the following address or fax number,
ATTN Vice President, E-commerce
Showstar Online.com, Inc.
#85 10551 Shellbridge Way
Richmond
B.C. Canada V6X 2W9
Fax 604-244-3931
or such other address or fax number as Showstar may specify by notice to NRP.
Once approved under this Section 8, an item shall be deemed approved for future
use in the same manner provided that the approving party may revoke or modify
<PAGE>
any such approval upon written notice to the other party and such use shall be
discontinued or modified, as the case may be, upon receipt of notice in writing
from the approving party of revocation or modification of approval.
8.4. Upon the effective date of cancellation, expiration or other termination of
this Agreement, the non-owning party shall discontinue any and all use of the
other party's name, trademarks, service marks and logos, excepting solely for
reasonable quantities of general purpose printed materials (e.g., catalogs and
sales literature) which may be on hand at that time, which may be used until the
same are replaced or reprinted in the ordinary course of business.
8.5. The parties will work together to issue publicity and general marketing
communications concerning their relationship and other mutually agreed-upon
matters, provided, however, that neither party shall have any obligation to
issue publicity or provide marketing communications. In addition, neither party
shall issue such publicity and general marketing communications concerning their
relationship without the prior written consent of the other party, which shall
not be unreasonably withheld or delayed.
9. REPRESENTATIONS AND WARRANTIES
9.1. NRP represents and warrants that NRP has, and will have throughout the term
of this Agreement, the right to grant to Showstar the license for the Licensed
Materials and that the Licensed Materials as delivered to Showstar by NRP will
not infringe the Intellectual Property Rights of any third party.
9.2. Showstar represents and warrants that it has, and will have throughout the
term of this Agreement, all rights and licenses necessary or appropriate to
legally operate the ArtStar Web Site and that the ArtStar Web Site and all
servers and software used by Showstar in connection therewith will not infringe
the Intellectual Property Rights of any third party.
9.3. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED
MATERIALS OR THE ARTSTAR WEB SITE AND ALL SUCH OTHER WARRANTIES ARE EXPRESSLY
EXCLUDED, INCLUDING, WITHOUT LIMITATION, ALL WARRANTIES OF MERCHANTABILTIY AND
FITNESS FOR PARTICULAR PURPOSE AND ALL WARRANTIES AS TO THE ACCURACY AND
ADEQUACY OF THE LICENSED MATERIALS WHICH ARE PROVIDED TO SHOWSTAR ON AN "AS IS"
BASIS OTHER THAN AS SPECIFIED IN SECTION 9.1 ABOVE.
10. INDEMNIFICATION
10.1. NRP shall defend, indemnify and hold harmless Showstar, its affiliates and
its and their directors, officers, employees, agents, successors, assigns,
licensees and distributors against any and all judgments, settlements,
penalties, costs and expenses (including attorneys' fees) paid or incurred in
connection with claims by and third party which arise from use of Licensed
Materials under this Agreement and are attributable to infringement or
misappropriation by such Licensed Materials of any Intellectual Property Rights
of any third party provided that such claim does not arise from any modification
or addition to the Licensed Materials made by Showstar or any person receiving
Licensed Materials through Showstar.
10.2. Showstar shall defend, indemnify and hold harmless NRP, its
affiliates and its and their directors, officers, employees, agents successors
<PAGE>
and assigns against any and all judgments, settlements, penalties, costs and
expenses (including attorneys' fees) paid or incurred in connection with claims
by any third party which arise in connection with operation of the ArtStar Web
Site and are attributable to (a) infringement or misappropriation of any
Intellectual Property Rights of any third party (other than claims covered under
Section 9,1. Above) or (b) failure to comply with any applicable law, rule,
regulation or order of any government, administrative authority or court.
10.3. In the event that either party becomes aware of any event or circumstances
which it believes may give rise to a claim for which it believes it has been
indemnified pursuant to this Agreement ("Claim"), that party (the "Indemnified
Party") shall promptly notify the other party (the "Indemnifying Party") in
writing of such Claim. The Indemnifying Party shall appoint experienced counsel
reasonably acceptable to the Indemnified Party to represent NRP and Showstar in
any legal action relating to the Claim; provided, however, that the Indemnified
party shall also have the right to retain its own separate legal counsel at its
own expense in connection therewith and observe and be present at all meetings,
conferences and other proceedings related to the Claim. The Indemnified Party
shall (a) give the Indemnifying Party full authority to defend and settle any
action relating to the Claim, as long as the settlement does not require the
payment of money or the forbearance or taking of any action by the Indemnified
Party (except to cease offering the Licensed Materials at issue) and provides
for a full and unconditional release of the Indemnified Party from all liability
in connection with the Claim, and (b) provide all reasonable assistance to the
Indemnifying Party, at the Indemnifying Party's expense.
11. LIMITATION OF LIABILITY
11.1. In no event shall either party be liable for special, indirect, incidental
or consequential damages arising under or in connection with this Agreement, or
the performance of, or failure to perform, any obligations hereunder, whether in
contract, warranty, negligence, tort, strict liability or otherwise; provided,
however, that the foregoing shall not apply in the case of willful misconduct or
gross negligence.
11.2. Notwithstanding any provision contained herein to the contrary, in no
event will the aggregate liability of NRP, its affiliates or their respective
officers, directors, and employees to Showstar or to any third person for
damages, direct or otherwise, arising out of or in connection with this
Agreement exceed the total amount of fees actually paid to NRP during the 6
months immediately prior to the date on which the alleged damages were claimed
to have been incurred, regardless of the cause or form of action.
12. PROPRIETARY RIGHTS
12.1. Showstar acknowledges that NRP owns all right, title and interest,
including without limitation the copyright, in and to the Licensed Materials and
all features, functions, coding, and formatting thereof. The copyright and title
to all proprietary interests in or to the Licensed Materials are and shall
remain in NRP as owner and this Agreement shall not grant to Showstar, or any
affiliate, agent, or customer of Showstar, any right or ownership therein.
12.2. Showstar shall not remove, obscure or obstruct the display of any
copyright, trademark or other proprietary notice placed upon the Licensed
<PAGE>
Materials by NRP, or alter the text thereof, without NRP's approval, which will
not be unreasonably withheld. Showstar, without the approval of NRP, may make
reasonable graphic alterations to the foregoing, such as increasing the size of
a trademark or reasonably decreasing the size of the text of a copyright notice.
12.3. Showstar shall use the Licensed Materials solely in accordance with the
terms of this Agreement. Showstar shall not copy, download or otherwise
reproduce the Licensed Materials in any medium or in any way, in whole or in
part, or alter, modify or adapt the Licensed Materials, including but not
limited to creating derivative works other than as expressly provided under the
terms and conditions of this Agreement.
12.4. Showstar acknowledges that the Licensed Materials are the product of NRP's
extensive gathering and coordination of information, selection therefrom of
information considered by NRP to be relevant and useful, and original
arrangement of selected information.
12.5. Showstar shall not commit, or knowingly assist its agents or customers to
commit, any act or omission that would impair NRP's Intellectual Property Rights
in and to the Licensed Materials.
13. TERM AND TERMINATION
13.1. Subject to the terms of Sections 13.2, 13.3 and 13.4 below, this Agreement
shall commence on the Effective Date and shall remain in effect for an initial
term continuing through April 1, 2001 ("Initial Term").
13.2. After the Initial Term, subject to Sections 13.3, and 13.4, this Agreement
shall automatically renew for successive additional terms of one year each (each
such period of one year is referred to as a "Renewal Term") unless either party
gives the other notice of termination at least two months prior to the
expiration of the Initial Term or the then-current Renewal Term, as the case may
be.
13.3. This Agreement may be terminated by NRP (a) immediately upon notice to
Showstar in the event that Showstar fails to pay any amount owed to NRP
within 30 days of the date such amount was due and fails to remedy such
default within 15 days following written notice thereof from NRP or (b)
immediately upon notice to Showstar in the event that Showstar is using the
Licensed Materials (or any portion thereof) in any way other than as
expressly permitted by this Agreement and fails to remedy such default within
10 days following written notice thereof from NRP or (c) at anytime on not
less than 20 days prior notice to Showstar in the event that NRP believes
that availability of the Licensed Materials on the ArtStar Web Site is
affecting the business or reputation of NRP, Marquis Who's Who, Reed Elsevier
Inc., or any of its affiliates in a negative manner.
13.4. In addition to the foregoing, either party may terminate this Agreement
immediately upon written notice to the other party if such other party becomes
insolvent, admits in writing its inability to pay its debts as they become due
or ceases or threatens to cease to carry on the business or a substantial
portion of the business carried on by it.
<PAGE>
13.5. Upon any termination or non-renewal of this Agreement, Showstar shall
immediately discontinue use of the Licensed Materials and shall, within 10 days
after the effective date of termination, purge its computer system of and, at
NRP's option, either return to NRP all copies of the Licensed Materials in its
possession or destroy all such Licensed Materials. Showstar will, upon the
request of NRP, certify that the actions required of it by the foregoing
sentence have been taken.
14. ARBITRATION
14.1. The parties will attempt to settle any controversy or claim arising out of
or relating to this Agreement, or the breach thereof, through friendly
consultation between the parties. If within thirty (30) days from the initial
receipt by the allegedly offending party of notice of the controversy, claim or
breach (the "Consultation Period") settlement cannot be reached, the controversy
or claim will be settled by binding arbitration conducted before a single
arbitrator who is knowledgeable in commercial law and laws and practices
regarding information/database licensing and Internet. The arbitration will be
conducted in accordance with the then applicable Commercial Arbitration Rules of
the American Arbitration Association, and judgement upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. Each
party will bear its own costs and expenses, including fees and expenses of
counsel, associated with the arbitration, The arbitrator will not be empowered
to award punitive damages except for willful misconduct.
14.2. The provisions of Section 14.1 will not prohibit either party from
instituting an action for or obtaining an equitable remedy.
15. CONFIDENTIALITY
15.1 As used in this Agreement, "Confidential Information" means (a) proprietary
or trade secret information which is clearly labeled or designated in writing as
confidential, proprietary or the like by the disclosing party, and (b)
information disclosed orally with a designation of such information as secret,
confidential or proprietary prior to or during the oral disclosure and a
subsequent reduction of such information to a writing labeled confidential,
proprietary or the like and sent to the party to whom the disclosure was made
within 15 days after the oral disclosure. Information shall not be considered
Confidential Information to the extent that such information is: (w) already
known to the receiving party free of any restriction at the time it is obtained
from the other party, (x) subsequently learned from an independent third party
free of any restriction and without breach of this Agreement; (y) or becomes
publicly available through no wrongful act of the receiving party, or (z)
required to be disclosed by applicable law.
15.2. Each of NRP and Showstar agrees that it will not, during the term of this
Agreement and for one year thereafter, disclose to any other person or entity
any Confidential Information received from the other, except (a) to the extent
necessary or desirable to perform under this Agreement, (b) in connection with
any pending action related to this Agreement, or (c) as required by a court of
competent jurisdiction. Notwithstanding the provisions of this Section 15, the
parties may disclose Confidential information to their respective affiliates,
accountants, attorneys, and other similar professional advisors as long as the
entity to which Confidential Information is disclosed is subject to obligations
of confidentiality with the same effect as those specified in this Section 15.
<PAGE>
16. NOTICES
16.1. All notices given pursuant to this Agreement shall be in writing and sent
to the party to be notified at its notice address or facsimile number set forth
on Schedule D hereto and shall be deemed sufficient if sent prepaid by certified
U.S. Mail, by nationally-recognized overnight service (which provides proof of
delivery) or via facsimile transmission with confirmed answer back. Notices
shall be effective upon receipt by the party to which the notice is directed.
16.2. Either party may from time to time change its notice address set forth in
this Agreement by notice to the other party.
17. ENTIRE AGREEMENT; MODIFICATION; WAIVER
17.1. This Agreement constitutes the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior and contemporaneous
communications, understandings and agreements, oral or written, concerning the
subject matter of this Agreement.
17.2. No modification or waiver any provision of this Agreement shall be valid
unless such modification or waiver is in a writing drafted specifically and
exclusively to amend or modify this Agreement and signed by the party against
whom it is sought to be enforced. No purchase order, invoice, acceptance form or
other like document shall modify this Agreement in any manner or impose
obligations on the parties in addition to or inconsistent with those set forth
herein. No waiver at any time of any provision of this Agreement, whether by
conduct or otherwise, shall be deemed a waiver of any other provision of this
Agreement at that time or a waiver of that or any other provision of this
Agreement at any other time.
18. INJUNCTIVE RELIEF
18.1. Showstar acknowledges that any use of the Licensed Materials by Showstar
which is not in accordance with the terms of this Agreement or any violation of
the restrictions imposed on its use of the Licensed Materials would cause
irreparable harm to NRP for which there would be no adequate remedy at law.
Accordingly, Showstar agrees that in the event of any such violation, NRP shall
be entitled to immediate injunctive relief (temporary, preliminary or permanent,
as the case may be) against Showstar, its officers and employees, in addition to
such other rights and remedies to which it may be entitled by law. In the event
any such injunction is entered, Showstar shall pay the reasonable expenses
incurred by NRP in obtaining such injunction, including, without limitation,
reasonable attorney fees.
19. GOVERNING LAW
19.1. This Agreement shall be interpreted and construed according to, and
governed by, the laws of the State of New Jersey, United States of America, as
applicable to agreements made and wholly performed therein.
20. MISCELLANEOUS
<PAGE>
20.1. Notwithstanding the expiration or earlier termination of this Agreement,
Sections 9, 10, 11, 12, 13.5 and 14-20 and Showstar's obligation to pay all
amounts due under Section 7 shall survive said expiration or earlier termination
and shall remain in full force and effect.
20.2. This Agreement and any amendments may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one agreement.
20.3. Nothing in this Agreement shall be construed to constitute or appoint
either party as the agent or representative of the other party for any purpose
whatsoever, or to grant to either party any right or authority to assume or
create any obligation or responsibility, express or implied, for or on behalf of
or in the name of the other party, or to bind the other party in any way or
manner whatsoever. Neither party will make any warranties or promises in the
other party's name or enter into any contracts or licenses on behalf of the
other party.
20.4. Neither party shall be liable to the other party for any loss or damage
attributable to, and neither party shall be deemed to be in default hereunder as
a result of, any failure or delay in performance caused by force majeure. For
purposes of this Agreement, the term "force majeure" shall include strike,
lockout, earthquake, hurricane, flood, fire or other acts of God, nature, war,
rebellion, civil disorders, laws, regulations, acts of civil or military
authorities (including the denial or cancellation of any export or other
necessary license), unavailability of materials, carriers or communications
facilities, and any other causes beyond the reasonable control of the party
whose performance is affected. The party effected by an event constituting
"force majeure" shall use all reasonable efforts to minimize the consequences of
the same. Where force majeure remains in effect for more than three months, or
if at the beginning of a force majeure condition it is clear that it will last
longer than three months, either party may terminate this Agreement by giving
notice to the other at least three months prior to such termination.
20.5. If any provision of this Agreement is found invalid or unenforceable, that
provision will be enforced to the maximum extent permissible and the other
provisions of this Agreement shall remain in force and unaffected.
20.6. This Agreement is binding upon and shall inure to the benefit of the
parties and their respective permitted successors, trustees, and assigns.
Neither party shall have the right to assign this Agreement without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed. Notwithstanding the foregoing, NRP shall have the right to assign
its rights and obligations under this Agreement, in whole or in part, to any
affiliate of it or its parent corporation or to any entity which shall succeed
to all or substantially all of the business or assets of NRP having to do with
NRP's performance of this Agreement, provided that such successor entity shall
assume all the duties and obligations of NRP under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the first
date above written.
<PAGE>
SHOWSTAR ONLINE.COM, INC. NATIONAL REGISTER PUBLISHING, A
DIVISION OF REED ELSEVIER, INC.
BY: /s/ BY: /s/
NAME: JOHN PUNZO NAME: RANDY MYSEL
TITLE: PRESIDENT, C.E.O. TITLE: VICE PRESIDENT/PUBLISHER
SEPT 22/99
LEXIS-NEXIS LEGAL DEPT.
REVIEWED BY: [initialed]
DATE: 9/23/99
SCHEDULE A
LICENSED MATERIALS
<TABLE>
<CAPTION>
Publication Copyright Holder Year of Copyright
<S> <C> <C>
1. The 23rd (Millennium) Edition Reed Elsevier Inc. 1999
of Who's Who in American Art-TM-
2. The 57th Edition of the American Reed Elsevier Inc. 1999
Art Directory
3. Subsequent editions of the above Reed Elsevier Inc. Year of initial
publications which are published publication
during any Renewal Term of this
Agreement.
</TABLE>
SCHEDULE B
DELIVERY ADDRESSES
Showstar Online.com, Inc.
Attn: Vice President, E-commerce
5407-108th Avenue, N.E.
Kirkland, WA 98033
SCHEDULE C
PAYMENT ADDRESS
National Register Publishing
Attn: Randy Mysel, Vice President and Publisher
121 Chanlon Road
New Providence, NJ 07974
SCHEDULE D
NOTICE ADDRESSES
If to Showstar: If by U.S. Mail or Courier, addressed to:
Showstar Online.com, Inc.
<PAGE>
Attn: President and CEO
#85 10551 Shellbridge Way
Richmond
B.C. Canada V6X 2W9
If by fascimile transmission, sent to:
Showstar Online.com, Inc.
Attn: Vice President, E-commerce
Fascimile Number- 604-303-0442
with a confirmation copy sent via mail or courier to the
address specified above
If to NRP: If by U.S. Mail or Courier, addressed to:
National Register Publishing
Attn Randy Mysel, Vice President and Publisher
121 Chanlon Road
New Providence, NJ 07974
with a copy to:
National Register Publishing c/o LEXIS-NEXIS
Attn: General Counsel
9443 Springboro Pike
Miamisburg, OH 45342
If by facsimile transmission, sent to:
National Register Publishing
Attn. Randy Mysel
Facsimile Number: 908-508-9671
with a copy to:
National Register Publishing c/o LEXIS-NEXIS
Attn; General Counsel
Facsimile Number: 937-865-1211
With, in each case, a confirmation copy sent via mail or courier to the address
specified above.
<PAGE>
EXHIBIT 6.02
AGREEMENT
This agreement is between Showstar Online.com, Inc, a Colorado corporation
("Buyer") and LIEBERMAN'S GALLERY, LLP, a Massachusetts limited liability
partnership ("Lieberman's").
Recitals
Lieberman's is in the business of (i) fulfilling orders from wholesale customers
for open edition posters and prints, (ii) providing canvas transfer and box
mounting services for posters and prints to wholesale customers, and (iii)
shipping posters and prints, canvas transfers and box mounted posters and prints
directly to wholesale customers or to any person specified by the wholesale
customer ("the Business").
The Buyer's business includes one or more of the following activities; selling
posters and prints, canvas transfers of posters and prints or box or plaque
mounted posters and prints at retail; in each case including to customers who
place orders via the internet, telephone or other electronic means. The Buyer
does not sell posters or prints at wholesale and will not do so during the term
of this agreement.
Terms
For good and valuable consideration received by each from the other, Buyer and
Lieberman's hereby agree as follows:
1. "Products" means unframed open edition posters and prints available through
Lieberman's, canvas transfers of such posters and prints, and box or plaque
mountings of such posters and prints. "Open edition" means available from a
publisher or other supplier in sufficient quantity to satisfy Buyer's
requirements therefor. At such time as Lieberman's offers framing services for
posters and prints, it shall so notify Buyer in writing, and thereafter Products
shall also include framed posters and prints and framed canvas transfers of
posters and prints. If Buyer desires to provide framing or other services with
respect to open edition posters and prints it sells to its customers, it shall
so notify Lieberman's in writing. If within 30 days of its receipt of such
writing Lieberman's notifies Buyer in writing that it is willing to provide such
services, then Products shall thereafter include open edition poster and prints
with such services provided.
2. Buyer's Requirements. "Buyer's Requirements" means the entire amount of
Products purchased by Buyer. However, Buyer shall have no obligation to
purchase any Products offered by Lieberman's if Buyer has previously
contracted to purchase on an ongoing basis such Products from another
distributor, supplier manufacturer or publisher prior to the date Lieberman's
first offers such Products for sale to Buyer.
3. Purchase and Sale of Products. During the term of this agreement, Buyer
shall purchase, and Lieberman's shall sell to Buyer, Buyer's Requirements for
Products. All orders for Products shall be (i) in writing or (ii) given via the
Internet, by telephone, facsimile or other electronic means, in which case such
order shall be deemed received when acknowledged by Lieberman's in writing or
electronically. Lieberman's shall acknowledge each order promptly after receipt.
If any term of any such order or acknowledgment varies from the terms of this
agreement, the terms of this agreement shall control and the variation
<PAGE>
in such order or acknowledgment shall have no effect, except as specifically
agreed in a writing signed by both parties. During the term of this agreement,
Buyer shall not sell Products to retailers or other merchants or resellers not
more than once in any 12 month period. Lieberman's may request, and within 30
days of its receipt of such request Buyer shall provide to Lieberman's a
certification by Buyer's auditors that Buyer has purchased Buyer's Requirements
for Products from Lieberman's.
4. Price. The price payable by Buyer to Lieberman's for the Products shall be
as follows:
(a) For unframed open edition posters or prints the price shall be
50% of the published retail prices of the publishers or vendors from whom
Lieberman's purchases such posters or prints.
(b) For canvas transfers, box frames or other services rendered with
respect to posters or prints, in addition to the amount payable pursuant to
paragraph 4(a), Buyer shall pay the published wholesale prices of the vendors
from whom Lieberman's purchases such services.
(c) In addition to the amounts payable pursuant to paragraphs 4(a)
and 4(b), the price for Products shall include delivery charges as described
in Schedule A to this agreement.
Lieberman's may amend Schedule A from time to time as it deems appropriate to
reflect (1) changes in the post of services rendered with respect to posters or
prints, (ii) its charges for services added after the execution of this
agreement that may be included in Products, or (iii) changes in the prices
Lieberman's pays for delivery services Lieberman's uses to deliver Products.
Lieberman's shall notify Buyer of any amendment to Schedule A at least 10 days
prior to the effective date of such amendment
5. Term. The term of this agreement shall be for one year from August 1, 1999,
and shall automatically extend from year to year thereafter; provided, that
either party may terminate this agreement as of July 31 of any calendar year
after 2000 by written notice received by the other party at least 180 days prior
to such termination.
6. Delivery and Payment. Each order of Products shall be shipped on the date
the last of the Products included in such order are received by Lieberman's.
Each shipment of Products shall be by carrier selected by Lieberman's. Payment
terms are net 30 days after the last day of the calendar month in which an
invoice is rendered. Invoices will not be rendered until Products are shipped.
All payments shall be by check payable to Lieberman's and mailed to 82
Industrial Drive, Northampton, MA 01060 or such other address as Lieberman's may
from time to time provide to Buyer. Buyer shall pay to Lieberman's a late charge
of 1% per month on all past due payments. If Buyer fails to comply with any of
its payment obligations under this agreement regardless of whether Buyer pays
any late charge due, Lieberman's may terminate this agreement upon 30 days
advance written notice to Buyer. If Buyer breaches any of the terms of its Terms
of Provision and Use Agreement with Lieberman's referenced in Section 16 hereof,
or if Buyer sells any Products to retailers or other merchants or resellers, in
addition to other remedies available to it, Lieberman's may suspend further
shipments and deliveries under this agreement until such breach is cured to
Lieberman's satisfaction, and no forbearance, course of dealings, or prior
payment shall affect this right of Lieberman's. Further if at any time Buyer's
financial condition becomes impaired or unsatisfactory to Lieberman's, or, in
<PAGE>
Lieberman's opinion, inadequate to meet Buyer's obligations hereunder, the terms
of credit may, at the option of Lieberman's, be changed or withdrawn and if
withdrawn, Lieberman's at its option may require cash or satisfactory security
before making shipments or deliveries under this agreement.
7. Force Majeure. If Lieberman's experiences an Event of Force Majeure, it shall
promptly notify Buyer of the existence of such Event of Force Majeure and, to
the extent possible, of the duration and magnitude of any disability caused
thereby. While such Event of Force Majeure continues, Buyer may purchase its
Requirements for Products from third parties. Buyer shall have no remedy against
Lieberman's to the extent Lieberman's is unable to perform on account of an
Event of Force Majeure. "Event of Force Majeure" shall mean (i) any Act of God,
war, mobilization, drought, flood, fire strike, lockout, labor disturbance, or
accident to machinery, or (ii) failure of usual sources of supply of Products or
services utilized to produce the Products, or any other event beyond the control
of Lieberman's, whether similar or dissimilar to the foregoing.
8. Warranty. If any Product is defective, Buyer's remedy shall be limited
solely to Lieberman's choice of (a) replacement of the Product at no charge to
Buyer or (b) crediting Buyer therefor following disposition thereof by Buyer in
compliance with Lieberman's instructions at Lieberman's expense. Posters or
prints shall not be deemed defective solely because the colors thereof do not
match those in any catalogue, paper, electronic or otherwise or because image or
paper size varies by up to one inch in length or width from specified
dimensions. Lieberman's shall have no other obligation or liability to Buyer
with respect to direct, incidental or consequential damages arising from any
breach of warranty. The foregoing shall be Buyer's sole remedies and Lieberman's
sole obligations with respect to any defective Product. THERE ARE NO OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF
FITNESS FOR ANY PARTICULAR PURPOSE.
9. Claims. Any claim of Buyer with respect to defective Products, shortage in
count or any other matter is hereby waived by Buyer unless made within 20 days
after delivery. Buyer shall not deduct the amount of any claim from amounts due
or to become due Lieberman's until such time as Lieberman's has allowed such
claim. Lieberman's shall act on any claim within 20 days after it is made. If
Lieberman's does not reject a claim within such 20 day period, that claim shall
be deemed allowed. Only If Lieberman's has not paid the amount of any allowed
claim to Buyer within 30 days of the allowance of such claim may Buyer set off
the amount of such claim from amounts payable to Lieberman's.
10. Title and Risk of Loss. Title to, and risk of loss of, each shipment of
Products furnished by Lieberman's under this agreement shall pass from
Lieberman's to Buyer upon delivery of such shipment to the place directed by
Buyer.
11. Taxes. Buyer shall be liable for all sales, use or excise taxes imposed by
any governmental authority, whether existing at the time of this agreement or
subsequently imposed, payable and actually paid by Lieberman's by reason of the
sale, delivery or use of Products shipped pursuant to this agreement.
12. Database License. Lieberman's shall make available to Buyer on CD ROM or
other electronic media or at Lieberman's FTP site an image database containing
scanned images provided to Lieberman's by its suppliers pursuant to nonexclusive
license, and Lieberman's copyrighted text database that describes the image
database. Buyer shall be responsible for downloading periodic updates of such
databases. Lieberman's hereby grants to Buyer a nonexclusive license to download
<PAGE>
and use its copyrighted text data base and a nonexclusive sublicense to download
and use image data bases provided by its suppliers, in each case solely for the
purpose of ordering Products from Lieberman's, and only to the extent permitted
by the Terms of Provision and Use Agreement referenced in Section 16 hereof.
Such license and sublicense shall expire upon termination of this agreement,
notwithstanding any provision of the Terms of Provision and Use Agreement to the
contrary. Buyer shall be responsible for payment of inbound and outbound
bandwidth charges and all other communications charges associated with
downloading and updating such databases. Buyer recognizes the irreparable injury
which might result to the business of Lieberman's if Buyer should utilize such
databases in contravention of the provisions of this Section 12, and agrees that
in addition to any legal remedies Lieberman's may have, Lieberman's shall be
entitled to injunctive relief and such other equitable remedies as a court of
competent jurisdiction may deem appropriate, without the requirement to post any
bond in connection therewith. Lieberman represents and warrants that it has the
right and authority to grant such non-exclusive license and sublicense to buyer.
13. Amendment. This agreement may not be amended except by a writing, signed by
Lieberman's and Buyer or their permitted successors or assigns.
14. Construction. This agreement is intended by the parties as a final
expression of their agreement and as a complete and exclusive statement of its
terms. No course of prior dealing between the parties and no usage of trade
shall be relevant or admissible to supplement, explain, or vary any of the terms
of this agreement. No representations, understandings or agreements have been
made or relied upon in the making of this agreement other than those
specifically set forth herein.
15. Waivers. No failure by either party to this agreement to exercise any right
hereunder shall operate as a waiver of any other right hereunder, and a waiver
of any right on one occasion shall not constitute a bar to or a waiver of any
such right on any future occasion.
16. Terms of Provision and Use Agreement. The Terms of Provision and Use
Agreement of even date between Lieberman's and Buyer is hereby incorporated
herein by reference. In case of any conflict between the provisions hereof and
thereof, the provisions hereof shall govern. Any breach of the Terms of
Provision and Use Agreement shall constitute a default hereunder, and
Lieberman's may thereupon terminate this agreement.
17. Assignment. Either party may assign this agreement, provided, however, that
Buyer may not assign this agreement without the prior written consent of
Lieberman's, which Lieberman's may withhold at its sole discretion. If control
of Buyer is acquired by any person or entity that sells or manufactures
Products, then Lieberman's may terminate this agreement by delivering 30 days
prior written notice to Buyer. If Buyer proposes to sell its operating assets to
any other individual or entity, Buyer shall so notify Lieberman's in writing
prior to entering into any agreement for such sale. Buyer shall cause to be a
condition of such purchase that the purchaser shall agree to become bound by the
provisions of this agreement by a writing satisfactory to Lieberman's if
Lieberman's consents to the assignment of this agreement to such purchaser. This
agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.
18. Notices: Any notice required to be given by this agreement shall be
addressed as follows:
<PAGE>
(a) to Lieberman's:
Lieberman's Gallery, LLP, attn. Paul Lieberman
82 Industrial Drive
Northampton, MA 01060
(b) to Buyer:
Showstar Online.com, Inc.
c/o Technical Operations
#85-10551 Shellbridge Way
Richmond, BC, Canada
V6X 2W9
or to such other address as Lieberman's or Buyer may specify by notice to the
other. Notices shall be deemed delivered, if delivered in person, upon delivery,
or if mailed, 24 hours after mailing.
19. Holidays. If any date on or before which any party shall be obliged to give
a notice, make a payment, or take any other action under this agreement, shall
fall on Saturday, Sunday or U.S. legal holiday, then such notice may be given,
such payment may be made, or such action may be taken, on the next succeeding
business day.
20. Governing Law. This agreement shall be construed under and governed by the
laws of the Commonwealth of Massachusetts without regard to the choice of law
rules thereof.
21. Counterparts. This agreement may be executed in counterparts, each of which
shall constitute an original but the several counterparts shall constitute but
one and the same agreement.
22. Captions. Captions are used in this agreement only for convenience and this
agreement shall be construed as if captions were not included.
23. Covenant Not to Compete. During the term of this Agreement and for a period
of 18 months from the date of termination hereof, Buyer shall not, without the
prior written consent of Lieberman's, and whether as principal, agent,
shareholder, partner, limited liability company manager or member, or as an
employee or director of a sole proprietorship, directly or indirectly compete
with Lieberman's by engaging in the Business; provided, however, that ownership
by Buyer of less than two percent (2%) of the outstanding shares of a publicly
or privately held company shall not be deemed a breach or violation of this
covenant.
If the final Judgment of a court of competent jurisdiction declares that any
term or provision of this Section is invalid or unenforceable, the parties agree
that the court making the determination of invalidity or unenforceablitiy shall
have the power to reduce the scope, duration or area of said term or provision,
to delete specified words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgement may be appealed.
Buyer acknowledges that the terms, scope, geographical limitations and duration
of this covenant not to compete are reasonable and necessary to protect the
goodwill of Lieberman's to be derived from this Agreement, and that the
<PAGE>
consideration received by Buyer for entering into this Agreement is adequate,
for the covenants of Buyer under this section. Buyer recognizes the irreparable
injury which might result to the business of Lieberman's if a breach of this
Section should occur and, in addition to any legal remedies that Lieberman's may
have, Lieberman's shall be entitled to injunctive relief and such other
equitable remedies as a court of competent jurisdiction may deem appropriate.
The prevailing party in any litigation or other proceeding brought to enforce
this Section shall be entitled to an award of its reasonable attorney's fees and
costs incurred in connection with such litigation or other proceeding.
Executed this August 1, 1999.
LIEBERMAN'S GALLERY, LLP
/s/
By Paul Lieberman,
its partner duly authorized
SHOWSTAR ONLINECOM, NC
/s/
By John Punzo,
its President
SCHEDULE A
Delivery Charges
<TABLE>
<CAPTION>
Packages per Week UPS Ground 2nd Day Air Next Day Air
from to
<S> <C> <C> <C> <C>
1 24 $9.00 $10.75 $23.00
25 99 $7.75 $ 9.50 $21.75
100 249 $7.50 $ 9.25 $21.50
250 499 $7.00 $ 8.75 $21.00
500 and up $6.50 $ 8.25 $20.50
</TABLE>
TERMS OF PROVISION AND USE AGREEMENT
LIEBERMAN'S GALLERY LLP, a Massachusetts limited liability partnership,
("Lieberman's") is a wholesale distributor of prints and posters located at 82
Industrial Drive, Northampton, MA 01060 USA. Lieberman's and the undersigned
party identified below as User ("User") agree as follows concerning print and
poster database materials provided by Lieberman's to User:
1. User represents and warrants that User is an internet retailer of merchandise
including art prints and posters; that User has the power, and is duly
authorized, to enter into this agreement; and that this agreement is binding
upon User, its successors and permitted assigns and enforceable against User,
its successors and permitted assigns in accordance with its terms.
2. "Database Materials" consist of the following:
(a) a listing of all art prints and posters offered for sale by Lieberman's
vendors, who are publishers and distributors of such products;
(b) digital files consisting of low-resolution Scans of some but not all of the
various prints and posters included in the listing described above; and
<PAGE>
(c) periodic updates to "listing" and "digital" files, consisting of data
relating to offerings of prints or posters new to the database, alteration of
existing listings such as changes in price or size, or data relating to the
termination of availability of individual prints or posters previously included
in the database.
For each item, an individual record will contain at least the following
information: publisher, stock number, artist name, title, size, retail price.
Lieberman's will provide scans only if the vendor has made them available, and
if the vendor has specifically approved and permitted their use as provided
hereunder.
3. Delivery of Database Materials may be via CD-ROM or other electronic media,
or via posting at a secure FTP site to which User is registered to enter and
collect such Database Materials as they are posted. Choice of the method of
delivery shall be at Lieberman's sole discretion. User shall bear the costs and
expenses of delivery of the Database Materials, including but not limited to
costs of writing and delivery of CD-ROMS or other electronic media, and costs,
such as bandwidth charges, incurred by User or by Lieberman's while User links
to Lieberman's FTP site. Lieberman's shall provide reasonable documentation of
all such charges, and shall periodically invoice User for such charges. User
shall pay such invoices within 30 days of receipt.
4. For the protection of both parties to this agreement, as well as for the
protection of Lieberman's vendors who provide the content represented by the
Database Materials, notwithstanding any other provision of this agreement or any
other agreement between Lieberman's and User, User may use the Database
Materials only while the User is in compliance with both the term of this
agreement and each other agreement between User and Lieberman's.
5. User shall indemnify, defend and hold harmless Lieberman's and those acting
for or on its behalf from and against any and all losses, claims, damages,
expenses or liabilities of any kind, including court costs and reasonable
attorney's fees resulting from, or arising out of, (a) the breach by User of any
represenation, warranty, or agreement of User or an Affiliate of User (as
hereinafter defined) hereunder or (b) any unauthorized use of the Database
Materials by User or any Affiliate of User.
6. All rights in and to the Database Materials throughout the world are held by
Lieberman's or the vendors, publishers, distributors or artists whose works axe
included in the Database Materials.
7. User may receive and use the Database Materials solely for the purpose of
promoting and selling at retail the artwork described therein. All uses of the
Database Materials by User shall at all times be subject to review and approval
by Lieberman's upon reasonable advance notice.
8. Artwork represented by digital scans in the Database Materials may have been
copyrighted by Lieberman's vendors. Excpeting the uses specifically authorized
by this agreement, all customary limitations of use explicit or implicit in such
copyrights shall apply to User. User shall maintain and not alter any copyright
or other intellectual property notices or symbols that accompany or are included
in the Database Materials. Scans which bear a watermark as identification of the
copyright holder when provided to User by Lieberman's must retain the watermark
in User's display.
<PAGE>
9. Digital scans shall be displayed in the form provided and shall not be
altered except for the dimensions of screen display. Under no circumstances may
User's display of digital scans exceed a resolution of 72 dpi.
10. User may use the Database Materials only at the website address of User
identified in this agreement. Each use at any internet site not owned by User or
with a different address will require separate written authorization from and
registration with Lieberman's.
11. User shall operate its website in accordance with the highest industry
standards and in accordance with any applicable laws and government or industry
regulations.
12. Use of any trademark, logo, or other indicia of Lieberman's or of any
vendor, publisher distributor or artist associated with the Database Materials
is subject to the prior approval and instructions of Lieberman' or the
applicable vendor, publisher, distributor or artist, as the case my be.
13. User shall not claim any right, and hereby waives any right it may have, in
or to any of the Database Materials or in or to any trademarks, logos, or other
indicia of Lieberman's or of any vendor, publisher, distributor or artists
associated with the Database Materials. User shall not, and hereby waives any
right it may have to, impose any lien, claim or other encumbrance upon any of
the Database Materials. User shall not, and hereby waives any right it may have
to, challenge the rights of Lieberman's or of any vendor, publisher, distributor
or artist in or to the Database Materials.
14. An "Affiliate" of User shall mean a retailer independent of User (a) who
promotes the sale of any prints or posters offered for retail sale by User, (b)
to whom User pays a commission as compensation for promotion of such sale, and
(c) if with respect to each such sale by such retailer, User sells the prints or
posters directly to the customer. User may, at its discretion, authorize one or
more Affiliates of User to display and promote sales of the prints and posters.
User shall promptly report to Lieberman's the identity and location of each
Affiliate, including physical and website addresses. Lieberman's may provide
such information to its vendors from time to time so that they may monitor the
use of the Database Materials belonging to them.
15. An Affiliate of User may display posters or prints included in the Database
Materials only by linking to the Database Materials at User's website, and may
not download any Database Materials for any purpose or otherwise store any
Database Materials at its own site. Any storage of Database Materials at the
website of a User's Affiliate's shall be considered a breach of this agreement
by User. Affiliates are subject to all the provisions of this agreement
regarding use, display and termination of display of Database Materials. As a
condition of authorizing any Affiliate to use the Database Materials, User shall
require each Affiliate to agree to be bound by the tems of this agreement.
16. User shall not use the Database Materials to sell at wholesale or otherwise
to any reseller, or to create or distribute, or facilitate aid or permit
creation or distribution by others, of reproductions of the posters or prints
described therein.
17. Display of images in the Database Materials is a courtesy offered to
Lieberman's and its customers by Lieberman's vendors. Lieberman's or one or more
of its vendors, at Lieberman's or such vendor's sole discretion, may in writing
from time to time demand termination of display of any specified image
<PAGE>
or images by User or any or all of User's Affiliates. User shall terminate
display of each image so specified within five days of receipt of such writing,
and User shall cause each of its Affiliates who may be displaying any such image
or images to similarly terminate display within such time period.
18. Notwithstanding any other provision hereof, Lieberman's may terminate
this agreement at any time that User is not in Compliance with any of the
terms of this agreement or any other agreement between User and Lieberman's,
at any time that Lieberman's is no longer required to ship posters, prints or
other products to User or User's customers under the terms of a separate
agreement between Lieberman's and User governing the terms of purchase and
sale of posters, prints or othcr products, upon the merger or consolidation
of the User with or into any other entity without the prior written consent
of Lieberman's to the continuation of this agreement thereafter which
Lieberman's may withhold in its sole discretion or upon any change of direct
or indirect control of User.
19. Upon any termination of this agreement for any reason, User shall
immediately terminate all links to the Database Materials and remove any such
Materials and reference to Lieberman's from its website and shall promptly
return to Lieberman's any and all materials provided to User by Lieberman's in
connection herewith, including without limitation any CD-ROMs and any copies of
any Database Materials.
20. All rights in the Database Materials not specifically granted to User or
User's Affiliates herein are expressly reserved to Lieberman's.
21. This agreement may not be amended except by a writing signed by Lieberman's
and User.
22. This agreement is intended by the parties as a final expression of their
agreement and as a complete and exclusive statment of its terms. No course of
prior dealing between the parties and no usage of trade shall be relevant or
admissible to supplement, explain, or vary any of the terms of this
agreement. No representations, understandings or agreements have been made or
relied upon in the making of this agreement other than those specifically set
forth herein.
23. No failure by either party to this agreement to exercise any right hereunder
shall operate as a waiver of any other right hereunder, and a waiver of any
right on one occasion shall not constitute a bar to or a waiver of any such
right on any future occasion.
24. Lieberman's may assign this agreement. However, User may not assign this
agreement, by document of assignment, merger or consolidation, without the prior
written consent of Lieberman's, which Lieberman's may withhold in its sole
discretion. This agrecment shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns.
25. Any notice required to be given by this agreement shall be addressed as
follows:
(a) to Lieberman's:
Lieberman's Gallery, LLP, attn. Paul Lieberman
82 Industrial Drive
Northampton, MA 01060
(b) to User at its mailing address set forth below
<PAGE>
Showstar Online.com, Inc.
c/o Technical Operations
#85-1051 Shellbridge Way
Richmond, BC, Canada
V6X 2W9
or to such other address as Lieberman's or User may specify by notice to the
other. Notices shall be deemed delivered, if delivered in person, upon
delivery, or if mailed, 24 hours after mailing.
26. Governing Law. This agreement shall be construed under and governed by the
laws of the Commonwealth of Massaohusetts without regard to the choice of law
rules thereof.
27. User represents and warrants that the following information is true and
correct:
User's form of organization: corporation
User's state of organizatIon (if not a proprietorship): Colorado
User's principal Place of business: 521 W. 23rd Street
2nd Floor
New York, NY, 10011
User's mailing address; Showstar Technical Operations
#85-10551 Shellbridge Way
Richmond, BC, Canada
V6X 2W9
User's e-mail address: [email protected]
--------------------
User's website URL: www.artstar.com
--------------------
Executed this 1st of August, 1999.
LIEBERMAN'S GALLERY, LLP
/s/
By Paul Lieberman
its partner duly authorized
USER
/s/
By John Punzo
Its President
<PAGE>
EXHIBIT 6.03
CONTRACT
BETWEEN:
SHOWSTAR ONLINE.COM INC.
85-10551 Shellbridge Way
Richmond, B.C.
V6X 2W9
(Hereinafter referred to as "Showstar")
AND:
Lee Zheng
515 KSH Centre
151-153 Hoi Bun Road
Kwun Tong, Kowloon
Hong Kong
(Hereinafter referred to as "LZ")
WHEREAS Showstar agrees to enter into a contract with LZ and whereas LZ agrees
to enter into a contract with Showstar to establish a Joint Venture operation in
China, the following conditions are hereto agreed to in part and in full pending
the creation of a more formal contract:
LZ hereby agrees to:
1) Establish an office and presence, in Hong Kong and China for Artstar.com, a
division of ShowStar Online.com, Inc., for the acquisition of content for the
web-sites.
2) Be the exclusive representative in China for Artstar.com and ShowStar
Online.com, Inc.
3) Provide proper accounting records as specified by Artstar.com for all funds
associated with this agreement
SHOWSTAR agrees to:
1) Grant LZ the exclusive right to represent Artstar.com in Hong Kong and China.
2) Provide LZ $5,000 US per month starting November 1, 1999 to operate the
office
3) Provide LZ with funds to acquire content that has been pre-approved by
Showstar executive
4) Pay to LZ a reimbursement of expenses pre-approved by Showstar executive and
upon receipt of an expense report with required supporting documentation.
JOINT VENTURE
The Joint Venture structure and organization is to be negotiated before the end
of this contract.
<PAGE>
LEE ZHENG COMPENSATION
In recognition of Lee Zheng's contribution and based on performance during the
life of this contract, ShowStar Online.com, Inc. will grant him an option to
purchase 100,000 shares of Showstar common stock for $.50 per share on the
anniversary of signing this contract.
TERM
The term of this agreement shall be one year beginning November 1,
1999.
CANCELLATION OF CONTRACT
Either party can cancel the contract with 60 days notice in writing. LZ will be
compensated as above unless the contract is cancelled due to non-performance.
All amounts referred to in this contract are in US Dollars unless otherwise
specified.
The above named parties hereby consent to the terms and conditions of this
contract.
Dated this 27th day of October 1999 in the City of Richmond, B.C., Canada
For Showstar Online.com, Inc. Witness
/s/ /s/
SIGNATURE
JOHN PUNZO RH COSTIN
Print Name
For Lee Zheng Witness
/s/ /s/
SIGNATURE
LI ZHENG LI MEI LING
Print Name
<PAGE>
EXHIBIT 6.04
EMPLOYMENT AGREEMENT
This AGREEMENT made as of the 27th day of May, 1999, by and between
SHOWSTAR ENTERTAINMENT CORPORATION, a Colorado corporation (the "Company"), and
JOHN PUNZO ("Employee").
WHEREAS, Employee heretofore has been employed by the Company and the Company
seeks to reward Employee by entering into this Agreement with Employee;
WHEREAS, the Company and Employee mutually desire that Employee continue to be
employed by the Company and that Employee devote reasonable efforts and
attention to the operation of the Company; and
WHEREAS, the Company and Employee mutually desire to set forth the terms of
their intended employment relationship;
NOW THEREFORE, in consideration of the premises and the terms hereinafter set
forth, the parties, intending to be legally bound, agree as follows:
1. Employment of Employee. Beginning on the Effective Date (hereinafter
defined), the Company shall employ Employee, and Employee shall accept
employment by the Company, as its Chairman of the Board of Directors, President
and Chief Executive Officer pursuant to the terms of this Agreement. Employee
currently is a member of the Company's Board of Directors; the Company shall use
it best efforts to cause Employee to be reelected to the Board of Directors
while Employee is employed by the Company.
2. Employee's Duties. Employee's primary duties will consist of those as may
be reasonably determined by the Board of Directors and as are generally
consistent with the duties of a Chief Executive Officer of the Company. The
Board of Directors will assist and work with the Employee in the performance of
his duties.
3. Time Obligations; Other Employment. Employee shall be a full-time employee
of the Company and shall devote reasonable efforts to the Company's business and
purposes. Employee shall not engage in any activities in conflict with the
purposes and businesses of the Company as from time to time conducted.
4. Compensation. For all services rendered by Employee to the Company
under this Agreement or otherwise, the Company shall compensate Employee as
follows commencing on the Effective Date:
4.1. Base Salary. Base salary at the rate of $12,500 per month,
subject, however, to any increase(s) as determined by the Company. Base
salary shall be payable no less often than twice each month, on the fifteenth
and on the last day of each month, in conformity with the usual salary
payment practices of the Company.
4.2. Restricted Stock Grant. Upon the Effective Date, the Company
shall award to Employee One Million (1,000,000) shares of the common stock of
the Company ("Grant Shares"), which shall vest in and become owned by
Employee at the rate of One Hundred Thousand (100,000) shares at the end of
each successive three-month period during the term of this Agreement,
commencing on the Effective Date, with the result that all 1,000,000 Grant
Shares shall vest in and become owned by Employee after the initial Thirty
(30) months of the term of this
<PAGE>
Agreement. In the event that Employee's employment by the Company terminates
before all Grant Shares are vested, all Grant Shares not vested shall
immediately vest. In addition, Employee's right to all Grant Shares shall
immediately vest twenty (20) days before a Change in Control Event, as defined
below.
4.3. Stock Options. In addition to the base salary and Grant Shares
set forth above, the Company shall grant to Employee, upon the Effective Date,
options to purchase One Million (1,000,000) shares of common stock of the
Company exercisable at $0.50 per share. Such options shall vest in and become
exercisable by Employee at the rate of options on One Hundred Thousand
(100,000) shares at the end of each successive three (3) month period
commencing on the Effective Date. This will result in the options on all
1,000,000 shares being entirely vest in and becoming exercisable by Employee
thirty (30) months after the Effective Date. The foregoing notwithstanding,
Employee's right to all of the said options shall vest and all of the said
options shall become immediately exercisable, twenty (20) days before a Change
in Control Event, as defined below. All of such options, to the extent not
exercised, shall expire ten (10) years after the Effective Date. In addition to
the foregoing, Employee shall be included in the group of senior executives
considered for future grants of stock options under stock option plans, if any,
in effect for the Company from time to time.
4.4. Performance Bonus. Employee also shall be entitled to receive a
performance bonus in cash, payable within 90 days following the end of each
fiscal year of the Company during the term of this Agreement, equivalent to
Five Per Cent (5%) of the pretax profits of the Company, if any, during such
fiscal year, as reasonably determined by the Company in accordance with
generally accepted accounting principles consistently applied.
4.5. Benefits. Employee shall be entitled to all fringe benefits
offered generally to the Company's senior officers and any other benefit plans
established by the Company, subject to the rules and regulations in effect
regarding participation in such plans.
4.6. Severance Payment. If a Change in Control Event should occur
and Employee's employment by the Company hereunder be terminated for any reason
(voluntarily or involuntarily) within two (2) years thereafter, Employee shall
be paid a lump sum payment equal to three (3) times his then annual rate of
base salary simultaneously with such termination.
5. Confidentiality; Change in Control Event
5.1. Employee agrees that he will not, except to the Company, its
subsidiaries and affiliates, communicate or divulge to any person, firm or
corporation, directly or indirectly, any confidential or proprietary
information relating to the business, customers and suppliers or other affairs
of the Company, its parents, subsidiaries and their affiliates.
5.2. For purposes of this Agreement, a "Change in Control Event"
shall mean (i) a sale or other change in control of all or a substantial
portion of all of the Company's assets or (ii) any transaction or series of
related transactions (including without limitation any reorganization, merger
or consolidation) which results to the shareholders of the Company immediately
prior to such transaction holding, following such transaction, less than fifty
percent (50%) of the voting power of the surviving or continuing entity or
(iii) a change of the voting group that in fact controls the Company on the
Effective
<PAGE>
Date or (iv) a change in persons who constitute a majority of the Board of
Directors of the Company on the Effective Date.
6. Term and Termination.
6.1. This Agreement shall become effective on the date it is
executed by both parties (the "Effective Date"). Unless otherwise terminated as
provided in this section 10, the term of Employee's employment shall expire on
December 31, 2004, provided, however, that the term of this Agreement shall
thereafter automatically renew for successive one-year periods unless either
party gives notice to the other party of non-renewal no later that October 31st
in any calendar year of this Agreement after 2003. Any such notice of
non-renewal shall be deemed a termination without cause for purposes hereof.
6.2. The provisions of paragraph 6.1 notwithstanding, this Agreement
shall terminate upon the occurrence of any one or more of the following:
a. Death of Employee; or
b. Inability of Employee to perform his duties for a period
of one hundred eighty (180) consecutive days due to sickness, disability or
any other cause, unless Employee is granted a leave of absence by the Company.
7. Notice and Opportunity to Cure. Whenever a breach of this
Agreement by either party is relied upon as a justification for any action
taken by the other party, before such action is taken, the party asserting
the breach shall give the other party written notice of the existence and
nature of the breach and such other party shall have the opportunity to
correct such breach during the sixty-day period following such notice. If
such cure is effected, then any such breach shall not be a basis for the
party intending to rely thereon.
8. Notices. All notices and other communications in connection with
this Agreement shall be in writing and shall be given by personal delivery or
by registered or certified mail, return receipt requested, addressed as
follows:
If to Employee: John Punzo
12484 - 63A Avenue
Surrey, British Columbia
Canada V3X 2C7
If to the Company: Showstar Entertainment Corporation
300 - 555 West Georgia Street
Vancouver, British Columbia
Canada V6B 1Z5
With a copy to: James F. Biagi, Jr., Esq.
Monahan & Biagi P.L.L.C.
701 Fifth Avenue - Suite 5701
Seattle, WA 98104-7003
or to such other address as the party to receive the notice or other
communication shall have designated by notice to the other hereunder. The date
any such notice or other communication shall be deemed hereunder to have been
given shall be seven (7) days after the date that it is deposited in the mails,
with proper postage prepaid, or when delivered personally by hand, courier or
otherwise.
<PAGE>
9. Assignment. The rights of either party shall not be assigned or
transferred, whether voluntarily or by operation of law or otherwise, without
the other party's prior written consent, nor shall the duties of either party
be delegated in whole or in part, whether voluntarily or by operation of law
or otherwise, without the other party's prior written consent. Any attempted
assignment, transfer or delegation shall be of no force or effect unless so
consented to in writing.
10. Preparation of Agreement. Employee acknowledges that this Agreement was
prepared by attorneys representing the Company. This Agreement will have tax
and other consequences to Employee. Employee acknowledges that he has been
advised by the Company to consult with an attorney, tax advisor and other
Employees of his choice before entering into this Agreement and he has done
so. Employee further acknowledges that he has not relied upon any legal or
tax advice of the Company or the Company's attorney in connection with this
Agreement.
11. Miscellaneous.
11.1. Waiver. No delay or failure by a party to exercise any right
under this Agreement, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise expressly
set forth in a writing signed by such party. No consent or waiver, express or
implied, by either party to any breach or default by the other party in the
performance by the other of its or his obligations hereunder shall be
effective unless made in a writing duly executed by the party giving or
making such consent or waiver. No such consent or waiver shall be deemed or
construed to be consent or waiver to or of any other breach or default in the
performance by such other party of the same or any other obligation of such
party.
11.2. Amendments. To be effective, all changes, additions and other
amendments to this Agreement must be set forth in a writing signed by the party
to be charged, and no oral changes, additions or other amendments hereto shall
be binding upon either party.
11.3. Integration. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes and
cancels all other prior agreements, understandings, representations,
warranties, inducements or other matters in connection with such subject matter.
11.4. Severability; Blue Pencil. The unenforceability or invalidity
of any provision of this Agreement in a particular case shall not render
unenforceable or invalid in such case any other provision hereof or such
provision in any other case. If any one or more of the provisions of this
Agreement shall for any reason be deemed excessive as to duration, scope,
activity or subject or shall be otherwise unenforceable, such provision(s)
shall be construed or recast so as to enforce the intent of the parties as
herein set forth to the greatest extent permitted by applicable law.
11.5. Headings. The headings and titles in this Agreement are for
purposes of convenience of reference only and shall not in any way affect the
meaning, interpretation or enforcement of this Agreement.
11.6. Governing Law. This Agreement shall be governed by the laws of
the State of Washington as in effect for contracts made and to be performed in
the State of Washington. The parties hereby submit to the jurisdiction of the
courts of, and the federal courts located in, the State of Washington for
<PAGE>
all purposes related to this Agreement and the relationship between the parties,
and such courts shall have exclusive jurisdiction of the subject matter hereof
and thereof.
11.7. Nature of Relationship. The relationship of the parties shall
be only that of employer and employee. The parties do not intend to be partners
and neither party shall hold itself out as being a partner of, or having a
similar relationship with, the other party.
11.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
EMPLOYEE: SHOWSTAR ENTERTAINMENT
CORPORATION
/s/ By: /s/
John Punzo
<PAGE>
EXHIBIT 6.05
ART SERVICES Agreement
This AGREEMENT made as of the 14th day of April, 1999, by and between
SHOWSTAR ENTERTAINMENT CORPORATION, a Colorado corporation (the "Company"), and
KENNETH JAY LINSNER ("Expert").
WHEREAS, the Company and Expert mutually desire that the Company organize a new
division, to be known as ARTSTAR (subject to availability of such name and
mark), for the purpose of establishing and operating an Internet website for the
marketing and sale of private collections of artworks as well as other types of
collectibles and memorabilia and the providing of services (including
appraisals, authentication, acquisition and disposal advice, restoration and
other related services), education and experiences related to the visual arts;
WHEREAS, the Company and Expert mutually desire that Expert be retained by
ARTSTAR and that Expert devote his best efforts and attention to the
establishment and successful operation of ARTSTAR;
WHEREAS, the Company and Expert mutually desire that the Company, simultaneously
with execution and delivery of this Agreement, enter into a similar agreement
with ABRAHAM JOEL ("Joel") to provide similar and related art services to
ARTSTAR (Expert and Joel are herein sometimes referred to collectively as the
Professional Arts Team ("PT")); and
WHEREAS, the Company and Expert mutually desire to set forth the terms of their
intended relationship;
NOW THEREFORE, in consideration of the premises and the terms hereinafter set
forth, the parties, intending to be legally bound, agree as follows:
1. Engagement. The Company hereby engages Expert, and Expert hereby agrees to
be engaged by the Company, to render, to the best of Expert's ability,
independent marketing, advisory and consulting services to the Company upon the
terms and conditions hereinafter set forth.
2. Establishment of ARTSTAR. Promptly following execution of this Agreement
by the parties, the Company agrees to organize a new division named "ARTSTAR" to
be operated for the purposes above described. The Company shall provide to
ARTSTAR website development services, catalog software, auction software, site
hosting, transaction processing, project management and development and
implementation of an Internet marketing campaign.
3. Funding and Management of ARTSTAR. The Company shall provide all funding
for the activities of ARTSTAR consistent will operating plans and budgets
mutually agreed upon by the Company and Expert, which agreement shall not be
unreasonably withheld. In the event that the parties are unable to operate
ARTSTAR profitably within twelve (12) months following the Effective Date (as
defined in paragraph 10.1 below), the Company shall have no further obligation
to fund ARTSTAR except to the extent that the Company may elect in its sole
discretion. Management of ARTSTAR shall rest jointly with the Company and the
Professional Arts Team, after reasonable consultation among them.
4. Expert's Duties. Expert's duties shall consist primarily of developing and
building the business of ARTSTAR, including without limitation the following:
<PAGE>
a. Providing to ARTSTAR all valuable intellectual property necessary for the
running of the website as well as services in support of the website, including,
but not limited to, consultation on restoration services, appraisal services,
collection management services and development of content for on-line
educational purposes and exhibitions;
b. Providing certain services necessary for the support of on-line sales,
including, but not limited to, photographs of items to be offered for sale
together with machine readable computer disks containing their description and
estimated sale values;
c. Assisting in the development of the marketing campaign; and
d. Utilizing Expert's personal industry contacts as needed in the establishment
and successful operation of ARTSTAR.
Expert also shall have such other duties as may be reasonably determined from
time to time by the Company. Expert agrees to render all such services
conscientiously and to devote his best efforts abilities thereto and to
ARTSTAR's business and purposes. Expert shall observe all policies and
directives reasonably promulgated from time to time by the Company. The parties
acknowledge that, as contemplated by paragraph 7.6 below, Expert's services
shall be on a non-exclusive basis and that such services shall be performed at
such places and at such times as are mutually agreeable to the parties. Except
as otherwise contemplated by this Agreement, Expert shall not engage in any
activities in conflict with the business and purposes of ARTSTAR or of the
Company's other business as from time to time conducted.
5. Positions to be Held by Expert. Beginning on the Effective Date, ARTSTAR
shall retain Expert as an independent contract, and Expert shall accept such
retention by ARTSTAR, with the title Vice President of ARTSTAR. In addition,
commencing on the Effective Date, the Company shall appoint Expert as a new
member of its Board of Directors and, during the term of this Agreement, the
Company shall use reasonable efforts to cause Expert to be reelected to the
Board of Directors.
6. Term of Agreement. Expert shall provide the contemplated services to
ARTSTAR for the term described in Section 10 hereof.
7. Compensation. For all services rendered by Expert to ARTSTAR and the
Company under this Agreement or otherwise, ARTSTAR shall compensate Expert as
follows commencing on the Effective Date:
7.1. Base Salary. Base salary at the rate of $7,500 per month
during the first three (3) months of the term of this Agreement, and
thereafter at the rate of $10,000 per month subject, however, to any
increase(s) as determined by the Company. Base salary shall be payable no
less often than twice each month, on the fifteenth and on the last day of
each month, in conformity with the usual salary payment practices of the
Company.
7.2. Restricted Stock Grant. Upon the Effective Date, the Company
shall award to Expert Five Hundred Thousand (500,000) shares of the common
stock of the Company ("Grant Shares"), which shall vest in and become owned
by Expert at the rate of 100,000 shares at the end of each successive
three-month period during the term of this Agreement, commencing on the
Effective Date, with the result that all 500,000 Grant Shares shall vest in
and become owned by Expert after the initial fifteen (15) months of the term
of this Agreement. In the event that
<PAGE>
Expert's retention by ARTSTAR hereunder terminates before all Grant Shares are
vested, those not vested shall remain the property of the Company and Expert
shall have no right, title or interest therein or any claim against same. The
foregoing notwithstanding, Expert's right to all Grant Shares shall immediately
vest, if Expert is then retained by ARTSTAR hereunder, twenty (20) days before a
Change in Control Event, as defined in paragraph 8.4.2 below.
7.3. Stock Options. In addition to the base salary and Grant Shares
set forth above, the Company shall grant to Expert, upon the Effective Date,
options to purchase common stock of the Company as follows:
<TABLE>
<CAPTION>
Number of Shares Exercise Price
<S> <C>
250,000 $1.00 per share
</TABLE>
Subject to Expert's continuing to be retained by ARTSTAR hereunder, such options
shall vest in and become exercisable by Expert at the rate of options on 50,000
shares exercisable at $1.00 per share vesting at the end of each successive six
(6) month period during the term of this Agreement, commencing on the Effective
Date. For example, one (1) year after the Effective Date, options on 100,000
shares exercisable at $1.00 per share will have vested. This will result in the
options on all 250,000 shares exercisable at $1.00 per share being entirely vest
in and becoming exercisable by Expert thirty (30) months after the Effective
Date. The foregoing notwithstanding, Expert's right to all of the said options
shall vest and all of the said options shall become immediately exercisable, if
Expert is then retained by ARTSTAR hereunder, twenty (20) days before a Change
in Control Event, as defined in paragraph 8.4.2 below. All of such options, to
the extent not exercised, shall expire ten (10) years after the Effective Date.
Furthermore, Expert shall be included in the group of senior executives
considered for future grants of stock options under stock option plans, if any,
in effect for the Company from time to time.
7.4. Performance Bonus. Expert also shall be entitled to receive a
performance bonus in cash, payable within 90 days following the end of each
fiscal year of ARTSTAR during the term of this Agreement, equivalent to
__________ percent (__%) of the pretax profits of ARTSTAR, if any, during
such fiscal year, as reasonably determined by the Company in accordance with
generally accepted accounting principles consistently applied.
7.5. Benefits. Expert shall be entitled to all fringe benefits
offered generally to the Company's officers and any other benefit plans
established by the Company, subject to the rules and regulations in effect
regarding participation in such benefit plans.
7.6. Old and New Business. The parties acknowledge that Expert
heretofore has been engaged in the business of providing art services similar
to those here contemplated except that such services have not been offered or
provided by means of the Internet. The parties agree that Expert shall
continue to conduct his business as heretofore conducted, as well as to
provide his services to establish and build ARTSTAR. All services of Expert
contracted for prior to the Effective Date ("Old Business") shall be and
remain the business of Expert and the Company shall have no interest therein.
All business generated by or related to the online business of ARTSTAR shall
be the sole business of ARTSTAR and Expert shall have no separate interest
therein (except to the extent of his performance bonus described in paragraph
7.4 above). All business of Expert after the Effective Date in his historical
art services business as heretofore conducted, other than Old Business, shall
be reflected as revenue of ARTSTAR and
<PAGE>
Expert shall be paid the following percentages of such revenues in the following
periods of the term of this Agreement:
<TABLE>
<CAPTION>
Term of Agreement Percentage Paid Expert
<S> <C>
Effective Date - 3rd month 80%
4th month - 6th month 60%
7th month - 9th month 40%
10th month - 12th month 20%
After the 12th month 0%
</TABLE>
Expenses related to such revenues shall be borne by the parties in the same
proportion as the revenues are shared pursuant to the above schedule. After the
first (1st) year of this Agreement, all of Expert's art services activities
shall be provided through ARTSTAR and shall be fully reflected in ARTSTAR's
revenue, provided, however, that in the event the Company elects to no longer
fund ARTSTAR as permitted by paragraph 3 above, Expert may terminate this
Agreement and continue to operate his historical art services business as his
separate business.
7.7. Expenses. The Company shall reimburse Expert for all reasonable
business expenses that are deductible by the Company for U.S. federal income
tax purposes and were incurred by Expert in connection with the performance
of his services hereunder; provided, however, that any such reimbursement in
excess of One Thousand U. S. Dollars (US $1,000) shall require the Company's
prior written approval. The Company's obligation to reimburse Expert for
expenses pursuant to this subparagraph shall be subject to the presentation
to the Company by Expert of an itemized account of such expenditures,
together with supporting vouchers, receipts or other documentation in
accordance with the Company's policies as in effect from time to time.
8. Non-Competition and Confidentiality.
8.1. Non-Competition; Small Interests. Except as in provided
in paragraph 7.6 above or 10.4 below, during the term of Expert's retention
by ARTSTAR and for a period of two (2) years thereafter, Expert shall not,
directly or indirectly, be employed by, own, manage, operate, join, control
or participate in the ownership, management, operation or control of or be
connected in any manner with the fields of business intended for or actually
operated in by ARTSTAR. Expert shall be deemed to be connected with a
business if such business is carried on by a partnership in which he is a
general or limited partner, consultant or employee, or a corporation or
association of which he is a shareholder, officer, director, employee,
member, consultant or agent; provided, however, that nothing herein shall
prevent the purchase or ownership by Expert of shares of less than 2% of the
outstanding shares of a publicly or privately held company. Nothing herein
shall prevent Expert from continuing to conduct his historical art services
business, except in connection with doing so online or on the Internet.
8.2. No Solicitation. Commencing as of the Effective Date and
continuing until two years after the termination of Expert's retention by
ARTSTAR, Expert shall not solicit the employment or services of personnel
employed by the Company or by any direct or indirect parent or subsidiary of
the Company. Nothing herein shall prevent Expert from continuing to retain or
employ personnel in connection with his historical art services business,
except in connection with doing so online or on the Internet.
<PAGE>
8.3. Non-Disclosure. Expert agrees that he will not, except to
the Company, its subsidiaries and affiliates, communicate or divulge to any
person, firm or corporation, directly or indirectly, any confidential or
proprietary information relating to the business, customers and suppliers or
other affairs of the Company, its parents, subsidiaries and their affiliates.
Without limiting the foregoing, all information concerning procedures and
strategy of the Company, its subsidiaries and parents shall be deemed
confidential and proprietary information. Nothing herein shall prevent Expert
from continuing to conduct his historical art services business, except in
connection with doing so online or on the Internet.
8.4. Change in Control.
8.4.1. Expert acknowledges that Expert's agreement herein not to
compete is essential to the Company and that the Company would not enter into
this Agreement if Expert did not so agree. Expert shall have no obligation under
paragraph 8.1, however, if (i) he leaves his relationship with the Company
following a Change in Control Event, as defined below, (ii) if the Company
terminates this Agreement without cause, or (iii) Expert terminates this
Agreement with Cause.
8.4.2. For purposes of this Agreement, a "Change in Control Event"
shall mean (i) the sale of all or substantially all of the Company's assets or
(ii) any transaction or series of related transactions (including without
limitation any reorganization, merger or consolidation) which results to the
shareholders of the Company (or, if the Company is at least 80% owned by another
entity, the shareholders of the Company's ultimate parent entity, as defined
below) immediately prior to such transaction holding, following such
transaction, less than fifty percent (50%) of the voting power of the surviving
or continuing entity. "Ultimate parent entity" means that entity which directly,
or through one or more other entities, owns eighty percent (80%) or more of the
Company's voting power.
9. Equitable Relief. Expert acknowledges that a breach by him of the
provisions of Section 8 of this Agreement will cause the Company irreparable
harm and that the damages to the Company arising therefrom will not be
determinable. Therefore, Expert agrees that in the event of a breach by
Expert of the terms of Section 8 hereof, the Company shall be entitled, in
addition to any and all other remedies available to it at law or in equity,
to injunctive and other mandatory relief without the need to prove damages,
and Expert consents to such relief in such an event.
10. Term and Termination.
10.1. This Agreement shall become effective on the date it is
executed by both parties (the "Effective Date"). Unless otherwise terminated
as provided in this section 10, the term of this Agreement shall expire on
December 31, 2002, provided, however, that the term of this Agreement shall
thereafter automatically renew for successive one-year periods unless either
party gives notice to the other party of non-renewal no later that October
31st in any calendar year of this Agreement after 2001. Any such notice of
non-renewal shall be deemed a termination without cause for purposes hereof.
10.2. The provisions of paragraph 10.1 notwithstanding, this
Agreement shall terminate upon the occurrence of any one or more of the
following:
<PAGE>
a. Death of Expert;
b. Inability of Expert to perform his duties for a period of 60
consecutive days due to sickness, disability or any other cause, unless
Expert is granted a leave of absence by the Company; or
c. For cause as provided in sections 11.1 or 11.2 or 11.3.
10.3. Termination with Cause by the Company, Etc. Expert shall
be entitled to compensation earned through the date of termination if
termination is with cause by the Company, without cause by Expert or because
of Expert's death or disability as provided in sections 7.2(a) or (b).
10.4 Termination without Cause by the Company. In the event
the Company elects to terminate Expert without cause during the term of this
Agreement, Expert shall vest in all stock options due to vest pursuant to
paragraph 7.3 hereof at the end of the quarter during which notice of
termination is given to Expert by the Company plus those scheduled to vest at
the end of the one (1) next succeeding quarter. In addition, Expert shall be
entitled to base salary compensation equal to six (6) months' of base salary,
as severance, from the date of termination without cause. Further, the period
of non-competition and no solicitation under Section 8 shall be reduced to
one (1) in the event of termination of Expert by the Company without cause.
However, termination of Expert without cause under this subparagraph in the
final six (6) months of the term of this Agreement shall entitle Expert to
base salary, as severance, equal to the amount remaining during the term of
this Agreement. Termination without cause by the Company must be preceded by
a minimum of a sixty (60) days' prior written notice of such termination to
Expert.
10.5 Resignation by Expert. In the event Expert elects to
terminate his relationship with the Company without cause by resigning, or
otherwise, Expert shall be entitled to no further base salary, Grant Shares
or stock options not theretofore vested as of and from the date of such
termination. Furthermore, termination without cause by Expert must be
preceded by a minimum of a sixty (60) days' prior written notice of such
termination to the Company.
10.6. Continuing Effect. Despite termination of this Agreement,
and irrespective of whether such termination has been effected with or
without cause by either Company or Expert, such termination shall not affect
the continuing enforceability of those provisions hereof that are by intended
to apply after the termination hereof, including without limitation those
contained in sections 8 and 9.
11. Cause and Breach.
11.1. Where reference is made in this Agreement to termination by
the Company with or without cause, "cause" shall mean cause resulting from
actions or inactions of Expert and is limited to the following:
(a) Repeated failure or refusal to carry out the reasonable
directions of the Company, provided such directions are consistent with the
duties and obligations herein set forth to be performed by Expert;
(b) Willful violation of a state or federal law involving
the commission of (1) a crime against the Company materially adversely
affecting the Company or
<PAGE>
(2) a felony of any kind; or
(c) Expert's medically confirmed misuse or abuse of alcohol
or use of any controlled substance; or
(d) Any material breach by Expert of this Agreement or the
falsity of any material representation or warranty of Expert herein not
corrected as provided in paragraph 11.3 hereof.
11.2. Where reference is made in this Agreement to termination
being by Expert with or without cause, "cause" shall mean any breach of this
Agreement by the Company not corrected as provided in paragraph 11.3 hereof.
11.3. Whenever a breach of this Agreement by either party is
relied upon as a justification for any action taken by the other party
pursuant to any provision of this Agreement (including without limitation
termination hereof), before such action is taken, the party asserting the
breach shall give the other party written notice of the existence and nature
of the breach and such other party shall have the opportunity to correct such
breach during the thirty-day period following such notice. If such cure is
effected, then any such breach shall not be a basis for the party intending
to rely thereon.
12. Notices. All notices and other communications in connection with this
Agreement shall be in writing and shall be given by personal delivery or by
registered or certified mail, return receipt requested, addressed as follows:
If to Expert: Kenneth Jay Lisner
90 Eagle Valley Road
Sloatsburg, NY 10974
With a copy to: Sunitha Ramaiah, Esq.
11 Harrison Street PH
New York, NY 10013
If to the Company: Showstar Entertainment Corporation
300 - 555 West Georgia Street
Vancouver, British Columbia
Canada V6B 1Z5
With a copy to: James F. Biagi, Jr., Esq.
Monahan & Biagi P.L.L.C.
701 Fifth Avenue - Suite 5701
Seattle, WA 98104-7003
or to such other address as the party to receive the notice or other
communication shall have designated by notice to the other hereunder. The date
any such notice or other communication shall be deemed hereunder to have been
given shall be five (5) days after the date that it is deposited in the mails,
with proper postage prepaid, or when delivered personally by hand, courier or
otherwise.
13. Assignment.
13.1. Except as provided in paragraph 13.2 hereof, the rights
of either party shall not be assigned or transferred, whether voluntarily or
by operation of law or otherwise, without the other party's prior written
consent, nor shall the duties of either party be delegated in whole or in
part, whether
<PAGE>
voluntarily or by operation of law or otherwise, without the other party's prior
written consent. Any attempted assignment, transfer or delegation shall be of no
force or effect unless so consented to in writing.
13.2. Notwithstanding paragraph 13.1 hereof, the Company may
assign or delegate all or any part of its rights or obligations under this
Agreement to a direct or indirect subsidiary or direct or indirect parent or
to any entity owned by such a subsidiary or parent, or by merger,
consolidation, sale or transfer of all or substantially all of the Company's
assets, provided that any resulting assignee or transferee agrees in writing
to succeed to the obligations of the Company hereunder. All references to the
Company herein shall include any such permitted assignee, transferee or
successor of the Company.
14. Prior Obligations. Expert represents and warrants to the Company that he
can enter into this Agreement and perform his obligations hereunder without
violating any contractual commitment to any other person, and Experts
covenants that in the performance of his duties under this Agreement he will
not use or divulge any information of any person he is lawfully required to
maintain in confidence.
15. Preparation of Agreement. Expert acknowledges that this Agreement was
prepared by attorneys representing the Company. This Agreement will have tax
and other consequences to Expert. Expert acknowledges that he has been
advised by the Company to consult with an attorney, tax advisor and other
experts of his choice before entering into this Agreement and he has done so.
Expert further acknowledges that he has not relied upon any legal or tax
advice of the Company or the Company's attorney in connection with this
Agreement.
16. Miscellaneous.
16.1. Waiver. No delay or failure by a party to exercise any right
under this Agreement, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise expressly
set forth in a writing signed by such party. No consent or waiver, express or
implied, by any Venturer to or of any breach or default by another Venturer
in the performance by the other of its or his obligations hereunder shall be
effective unless made in a writing duly executed by the Venturer giving or
making such consent or waiver. No such consent or waiver shall be deemed or
construed to be consent or waiver to or of any other breach or default in the
performance by such other party of the same or any other obligation of such
Venturer.
16.2. Amendments. To be effective, all changes, additions and
other amendments to this Agreement must be set forth in a writing signed by
the party to be charged, and no oral changes, additions or other amendments
hereto shall be binding upon either party.
16.3. Integration. This Agreement constitutes the entire
agreement between the parties relating to the subject matter hereof and
supersedes and cancels all other prior agreements, understandings,
representations, warranties, inducements or other matters in connection with
such subject matter.
16.4. Severability; Blue Pencil. The unenforceability or
invalidity of any provision of this Agreement in a particular case shall not
render unenforceable or invalid in such case any other provision hereof or
such provision in any other case. If any one or more of the provisions of
this Agreement shall for any reason be deemed excessive as to duration,
scope,
<PAGE>
activity or subject or shall be otherwise unenforceable, such provision(s) shall
be construed or recast so as to enforce the intent of the parties as herein set
forth to the greatest extent permitted by applicable law.
16.5. Headings. The headings and titles in this Agreement are for
purposes of convenience of reference only and shall not in any way affect the
meaning, interpretation or enforcement of this Agreement.
16.6. Governing Law. This Agreement shall be governed by the laws
of the State of Washington as in effect for contracts made and to be
performed in the State of Washington. The parties hereby submit to the
jurisdiction of the courts of, and the federal courts located in, the State
of Washington for all purposes related to this Agreement and the relationship
between the parties, and such courts shall have exclusive jurisdiction and
venue of the subject matter hereof and thereof.
16.7. Nature of Relationship. The relationship of the parties
shall be only that of independent contractors. The parties do not intend to
have the relationship of employer-employee or of partners and neither party
shall hold itself out as having any such or similar relationship with the
other party, provided, however, that commencing one (1) year after the
Effective Date, the relationship of the parties shall be that of employer and
employee.
16.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
EXPERT: SHOWSTAR ENTERTAINMENT
CORPORATION
/s/ By: /s/
- ------------------------------ ------------------------------
Kenneth Jay Liner John Punzo
Chairman and
Chief Executive Officer
<PAGE>
EXHIBIT 6.06
ART SERVICES Agreement
This AGREEMENT made as of the 14th day of April, 1999, by and between
SHOWSTAR ENTERTAINMENT CORPORATION, a Colorado corporation (the "Company"), and
ABRAHAM JOEL ("Expert").
WHEREAS, the Company and Expert mutually desire that the Company organize a new
division, to be known as ARTSTAR (subject to availability of such name and
mark), for the purpose of establishing and operating an Internet website for the
marketing and sale of private collections of artworks as well as other types of
collectibles and memorabilia and the providing of services (including
appraisals, authentication, acquisition and disposal advice, restoration and
other related services), education and experiences related to the visual arts;
WHEREAS, the Company and Expert mutually desire that Expert be retained by
ARTSTAR and that Expert devote his best efforts and attention to the
establishment and successful operation of ARTSTAR;
WHEREAS, the Company and Expert mutually desire that the Company, simultaneously
with execution and delivery of this Agreement, enter into a similar agreement
with KENNETH JAY LISNER ("Lisner") to provide similar and related art services
to ARTSTAR (Expert and Lisner are herein sometimes referred to collectively as
the Professional Arts Team ("PT")); and
WHEREAS, the Company and Expert mutually desire to set forth the terms of their
intended relationship;
NOW THEREFORE, in consideration of the premises and the terms hereinafter set
forth, the parties, intending to be legally bound, agree as follows:
1. Engagement. The Company hereby engages Expert, and Expert hereby agrees to be
engaged by the Company, to render, to the best of Expert's ability, independent
marketing, advisory and consulting services to the Company upon the terms and
conditions hereinafter set forth.
2. Establishment of ARTSTAR. Promptly following execution of this Agreement by
the parties, the Company agrees to organize a new division named "ARTSTAR" to be
operated for the purposes above described. The Company shall provide to ARTSTAR
website development services, catalog software, auction software, site hosting,
transaction processing, project management and development and implementation of
an Internet marketing campaign.
3. Funding and Management of ARTSTAR. The Company shall provide all funding for
the activities of ARTSTAR consistent will operating plans and budgets mutually
agreed upon by the Company and Expert, which agreement shall not be unreasonably
withheld. In the event that the parties are unable to operate ARTSTAR profitably
within twelve (12) months following the Effective Date (as defined in paragraph
10.1 below), the Company shall have no further obligation to fund ARTSTAR except
to the extent that the Company may elect in its sole discretion. Management of
ARTSTAR shall rest jointly with the Company and the Professional Arts Team,
after reasonable consultation among them.
4 Expert's Duties. Expert's duties shall consist primarily of developing and
building the business of ARTSTAR, including without limitation the following:
<PAGE>
(a). Providing to ARTSTAR all valuable intellectual property necessary for the
running of the website as well as services in support of the website, including,
but not limited to, consultation on restoration services, appraisal services,
collection management services and development of content for on-line
educational purposes and exhibitions;
(b). Providing certain services necessary for the support of on-line sales,
including, but not limited to, photographs of items to be offered for sale
together with machine readable computer disks containing their description and
estimated sale values;
(c). Assisting in the development of the marketing campaign; and
(d). Utilizing Expert's personal industry contacts as needed in the
establishment and successful operation of ARTSTAR.
Expert also shall have such other duties as may be reasonably determined from
time to time by the Company. Expert agrees to render all such services
conscientiously and to devote his best efforts abilities thereto and to
ARTSTAR's business and purposes. Expert shall observe all policies and
directives reasonably promulgated from time to time by the Company. The parties
acknowledge that, as contemplated by paragraph 7.6 below, Expert's services
shall be on a non-exclusive basis and that such services shall be performed at
such places and at such times as are mutually agreeable to the parties. Except
as otherwise contemplated by this Agreement, Expert shall not engage in any
activities in conflict with the business and purposes of ARTSTAR or of the
Company's other business as from time to time conducted.
5. Positions to be Held by Expert. Beginning on the Effective Date,
ARTSTAR shall retain Expert as an independent contractor, and Expert shall
accept such retention by ARTSTAR, with the title Vice President of ARTSTAR.
In addition, commencing on the Effective Date, the Company shall appoint
Expert as a new member of its Board of Directors and, during the term of this
Agreement, the Company shall use reasonable efforts to cause Expert to be
reelected to the Board of Directors.
6. Term of Agreement. Expert shall provide the contemplated services
to ARTSTAR for the term described in Section 10 hereof.
7. Compensation. For all services rendered by Expert to ARTSTAR and the
Company under this Agreement or otherwise, ARTSTAR shall compensate Expert as
follows commencing on the Effective Date:
7.1 Base Salary. Base salary at the rate of $7,500 per month
during the first three (3) months of the term of this Agreement, and thereafter
at the rate of $10,000 per month subject, however, to any increase(s) as
determined by the Company. Base salary shall be payable no less often than twice
each month, on the fifteenth and on the last day of each month, in conformity
with the usual salary payment practices of the Company.
7.2 Restricted Stock Grant. Upon the Effective Date, the
Company shall award to Expert Five Hundred Thousand (500,000) shares of the
common stock of the Company ("Grant Shares"), which shall vest in and become
owned by Expert at the rate of 100,000 shares at the end of each successive
three-month period during the term of this Agreement, commencing on the
Effective Date, with the result that all 500,000 Grant Shares shall vest in
and become owned by Expert after the initial fifteen (15) months of the term
of this Agreement. In the event that
<PAGE>
Expert's retention by ARTSTAR hereunder terminates before all Grant Shares are
vested, those not vested shall remain the property of the Company and Expert
shall have no right, title or interest therein or any claim against same. The
foregoing notwithstanding, Expert's right to all Grant Shares shall immediately
vest, if Expert is then retained by ARTSTAR hereunder, twenty (20) days before a
Change in Control Event, as defined in paragraph 8.4.2 below.
7.3 Stock Options. In addition to the base salary and Grant
Shares set forth above, the Company shall grant to Expert, upon the Effective
Date, options to purchase common stock of the Company as follows:
Number of Shares Exercise Price
250,000 $1.00 per share
Subject to Expert's continuing to be retained by ARTSTAR hereunder, such options
shall vest in and become exercisable by Expert at the rate of options on 50,000
shares exercisable at $1.00 per share vesting at the end of each successive six
(6) month period during the term of this Agreement, commencing on the Effective
Date. For example, one (1) year after the Effective Date, options on 100,000
shares exercisable at $1.00 per share will have vested. This will result in the
options on all 250,000 shares exercisable at $1.00 per share being entirely vest
in and becoming exercisable by Expert thirty (30) months after the Effective
Date. The foregoing notwithstanding, Expert's right to all of the said options
shall vest and all of the said options shall become immediately exercisable, if
Expert is then retained by ARTSTAR hereunder, twenty (20) days before a Change
in Control Event, as defined in paragraph 8.4.2 below. All of such options, to
the extent not exercised, shall expire ten (10) years after the Effective Date.
Furthermore, Expert shall be included in the group of senior executives
considered for future grants of stock options under stock option plans, if any,
in effect for the Company from time to time.
7.4 Performance Bonus. Expert also shall be entitled to
receive a performance bonus in cash, payable within 90 days following the end
of each fiscal year of ARTSTAR during the term of this Agreement, equivalent
to __________ percent (__%) of the pretax profits of ARTSTAR, if any, during
such fiscal year, as reasonably determined by the Company in accordance with
generally accepted accounting principles consistently applied.
7.5 Benefits. Expert shall be entitled to all fringe
benefits offered generally to the Company's officers and any other benefit
plans established by the Company, subject to the rules and regulations in
effect regarding participation in such benefit plans.
7.6 Old and New Business. The parties acknowledge that Expert
heretofore has been engaged in the business of providing art services similar to
those here contemplated except that such services have not been offered or
provided by means of the Internet. The parties agree that Expert shall continue
to conduct his business as heretofore conducted, as well as to provide his
services to establish and build ARTSTAR. All business generated by or related to
the online business of ARTSTAR shall be the sole business of ARTSTAR and Expert
shall have no separate interest therein (except to the extent of his performance
bonus described in paragraph 7.4 above). All business of Expert after the
Effective Date in his historical art services business as heretofore conducted
shall be and remain the separate business of Expert, provided, however, that in
the event that business subsequent to the Effective Date arguably could be that
of either ARTSTAR or Expert, any such question shall be
<PAGE>
resolved in favor of its being that of ARTSTAR with appropriate compensation
being paid to Expert's separate business for all costs, services and expenses
borne or provided by Expert's separate business. Not later than one (1) year
after the Effective Date, the parties will consider whether Expert's separate
business shall be acquired by ARTSTAR, provided, however, that there shall be no
binding obligation on either party to enter into any such transaction unless the
parties, in their sole discretion, at that time enter into definitive agreements
relating to such a transaction.
7.7 Expenses. The Company shall reimburse Expert for all
reasonable business expenses that are deductible by the Company for U.S. federal
income tax purposes and were incurred by Expert in connection with the
performance of his services hereunder; provided, however, that any such
reimbursement in excess of One Thousand U. S. Dollars (US $1,000) shall require
the Company's prior written approval. The Company's obligation to reimburse
Expert for expenses pursuant to this subparagraph shall be subject to the
presentation to the Company by Expert of an itemized account of such
expenditures, together with supporting vouchers, receipts or other documentation
in accordance with the Company's policies as in effect from time to time.
8. Non-Competition and Confidentiality.
8.1 Non-Competition; Small Interests. Except as in provided in
paragraph 7.6 above or 10.4 below, during the term of Expert's retention by
ARTSTAR and for a period of two (2) years thereafter, Expert shall not, directly
or indirectly, be employed by, own, manage, operate, join, control or
participate in the ownership, management, operation or control of or be
connected in any manner with the field of Internet online business intended for
or actually operated in by ARTSTAR. Expert shall be deemed to be connected with
a business if such business is carried on by a partnership in which he is a
general or limited partner, consultant or employee, or a corporation or
association of which he is a shareholder, officer, director, employee, member,
consultant or agent; provided, however, that nothing herein shall prevent the
purchase or ownership by Expert of shares of less than 2% of the outstanding
shares of a publicly or privately held company. Nothing herein shall prevent
Expert from continuing to conduct his historical art services business, except
in connection with doing so online or on the Internet.
8.2 No Solicitation. Commencing as of the Effective Date
and continuing until two years after the termination of Expert's retention by
ARTSTAR, Expert shall not solicit the employment or services of personnel
employed by the Company or by any direct or indirect parent or subsidiary of
the Company. Nothing herein shall prevent Expert from continuing to retain or
employ personnel in connection with his historical art services business,
except in connection with doing so online or on the Internet.
8.3 Non-Disclosure. Expert agrees that he will not, except
to the Company, its subsidiaries and affiliates, communicate or divulge to
any person, firm or corporation, directly or indirectly, any confidential or
proprietary information relating to the business, customers and suppliers or
other affairs of the Company, its parents, subsidiaries and their affiliates.
Without limiting the foregoing, all information concerning procedures and
strategy of the Company, its subsidiaries and parents shall be deemed
confidential and proprietary information. Nothing herein shall prevent Expert
from continuing to conduct his historical art services business, except in
connection with doing so online or on the Internet.
<PAGE>
8.4 Change in Control.
8.4.1 Expert acknowledges that Expert's agreement herein not to compete is
essential to the Company and that the Company would not enter into this
Agreement if Expert did not so agree. Expert shall have no obligation under
paragraph 8.1, however, if (i) he leaves his relationship with the Company
following a Change in Control Event, as defined below, (ii) if the Company
terminates this Agreement without cause, or (iii) Expert terminates this
Agreement with Cause.
8.4.2 For purposes of this Agreement, a "Change in Control Event" shall mean (i)
the sale of all or substantially all of the Company's assets or (ii) any
transaction or series of related transactions (including without limitation any
reorganization, merger or consolidation) which results to the shareholders of
the Company (or, if the Company is at least 80% owned by another entity, the
shareholders of the Company's ultimate parent entity, as defined below)
immediately prior to such transaction holding, following such transaction, less
than fifty percent (50%) of the voting power of the surviving or continuing
entity. "Ultimate parent entity" means that entity which directly, or through
one or more other entities, owns eighty percent (80%) or more of the Company's
voting power.
9. Equitable Relief. Expert acknowledges that a breach by him of the
provisions of Section 8 of this Agreement will cause the Company irreparable
harm and that the damages to the Company arising therefrom will not be
determinable. Therefore, Expert agrees that in the event of a breach by Expert
of the terms of Section 8 hereof, the Company shall be entitled, in addition to
any and all other remedies available to it at law or in equity, to injunctive
and other mandatory relief without the need to prove damages, and Expert
consents to such relief in such an event.
10. Term and Termination.
10.1 This Agreement shall become effective on the date it is
executed by both parties (the "Effective Date"). Unless otherwise terminated as
provided in this section 10, the term of this Agreement shall expire on December
31, 2002, provided, however, that the term of this Agreement shall thereafter
automatically renew for successive one-year periods unless either party gives
notice to the other party of non-renewal no later that October 31st in any
calendar year of this Agreement after 2001. Any such notice of non-renewal shall
be deemed a termination without cause for purposes hereof.
10.2 The provisions of paragraph 10.1 notwithstanding, this
Agreement shall terminate upon the occurrence of any one or more of the
following:
a. Death of Expert;
b. Inability of Expert to perform his duties for a period of
60 consecutive days due to sickness, disability or any other cause, unless
Expert is granted a leave of absence by the Company; or
c. For cause as provided in sections 11.1 or 11.2 or 11.3.
10.3 Termination with Cause by the Company, Etc. Expert
shall be entitled to compensation earned through the date of termination if
termination is with cause by the Company, without cause by Expert or because
of Expert's death or disability as provided in sections 7.2(a) or (b).
<PAGE>
10.4 Termination without Cause by the Company. In the event
the Company elects to terminate Expert without cause during the term of this
Agreement, Expert shall vest in all stock options due to vest pursuant to
paragraph 7.3 hereof at the end of the quarter during which notice of
termination is given to Expert by the Company plus those scheduled to vest at
the end of the one (1) next succeeding quarter. In addition, Expert shall be
entitled to base salary compensation equal to six (6) months' of base salary, as
severance, from the date of termination without cause. Further, the period of
non-competition and no solicitation under Section 8 shall be reduced to one (1)
in the event of termination of Expert by the Company without cause. However,
termination of Expert without cause under this subparagraph in the final six (6)
months of the term of this Agreement shall entitle Expert to base salary, as
severance, equal to the amount remaining during the term of this Agreement.
Termination without cause by the Company must be preceded by a minimum of a
sixty (60) days' prior written notice of such termination to Expert.
10.5 Resignation by Expert. In the event Expert elects to
terminate his relationship with the Company without cause by resigning, or
otherwise, Expert shall be entitled to no further base salary, Grant Shares or
stock options not theretofore vested as of and from the date of such
termination. Furthermore, termination without cause by Expert must be preceded
by a minimum of a sixty (60) days' prior written notice of such termination to
the Company.
10.6 Continuing Effect. Despite termination of this Agreement,
and irrespective of whether such termination has been effected with or without
cause by either Company or Expert, such termination shall not affect the
continuing enforceability of those provisions hereof that are by intended to
apply after the termination hereof, including without limitation those contained
in sections 8 and 9.
11. Cause and Breach.
11.1 Where reference is made in this Agreement to termination
by the Company with or without cause, "cause" shall mean cause resulting from
actions or inactions of Expert and is limited to the following:
(a) Repeated failure or refusal to carry out the reasonable directions of the
Company, provided such directions are consistent with the duties and obligations
herein set forth to be performed by Expert;
(b) Willful violation of a state or federal law involving the commission of (1)
a crime against the Company materially adversely affecting the Company or (2) a
felony of any kind; or
(c) Expert's medically confirmed misuse or abuse of alcohol or use of any
controlled substance; or
(d) Any material breach by Expert of this Agreement or the falsity of any
material representation or warranty of Expert herein not corrected as provided
in paragraph 11.3 hereof.
11.2 Where reference is made in this Agreement to termination
being by Expert with or without cause, "cause" shall mean any breach of this
Agreement by the Company not corrected as provided in paragraph 11.3 hereof.
<PAGE>
11.3 Whenever a breach of this Agreement by either party is
relied upon as a justification for any action taken by the other party pursuant
to any provision of this Agreement (including without limitation termination
hereof), before such action is taken, the party asserting the breach shall give
the other party written notice of the existence and nature of the breach and
such other party shall have the opportunity to correct such breach during the
thirty-day period following such notice. If such cure is effected, then any such
breach shall not be a basis for the party intending to rely thereon.
12. Notices. All notices and other communications in connection with
this Agreement shall be in writing and shall be given by personal delivery or by
registered or certified mail, return receipt requested, addressed as follows:
If to Expert: Abraham Joel
521 West 23rd Street - 2nd Floor
New York, NY 10011
With a copy to: Sunitha Ramaiah, Esq.
11 Harrison Street PH
New York, NY 10013
If to the Company: Showstar Entertainment Corporation
300 -- 555 West Georgia Street
Vancouver, British Columbia
Canada V6B 1Z5
With a copy to: James F. Biagi, Jr., Esq.
Monahan & Biagi P.L.L.C.
701 Fifth Avenue - Suite 5701
Seattle, WA 98104-7003
or to such other address as the party to receive the notice or other
communication shall have designated by notice to the other hereunder. The date
any such notice or other communication shall be deemed hereunder to have been
given shall be five (5) days after the date that it is deposited in the mails,
with proper postage prepaid, or when delivered personally by hand, courier or
otherwise.
13. Assignment.
13.1 Except as provided in paragraph 13.2 hereof, the rights
of either party shall not be assigned or transferred, whether voluntarily or by
operation of law or otherwise, without the other party's prior written consent,
nor shall the duties of either party be delegated in whole or in part, whether
voluntarily or by operation of law or otherwise, without the other party's prior
written consent. Any attempted assignment, transfer or delegation shall be of no
force or effect unless so consented to in writing.
13.2 Notwithstanding paragraph 13.1 hereof, the Company may
assign or delegate all or any part of its rights or obligations under this
Agreement to a direct or indirect subsidiary or direct or indirect parent or to
any entity owned by such a subsidiary or parent, or by merger, consolidation,
sale or transfer of all or substantially all of the Company's assets, provided
that any resulting assignee or transferee agrees in writing to succeed to the
obligations of the Company hereunder. All references to the Company herein shall
include any such permitted assignee, transferee or successor of the Company.
<PAGE>
14. Prior Obligations. Expert represents and warrants to the Company
that he can enter into this Agreement and perform his obligations hereunder
without violating any contractual commitment to any other person, and Experts
covenants that in the performance of his duties under this Agreement he will not
use or divulge any information of any person he is lawfully required to maintain
in confidence.
15. Preparation of Agreement. Expert acknowledges that this Agreement
was prepared by attorneys representing the Company. This Agreement will have tax
and other consequences to Expert. Expert acknowledges that he has been advised
by the Company to consult with an attorney, tax advisor and other experts of his
choice before entering into this Agreement and he has done so. Expert further
acknowledges that he has not relied upon any legal or tax advice of the Company
or the Company's attorney in connection with this Agreement.
16. Miscellaneous.
16.1 Waiver. No delay or failure by a party to exercise any
right under this Agreement, and no partial or single exercise of that right,
shall constitute a waiver of that or any other right, unless otherwise expressly
set forth in a writing signed by such party. No consent or waiver, express or
implied, by any Venturer to or of any breach or default by another Venturer in
the performance by the other of its or his obligations hereunder shall be
effective unless made in a writing duly executed by the Venturer giving or
making such consent or waiver. No such consent or waiver shall be deemed or
construed to be consent or waiver to or of any other breach or default in the
performance by such other party of the same or any other obligation of such
Venturer.
16.2 Amendments. To be effective, all changes, additions and
other amendments to this Agreement must be set forth in a writing signed by the
party to be charged, and no oral changes, additions or other amendments hereto
shall be binding upon either party.
16.3 Integration. This Agreement constitutes the entire
agreement between the parties relating to the subject matter hereof and
supersedes and cancels all other prior agreements, understandings,
representations, warranties, inducements or other matters in connection with
such subject matter.
16.4 Severability; Blue Pencil. The unenforceability or
invalidity of any provision of this Agreement in a particular case shall not
render unenforceable or invalid in such case any other provision hereof or such
provision in any other case. If any one or more of the provisions of this
Agreement shall for any reason be deemed excessive as to duration, scope,
activity or subject or shall be otherwise unenforceable, such provision(s) shall
be construed or recast so as to enforce the intent of the parties as herein set
forth to the greatest extent permitted by applicable law.
<PAGE>
16.5 Headings. The headings and titles in this Agreement are
for purposes of convenience of reference only and shall not in any way affect
the meaning, interpretation or enforcement of this Agreement.
16.6 Governing Law. This Agreement shall be governed by the
laws of the State of Washington as in effect for contracts made and to be
performed in the State of Washington. The parties hereby submit to the
jurisdiction of the courts of, and the federal courts located in, the State of
Washington for all purposes related to this Agreement and the relationship
between the parties, and such courts shall have exclusive jurisdiction and venue
of the subject matter hereof and thereof.
16.7. Nature of Relationship. The relationship of the parties
shall be only that of independent contractors. The parties do not intend to have
the relationship of employer-employee or of partners and neither party shall
hold itself out as having any such or similar relationship with the other party.
16.8. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
EXPERT: SHOWSTAR ENTERTAINMENT
CORPORATION
/s/ By: /s/
Abraham Joel John Punzo
Chairman and
Chief Executive Officer
<PAGE>
EXHIBIT 6.07
CONSULTING AGREEMENT
This Agreement (this "Agreement") is entered into as of September 1, 1999 by and
between Showstar On-Line, Inc., a Colorado corporation ("Company") and Connie
Vick, ("Vick"), trading as Vick Corporate Art Advisors, having her principal
place of business at 8204 Cedar Road, Elkins Park, PA. 19027 ("Consultant").
The parties hereto agree as follows:
1. Engagement. Company hereby engages Consultant and Consultant hereby agrees
to hold herself available to render, and to render at the request of Company,
independent marketing, advisory and consulting services for Company and its art
web site which will be known as "ArtStar", to the best of its ability, upon the
terms and conditions hereinafter set forth.
2. Term. The term of this Agreement is one year and shall begin as of the date
of this Agreement. The Agreement shall be automatically renewed by the Company
for an additional two years unless either party gives sixty (60) days notice of
non-renewal prior to the first anniversary of signing.
3. Termination.
3.1. The provisions of paragraph 2 notwithstanding, this Agreement shall
terminate upon the occurrence of any one or more of the following:
a. Death of Connie Vick;
b. Inability of Connie Vick to perform her duties for a period of 60 consecutive
days due to sickness, disability or any other cause, unless Consultant is
granted a leave of absence by the Company; or
c. For cause as defined in sections 4.1 or 4.2 or 4.3.
3.2. Termination with Cause by the Company, Etc. Consultant shall be
entitled to compensation earned through the date of termination if
termination is with cause by the Company, without cause by Consultant or
because of Vick's death or disability as provided in sections 3. 1 (a) or (b).
3.3. Termination without cause by the Company. Termination without cause by
the Company must be preceded by a minimum of a sixty (60) days' prior written
notice of such termination to Consultant. The period of non-competition shall
be reduced to one (1) in the event of termination of Consultant by the
Company without cause.
3.4. Resignation by Consultant. In the event Consultant elects to terminate
its relationship with the Company without cause by resigning, or otherwise,
Consultant shall be entitled to no further compensation or grant shares not
theretofore vested as of and from the date of such termination. Furthermore,
termination without cause by Consultant must be preceded by a minimum of a
sixty (60) days' or written notice of such termination to the Company.
3.5. Continuing Effect. Despite termination of this Agreement, and, unless
<PAGE>
otherwise provided herein, irrespective of whether such termination has been
effected with or without cause by either Company or Consultant, such termination
shall not affect the continuing enforceability of those provisions hereof that
are by intended to apply after the termination hereof, including without
limitation those contained in section 10.
4. Cause and Breach.
4.1. Where reference is made in this Agreement to termination by the Company
with or without cause, "cause," shall mean cause resulting, from actions or
inactions of Consultant and is limited to the following:
a. Repeated failure or refusal to carry, out the reasonable directions of the
Company, provided such directions are consistent with the duties and obligations
herein set forth to be performed by Consultant;
b. Willful violation of a state or federal law involving the commission of
(1) a crime against the Company materially adversely affecting the Company or
(2) a felony of any kind; or
c. Any material breach by Consultant or this Agreement or the falsity of any
material representation or warranty of Consultant herein not corrected as
paragraph 4.3 hereof
4.2. Where reference is made in this Agreement to termination being by
Consultant with or without cause, "cause", shall mean any breach of this
Agreement by the Company not corrected as provided in paragraph 4.3 hereof
4.3. Whenever a breach of this Agreement by either party is relied upon as a
justification for any action taken by the other party pursuant to any
provision of this Agreement (including without limitation termination
hereof), before such action is taken, the party asserting the breach shall
give the other party written notice of the existence and nature of the breach
and such other party shall have the opportunity to correct such breach during
the thirty (30) day period following such notice. If such cure is effected,
then an ch breach shall not be a basis for the party intending to rely
thereon.
5. Compensation. As compensation for all services rendered by Consultant under
this Agreement, Company shall pay Consultant the following sums:
(a) During the term of this Agreement Company shall pay Consultant a refundable
advancement of $5000.00 during the term hereof, which constitutes a draw against
commissions due Consultant. Consultant is guaranteed a minimum of $5000.00 each
month, provided, however, that in those months in which Consultant earns a
commission greater than $5000.00, Company shall deduct from such commission, an
amount, if any, equal to that owed the Company in prior months in which $5000.00
in commissions were not actually earned by Consultant.
(b) During the term of this Agreement Company shall pay Consultant a commission
of twenty percent (20%) of gross profits made on all purchases of goods, defined
as all artwork, frames and related items, and a commission of fifty percent
(50%) of gross profits made on all purchases of consulting services by any
ArtStar client. Gross profits are defined as revenues less cost.
(c) Payment will be made monthly, the sum based upon receipts of purchases of
goods and of consulting services by ArtStar Consulting (defined below)
clients purchaser makes full payment of purchase price.
(d) Upon execution of this agreement, Consultant shall receive three hundred
<PAGE>
thousand (3 00,000) shares of Company, which shall vest at one hundred thousand
(100,000) shares per year commencing upon execution and upon each anniversary
date; provided, however, that Consultant is not terminated with cause or that
Consultant elects to terminate without cause by resignation, or otherwise.
(e) During the time of this agreement Consultant shall receive stock options of
one hundred fifty thousand (150,000) shares at $1.00 per share per year for
three (3) years, which shall vest at 50,000 shares, each year beginning on the
first anniversary of execution of the Agreement; provided, however, that
Consultant is not terminated with cause or that consultant elects to terminate
without cause by resignation, or otherwise.
(f) In the event that Consultant is terminated without cause, then the effective
date of all the foregoing shares and options shall be advanced to the date of
any such occurrence, and such options shall remain in effect until termination.
All such compensation shall be payable without deduction, including no deduction
for federal income, social security, or state income taxes.
6. Duties. Consultant shall hold itself to render, and shall render at the
request of Company from time to time consulting and marketing services for the
Company, including, without limitation, advice and assistance on the following:
(a) designing and developing the entire on-line ArtStar art selection service to
be known as "ArtStar Consulting", including conferring with programmers to
create all necessary programs;
(b) providing personalized art selection service to every ArtStar Consulting
client and directing all art sales through ArtStar, including in-person
consulting services;
(c) creating customized art programs;
(d) developing an exclusive ArtStar listing of special art sources using
Consultant's professional connections with hundreds of professional artists and
photographers;
(e) negotiating with individual artists and photographers to sell their artwork
directly through ArtStar for the benefit of ArtStar Consulting clients,
provided, however that the commission paid to ArtStar shall be greater than
thirty percent (30%);
(f) negotiating with art galleries, and dealers to grant special discounts of
more than twenty percent (20%) to ArtStar Consulting clients at a companion site
to be known as "Artist Preferred," provided, however that the commission paid to
ArtStar is no less than thirty percent (30%).
(g) negotiating directly with framers to grant special discounts to ArtStar,
provided, however that the commission paid to ArtStar shall be at least fifty
percent (50%);
(h) using her best efforts to direct current and future corporate and private
clients of Consultant to use ArtStar as their exclusive agent for all art
resales through the ArtStar retail and auction site;
(i) negotiating with current Consultant's corporate clients to create an
online ArtStar protocol for the procurement of artwork in specific instances,
including large-scale purchases of artwork designated for personal offices
within large corporations such as American Express, Merck & Co., and Deloitte
& Touche, when Consultant deems appropriate;
(j) initiating talks with Consultant's close contacts in Sienna, Italy in the
effort to bring artwork and items to ArtStar's auction site and to create a
cultural and travel program focused on Tuscany;
(k) initiating talks with MasterCard International, to explore a potential
online art and culture relationship with ArtStar;
(l) exploring the possibility of providing online art purchasing services to
employees of Consultant's corporate clients through in-house company intranet
systems;
<PAGE>
(m) developing "tours" of clients' corporate art collections and providing art
purchasing programs for the employees, when the Consultant deems appropriate;
(n) encouraging and creating relationships with other consultants to provide
consulting services to ArtStar clients in other potential areas, including but
not limited to home furnishings and antique collecting; and
(o) making significant contributions and assist in all aspects of the ArtStar
web site to ensure its overall success.
Consultant shall render such services conscientiously and shall devote its
best efforts and abilities thereto, at such times during the term hereof and
in such manner, as Company and Consultant shall mutually agree, it being
acknowledged that Consultant's services shall be non-exclusive and performed
at such places and at such times as are reasonably convenient to Consultant.
Consultant shall observe all policies and directives promulgated from time to
time by Company's Board of Directors or Officers. Consultant shall not engage
in any activities in conflict with the business and purposes of ArtStar or
the Company's other business as from time to time conducted.
7. Expenses.
(a) Consultant shall be promptly (within thirty (30) days) reimbursed by Company
for all reasonable business expenses which are deductible by Company for U.S.
Federal income tax purposes and which were incurred by Consultant during the
performance of its services hereunder; provided, any such reimbursement in
excess of $1000.00 in any month, shall require Company's prior written approval.
Company's obligation to reimburse Consultant pursuant to this subparagraph shall
be subject to the presentation to Company by Consultant of an itemized account
of such expenditures, together with supporting vouchers, in accordance with
Company's policies as in effect from time to time.
(b) Company shall promptly reimburse Consultant for all expenditures related
to in-person consulting services, including travel, lodging and other
reasonable expenses incurred in connection with the rendering such services
by Consultant. Company shall bill ArtStar clients for all expenses associated
with in-person consulting services, including travel, lodging and other
reasonable expenses incurred in connection with in-house consulting services.
(c) Company shall increase the monthly stipend payable to Consultant by an
amount reasonably determined by both parties in the event that additional
manpower is required to provide Consultant's services.
(d) Company shall increase the monthly stipend payable to Consultant by an
amount reasonably determined by both parties in the event that Consultant
requires the expertise of other art consultants or consultants in other
relevant fields.
8. Independent Contractor. It is expressly agreed that Consultant is acting as
an independent contractor in performing her services hereunder. Company shall
carry no Workmen's Compensation insurance or any health or accident insurance to
cover Consultant. Company shall not pay any contributions to Social Security,
unemployment insurance, federal, or state withholding taxes, nor provide any
other contributions or benefits, which might be expected in an employer-employee
relationship.
9. Disclosure of Information. Consultant shall not disclose or appropriate to
her own use, or to the use of any third party, at any time during or subsequent
to the term of this Agreement, any secret or confidential information of Company
or ArtStar of which Consultant has been or hereafter becomes informed, whether
or not developed by Consultant, including, but not limited to, information
pertaining to ArtStar Consulting, ArtStar Preferred, customer lists, art
sources, art software programs, services, methods, processes, prices, profits,
contract terms or operating procedures, except as required in connection with
<PAGE>
Consultant's performance of this Agreement, or as required by governmental
authority. Company shall have the right to obtain injunctive relief, without
bond, for violation of thee terms of this paragraph and the terms of this
paragraph shall survive the term of this Agreement. Nothing herein shall prevent
Consultant from continuing to conduct its historical art services business,
except in connection with doing so online or on the Internet.
10. Conduct of Business
(a) Consultant shall have artistic control over ArtStar Consulting and ArtStar
Preferred, including the right to select or disapprove of any gallery providing
artwork to ArtStar Consulting clients.
(b) All existing clients of Consultant and any clients hereafter obtained by
Consultant not through ArtStar, will be and will remain Consultant's clients
and ArtStar shall not be entitled to any compensation on sales to such
clients.
(c) Consultant shall pay Company five percent (5%) of all profits received by
Consultant for use of ArtStar services by all existing clients of Consultant
and any clients hereafter obtained by Consultant not through ArtStar.
(d) Company shall have all proprietary rights, including intellectual
property rights, to all property created by Consultant pursuant to this
Agreement, including, but not limited to, ArtStar Consulting, ArtStar
Preferred, customer lists, art sources, art software programs, services,
methods, and processes.
11. Non-Competition. During the term of Consultant's retention by Company and
for a period of two (2) years thereafter, Consultant shall not, directly or
indirectly, be employed by, own, manage, operate, join, control or participate
in the ownership, management, operation or control of or be connected in any
manner with the field of Internet online business intended for or actually
operated in by Company or ArtStar. Consultant shall be deemed to be connected
with a business if such business is carried on by a partnership in which it/she
is a general or limited partner, consultant or employee, or a corporation or
association of which it/she is a shareholder, officer, director, employee,
member, consultant or agent; provided, however, that nothing herein shall
prevent the purchase or ownership by Consultant of shares of less than 2% of the
outstanding shares of a publicly or privately held company. Nothing herein shall
prevent Consultant from continuing to conduct her historical art services
business, except in connection with doing so on the Internet.
12. Indemnification. Consultant shall defend, indemnify and hold harmless
Company and ArtStar from any and all losses, damages, liabilities and claims
associated with Consultant's on-line art selection service, based upon the
authenticity, history and online art selection service, or based upon any act of
omission, misrepresentation, fraud or inaccuracy on the part of the Consultant
pursuant to this Agreement. Notwithstanding the foregoing, Consultant shall not
be responsible for any consequential damages.
13. Assignment. This Agreement is a personal one, being entered into in reliance
upon and in consideration of the singular personal skill and qualifications of
Consultant. Consultant shall therefore shall not voluntarily or by operation of
law assign or otherwise transfer the obligations incurred on its part pursuant
to the terms of this Agreement without the prior written consent of Company. Any
attempted assigm-nent or transfer by Consultant of its obligation without such
consent shall be wholly void. Notwithstanding the foregoing, Consultant may
assign her interest here in to a corporation, limited liability company or
partnership controlled by Consultant and thereupon, Consultant shall be released
hereunder, except from her obligations under sections 9 and 11.
14. Notice. Instructions and other documents hand-delivered under this Agreement
<PAGE>
shall be valid if (I) hand-delivered, (II) sent by registered or certified mail,
return receipt requested, (III) sent by Federal Express or other reliable
overnight courier service, or (IV) transmitted by telecopy.
If to Company:
ArtStar. Com
521 West 23rd Street, 2nd Floor
NewYork, New York 10011
Attn: Abraham Joel
Phone: (212) 647-9223
Fax: (212) 647-8368
If to Consultant:
Vick Corporate Art Advisors
8204 Cedar Road, Suite 217
Elkins Park, PA 19027
Attn: Connie Vick
Phone: (215) 635-6352
Fax: (215) 635-5194
Each communication which shall be given or made in the manner described above
shall be deemed sufficiently given or made at such time as it is delivered to
the addressee in the case of person delivery or registered or certified mail,
one (1) business day following the courier if sent by Federal Express or other
reliable overnight courier or upon receipt of the telecopy; if sent by telecopy,
followed by a written confirmation within two (2) business days.
15. Waiver of Breach. The waiver by either party of any breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
16. Titles. The titles of the Sections herein are for convenience of reference
only and are not to be considered in construing this Agreement.
17. Governing Law. This Agreement has been executed and delivered in the State
of New York, and its interpretation, validity and performance shall be construed
and enforced in accordance with the laws of such State.
18. Arbitration. In the event of a disagreement of any kind related to this
Agreement, the parties agree to submit the dispute to binding arbitration before
the American Arbitration Association in New York City.
19. Entire Agreement. This Agreement contains the entire contract of the parties
with respect to the subject matter hereof and supercedes all agreements and
understanding between the parties concerning the subject matter hereof
Executed as of the date first above written.
Showstar On-line, Inc.
/s/ R.H. COSTIN FOR
Name: JOHN PUNZO
Title: PRES & CEO
Vick Corporate Art Advisors
/s/
Name: CONNIE R. VICK
Title: Owner
<PAGE>
EXHIBIT 6.08
CONTRACT
BETWEEN.-
SHOWSTAR ONLINE.COM INC.
85-10551 Shellbridge Way
Richmond, B.C.
V6X 2W9
(Hereinafter referred to as "Showstar")
AND:
JOHN BARSON
#19-7500 Cumberland Street
Burnaby, B.C. V3N 4Z9
(Hereinafter referred to as "Barson")
WHEREAS Showstar agrees to enter into a contract with Barson and whereas Barson
agrees to enter into a contract with Showstar, the following conditions are
hereto agreed to to in part and in full:
BARSON hereby agrees to:
1) Represent Showstar in an ethical and professional fashion in promoting the
Corporation and advancing its position and development in e-commerce.
2) To promote the Company's goodwill to develop the corporate image and the
Company's public relations on an international basis.
3) To act in the capacity of Chief Technical Officer to oversee the development
of the technology required for the Company to operate effectively to accomplish
its goals.
SHOWSTAR agrees to:
1) To pay Barson, during the first year of this contract, a sum of CDN$ 10,000
dollars per month beginning from the 15th day of June, 1999 until the 14th of
June, 2000.
2) Moneys will be paid on a monthly basis in installments of $5,000 on the 15th
and the end of each month respectively.
3) To pay, during years 2, 3, and 4 of this contract (a "contract year") an
amount to be agreed upon by the parties hereto prior to May 31 preceding the
commencement of such contract year of each year, which amount is to be no less
than the immediately preceding period and further provided that such amount
shall not be less than the industry standard.
4) Shall pay to Barson a reimbursement of all approved expenses incurred on the
first party's behalf These amounts shall be funded fourteen days after
submission of expense reports with required supporting documentation.
5) To issue as fully paid and non-assessable to Barson THREE HUNDRED THOUSAND
(300,000) COMMON SHARES immediately upon the signing of this Contract and to
<PAGE>
issue, as fully paid and non-assessable, an additional TWO HUNDRED THOUSAND
(200,000) common shares in the capital of Showstar Onine.com Inc. on or before
June 15"', 2000 (the "Second Issuance"). A further ONE HUNDRED AND FIFTY
THOUSAND (150,000) common shares in the capital of Showstar Online.com, Inc.
shall be issued to Barson on the 15 1h of June, 2001 (the "Third Issuance") and
a further ONE HUNDRED AND FIFTY THOUSAND (150,000) common shares shall be issued
to Barson on the 15"' of June, 2002 (the "Fourth Issuance"). If Showstar
Online.com is sold or this Contract is terminated for any reason, Showstar
Online.com, Inc. will issue to Barson, immediately upon the occurrence of such
an event, the Second, Third and Fourth Issuances.
6) Shall transfer to Barson the following shares upon the second parties
acceptance and payment in exercising the following options:
STOCK OPTIONS
Showstar Online.com, Inc. hereby grants to Barson the following options, on the
following terms, to purchase common shares in the capital of Showstar
Online.com, Inc.;
a) Effective June 15th, 2000, an option to acquire ONE HUNDRED AND FIFTY
THOUSAND (150,000) common shares at the exercise price of FIFTY ($0.50) CENTS
per share.
b) Effective June 15th, 2001, an option to acquire ONE HUNDRED AND FIFTY
THOUSAND (150,000) common shares at the exercise price of ONE ($ 1.00) DOLLAR
per share.
c) If Showstar Online.com, Inc. is sold or this contract is terminated by
Showstar Online.com, Inc. without cause, immediately upon the occurrence of
such an event, all options granted hereby will vest immediately.
d) The parties hereto shall enter into a Stock Option Agreement substantially in
the form attached as Exhibit "A" hereto, giving effect to these option grants.
TERM
The term of this agreement shall be four years commencing June 15th, 1999 and
terminate on June 15th, 2003 unless renewed by mutual consent.
CANCELLATION OF CONTRACT
a) Barson may cancel the contract at any time:
- Upon 60 days prior written notice given to the President of the
Company.
- Barson will forfeit any and all rights to fully paid shares and
option shares that have not vested as of the notice date.
b) The Company may cancel the contract at any time:
- WITHOUT CAUSE - Upon 60 days prior written notice by the Executive
of the Company. Barson will be entitled to all fully paid share
and options, both vested and unvested, as provided for in this
agreement.
- WITH CAUSE as defined in "CAUSE DEFINED" - immediate dismal and
forfeiture of any and all rights to fully paid shares and stock
options not vested on the date of termination.
c) Death or Total Incapacitation of Barson:
- Barson or his estate (in the case of death) will be entitled to
receive the following:
- The fully paid and non-assessable shares due him on June
15th of the year of his demise or total incapacitation.
- The right to exercise the stock option due him on June 15th
of the year of his demise or total incapacitation.
- e.g. Should this event (death or incapacitation) occur on
June 16th, 2000, Barson or his estate would be entitled to
stock and options accrued to June 15th, 2000 plus the
shares and options that would have been granted to him on
June 16th, 2001 had this event not occurred.
CAUSE DEFINED
"Cause" shall mean cause resulting from actions or inactions of Barson and
is limited to the following:
a) Repeated failure or refusal to carry out the reasonable
directions of the Company, provided such directions are
consistent with the duties and obligations herein set forth to be
performed by Barson; or
b) Willful violation of a provincial, state or federal law involving
the commission of (1) a crime against the Company materially
adversely affecting the Company or (2) a felony of any kind; or
c) Barson's medically confirmed misuse or abuse of alcohol or use of
any controlled substance; or
d) Any material breach by Barson of this agreement or the falsity of
any material representation or warranty of Barson herein, which
upon written notice to Barson, is not corrected within 30 days.
NON-COMPETITION
Barson agrees to professionalism, confidentiality and shall not, within eighteen
months following the termination of this contract, solicit existing clients of
Showstar or compete in the same business and cannot consult or perform duties
with others without approval.
CONFLICT OF INTERESTS
It is understood that Barson shall disclose any relationship which appears to
conflict with Showstar and it is acknowledged by Showstar that Barson has
disclosed his ownership and management positions with Savingsplus Internet Inc.
This includes both vendors and competitors. It is also understood that Barson
will not have interests in operations if they directly or indirectly compete
with Showstar, except for Barson's interests in Savingsplus Internet Inc.'s
business or intellectual property.
<PAGE>
CONFLICT
Should the above noted parties be unable to resolve a contractual difference,
the parties hereby agree that the conflict shall be resolved by way of
arbitration and agree that binding arbitration shall control the consequence or
the result of problem resolution.
REPRESENTATION OF BARSON AND OF SHOWSTAR
(a) Barson represents that he:
1) Within the past five years, has not filed, or cause to be filed, a petition
under the United States Bankruptcy Code or any Canadian equivalent.
2) Has not knowingly violated, or been found to have violated any federal and/or
state or Canadian securities laws.
3) Consents to a criminal background check.
4) Does not have any business affiliations, which would conflict with his
positions with Showstar.
(b) Showstar represents that:
1) Showstar has all requisite corporate power and authority to enter into this
agreement and the transactions contemplated hereby.
All amounts referred to in this contract are in U.S. Dollars unless otherwise
specified.
The above named parties hereby consent to the terms and conditions of this
contract.
Dated this 30th day of August, 1999 in the City of Richmond, B.C., Canada
For Showstar Online.com, Inc. For John Barson
SIGNATURE SIGNATURE
PRINT NAME PRINT NAME
TITLE
<PAGE>
EXHIBIT 6.09
EMPLOYMENT AGREEMENT
This Agreement is made as of the 15th day of March, 1999.
BETWEEN:
SHOWSTAR ENTERTAINMENT CORP., a company
incorporated under the laws of the State of Colorado
and having a place of business at 5407 - 108 Avenue
NE, Kirkland, Washington
(hereinafter called "Showstar")
OF THE FIRST PART
AND:
DAVID E. Udow, of 335 West 12th Avenue, Vancouver,
B.C. V5Y 1V1
(hereinafter called "Udow")
OF THE SECOND PART
WHEREAS:
A. Showstar carries on the business of developing e-commerce and internet
marketing systems (hereinafter called the "Business");
B. In British Columbia, Showstar operates the Business through its wholly
owned Canadian subsidiary, Showstar North Entertainment Inc., at premises
located at 80 - 10551 Shellbridge Way, Richmond, British Columbia and other
locations;
C. Effective March 15th, 1999, Showstar has employed and wishes to
continue to employ Udow in the Business on the terms and conditions hereinafter
set out, which terms and conditions are acceptable to Udow;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
provisions herein the parties agree as follows:
1.0 Employment
1.1 Showstar shall employ Udow in the Business to provide the services
described herein upon the terms and conditions contained herein.
1.2 Udow accepts such employment and agrees to provide such services in
accordance with the terms and conditions contained herein.
2.0 Services of Udow
2.1 Udow shall perform such duties as Showstar may from time to time
require relating to his position as Vice President of Internet Marketing and in
particular his duties shall include project management and internet marketing.
<PAGE>
2.2 Udow shall devote his full time and attention to the duties described herein
and he shall act in the best interests of Showstar.
2.3 During his employment by Showstar, Udow shall not engage in any business
which is, or may reasonably be seen to be, in competition with the Business nor
which shall interfere with his obligation to devote his full time to the
Business.
2.4 Udow shall use his best efforts to serve Showstar in a competent and
efficient manner and in accordance with Showstar's contractual and other legal
obligations.
3.0 Duration, termination and severance
3.1 The initial term of Udow's employment hereunder shall be from March 15th,
1999 to March 14th, 2004 (hereinafter called the "Initial Term") unless
terminated earlier in accordance with the provisions hereof.
3.2 This Agreement may be terminated at the option of Showstar at any time if:
(a) Showstar has just cause to terminate Udow;
(b) Showstar ceases to carry on the Business or is adjudicated a bankrupt or
is insolvent or makes an assignment for the benefit of its property; or
(c) Showstar chooses to terminate Udow and apply paragraphs 3.4 or 3.6.
3.3 This Agreement may be terminated at the option of Udow at any time:
(a) Showstar defaults in the performance of any material term hereunder and such
default is not remedied as soon as reasonably possible after written notice has
been given to Showstar;
(b) Showstar ceases to carry on business;
(c) control of Showstar changes, or
(d) Udow gives Showstar written notice of his intention to terminate his
employment, such notice to be for a period of not less than ninety days.
3.4 In the event this Agreement is terminated by Showstar in circumstances in
which Showstar does not have just cause (which circumstances include those set
out in subparagraph 3.2(b)), in addition to any period of notice which Showstar
may give Udow, Showstar shall pay Udow severance pay of to month's pay for each
year or part year that Udow has been employed by Showstar since March 15th,
1999.
3.5 Following the Initial Term, Udow's employment by Showstar shall be
automatically renewed for another year, and thereafter from year to year, unless
either party notifies the other, not less than three months prior to the end of
the Initial Term, or thereafter not less than three months prior to the end of
each renewal year, that this Agreement shall expire at the end of the Initial
Term, or thereafter at the end of any renewal year.
3.6 If this Agreement is continued beyond the Initial Term and is subsequently
terminated by Showstar, other than in accordance with paragraph 3.5, in
circumstances in which Showstar does not have just cause, Showstar shall give
Udow severance pay of two month's pay for every year or part year that Udow has
been employed by Showstar since March 15th, 1999.
<PAGE>
3.7 "Severance pay" as used herein shall include both base salary and bonuses
(as provided in paragraph 4.2) and shall be deemed to be compensation for the
loss of employment and, accordingly, subject to statutory limitations, eligible
at the option of Udow to be received as a retiring allowance.
3.8 The termination of this Agreement shall not excuse either party from
performing any obligations arising out of or in connection with the period prior
to the termination.
3.9 In the event of the termination of Udow's employment hereunder, his right to
exercise share options pursuant to paragraph 4.6 shall terminate in accordance
with the terms of the Stock Option Agreement referred to in that paragraph.
4.0 Compensation and benefits
4.1 (a) Commencing June 1st, 1999, Showstar shall pay Udow a base salary of
$6,000.00 CDN per month in semi-monthly installments in arrears.
(b) Upon the completion of Phase I financing or December Ist, 1999,
whichever is earlier, and thereafter on the anniversary of this Agreement, the
parties shall undertake a review of Udow's performance and of his base salary.
(c) Udow' s base salary following each review shall not be less than
the salary for the preceding period.
4.2 From time to time, but solely at the discretion of Showstar, Udow shall
receive bonuses based upon his and Showstar's performance, provided that his
entitlement to such bonuses shall be consistent with the entitlement to bonuses
of other management employees of Showstar.
4.3 Forthwith upon the execution of this Agreement, Showstar shall issue to
Udow, as a signing bonus, 200,000 common shares in the capital stock of
Showstar, such shares to be section 144 shares @ $.50 per share, available as of
April 11th, 2000.
4.4 Udow shall be entitled to health and other fringe benefits, if any, received
by other management employees of Showstar.
4.5 (a) During the Initial Term, Udow shall receive three weeks paid vacation in
each twelve month period commencing March 15th of each year at such time or
times as the parties shall agree.
(b) Following the Initial Term, Udow shall receive four weeks paid vacation
in each twelve Month period commencing March 15th of each year at such time or
times as the parties shall agree.
4.6 Showstar hereby grants to Udow an option to purchase common shares in the
capital stock of Showstar in accordance with the Stock Option Agreement made as
of March 15th, 1999, a copy of which is attached hereto as Schedule A.
4.7 (a) Udow shall be reimbursed for reasonable expenses incurred by him in the
performance of this Agreement, provided that a request for reimbursement of such
expenses shall be accompanied by appropriate receipts or other evidence and an
expense report approved by the executive of Showstar.
<PAGE>
(b) Approved expenses shall be reimbursed on the 15th of the month following the
month in which such expense report is submitted.
5.0 Confidentiality and non-competition
5.1 During the currency of this Agreement, Udow shall not, without the prior
written consent of Showstar, directly or indirectly either individually or in
partnership or in conjunction with any other person, firm, syndicate, company or
corporation, whether as principal, agent or shareholder or in any other manner
whatsoever, carry on or be engaged in or concerned with or advise, lend money
to, guarantee the debts of or obligations of or permit his name to be used in
connection with any other business or enterprise which would place Udow in a
position of conflict with his obligations hereunder or prevent or impede him
from devoting his best efforts or sufficient time to the performance of his
duties hereunder.
5.2 Udow acknowledges that, in the course of his employment by Showstar, he may
be given in confidence, or have access to or acquire, knowledge or information
which is the valuable, special and unique property of Showstar or of Showstar's
suppliers, customers or potential customers or of other persons with whom
Showstar has business dealings (hereinafter called, collectively, the "Connected
Persons") including, without limiting the generality of the foregoing:
(a) technical information;
(b) financial information concerning Showstar or Connected Persons;
(c) information concerning Showstar's contracts or commitments with, or the
contracts or commitments of, Connected Persons;
(d) information concerning past, present or prospective suppliers or customers
of Showstar; and
(e) knowledge or information conceived, devised or developed by Showstar;
(hereinafter called, collectively, the "Information").
5.3 Udow covenants and agrees that he will:
(a) hold the information in strict confidence and not disclose the
information except as required in performance of his duties hereunder or with
the prior written consent of Showstar;
(b) make no use of the information except in the performance of his duties
hereunder; and
(c) upon termination of this Agreement, deliver to Showstar all written or
recorded materials in his possession or under his control containing, or
relating to, the information.
5.4 Udow covenants that, following termination of this Agreement for any reason
whatsoever, and for a period of three years, he will not make use or avail
himself of the Information which was not already in his possession or is in the
public domain.
5.5 Udow covenants that, in the event he is terminated with cause or that he
terminates this Agreement, he will not, for a period of three years after
termination, unless with the prior written consent of Showstar, either
individually or in partnership or in conjunction with any other person, firm,
association, syndicate, company or corporation, whether as principal, agent,
shareholder or in any other manner whatsoever, solicit any persons with whom
Showstar had a contractual relationship at the time of termination.
<PAGE>
5.6 Udow acknowledges and agrees that the scope of the covenants contained in
paragraphs 5.3 to 5.5 are reasonable and commensurate with the protection of the
legitimate interests of Showstar.
5.7 The covenant contained in paragraph 5.3 shall survive the expiry or earlier
termination of this Agreement.
6.0 Representations of Udow
6.1 Udow Represents that:
(a) he has not been convicted of any offence under the Criminal Code of Canada,
(b) he has never filed, or caused to filed, a petition under the United States
Bankruptcy Code or any comparable Canadian legislation;
(c) he has not knowingly violated, or been found to have violated, any federal,
state or Candadian securities laws or regulation; and
(d) he has no business affiliations which would conflict with the obligations he
has undertaken by entering into this Agrement.
7.0 Cause and breach
7.1 Where reference is made in this Agreement to termination by Showstar with or
without cause, "cause" shall mean cause resulting from actions or inactions of
Udow and is limited to the following:
(a) repeated failure or refusal to carry out the reasonable directions of
Showstar, provided such directions are consistent with the duties and
obligations herein set forth to be performed by Udow;
(b) willful violation of a provincial, state or federal law involving the
commission of (i) a crime against Showstar adversely affecting Showstar or (ii)
a felony of any kind;
(c) Udow's medically confirmed misuse of alcohol or use of any controlled
substance; or
(d) Any material breach by Udow of this Agreement or the falsity of any material
representation or warranty of Udow herein not corrected as provided in
paragraph 7.3.
7.2 Where reference is made in this Agreement to termination being by Udow with
or without cause, "cause" shall mean by any breach of this Agreement by Showstar
no corrected as provided in paragraph 7.3.
7.3 Whenever a breach of this Agreement by either party is relied upon as a
justification for any action taken by the other party pursuant to any provision
of this Agreement (including, without limitation, termination hereof), before
such action is taken, the party asserting the breach shall give the other party
written notice of the existence and nature of the breach and such other party
shall have the opportunity to correct such breach during the 30-day period
following such notice. If such cure is effected within that 30-day period, then
any such breach shall not be a basis for the party intending to rely thereon.
8.0 General provisions
8.1 Governing Law. This Agreement shall be governed by and construed in
<PAGE>
accordance with the laws of the State of Washington.
8.2 Dispute resolution Any dispute arising out of, or in connection with, the
interpretation or application of this Agreement shall be resolved by a single
arbitrator in accordance with the rules of the American Arbitration Society
whose decision shall be binding on the parties.
8.3 Entire Agreement. This Agreement supersedes and voids all previous
understandings and agreements between the parties with respect to the
employment of Udow by Showstar.
8.4 Amendment. This Agreement may only be amended in writing signed by both
parties.
8.5 Severability. Should any part of this Agreement be declared invalid, such
decision shall not affect the validity of the remaining parts, which
remaining parts shall remain in force and effect as if this Agreement had
been executed without the invalid part and it is declared that the intention
of the parties is that they would have executed the remaining parts of this
Agreement without including therein any such part which may be declared
invalid.
8.6 Waiver. No waiver by either party of any default in performance on the
part of the other party and no waiver by either party of any breach or of a
series of breaches of any of the terms, covenants or conditions of this
Agreement shall constitute a waiver of any subsequent or continuing breach of
such terms, covenants or conditions. The failure of either party hereto to
assert any claim in timely fashion for any of his rights or remedies under
this Agreement shall not be construed as a waiver of any such claim and shall
not modify, after or restrict any such party's right to assert such claim at
any time thereafter.
8.7 Notice.
(a) Any notice or other communication required or permitted to be
given hereunder or for the purposes hereof shall be sufficiently given if
personally delivered to Udow or, in the case of Showstar, a director.
(b) Alternatively, any notice or other communication may be delivered
by facsimile or e-mail at the facsimile number or e-mail address of the party
ordinarily used by that party provided that, if sent in this fashion, such
notice shall be deemed to have been received three business days after proof of
transmission.
8.8 Non-Assignability. This Agreement may not be assigned or transferred by
either party except with the prior written consent of the other party, provided
that Udow may assign his interest in this contract to any corporation in which
he has, and maintains, a controlling interest defined as not less than 51% of
the issued and outstanding voting shares.
8.9 Paragraphs. References herein to paragraph numbers are references to the
correspondingly numbered paragraphs of this Agreement.
8.10 Burden and Benefit. This Agreement shall be binding upon, and shall
enure to the benefit of, the parties and their respective successors and
permitted assigns.
<PAGE>
IN WITNESS WHEREOF the parties have executed this agreement effective the date
first above written.
SIGNED, SEALED AND DELIVERED ) SHOWSTAR ENTERTAINMENT CORP.
in the presence of: )
)
)
/s/ ) /s/
)
SIGNED, SEALED AND DELIVERED )
In the presence of: )
)
)
/s/ /s/
DAVID E. UDOW
MADE AS OF THE 15TH DAY OF MARCH, 1999
BETWEEN:
SHOWSTAR ENTERTAINMENT CORP
AND:
DAVID E. UDOW
EMPLOYMENT AGREEMENT
REMEDIOS & COMPANY
Barristers & Solicitors
101 - 1030 West Georgia Street
Vancouver, B.C. V6E 2Y3
Attention: Terry M. Mullen
Telephone No. 688-9337
TMM/km File No. 1361/004
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