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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
DEFINITIVE INFORMATION STATEMENT
ZSTAR ENTERPRISES, INC.
_____ No fee required
_____ Fee computed on table below per Exchange
Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which
transaction applies: COMMON STOCK
(2) Aggregate number of securities to which
transaction applies: 21,000,000
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was
determined): $0.179 [Based on the value of
Zstar's equity investment in OnVantage at the
Closing of the Merger.]
(4) Proposed maximum aggregate value of
transaction: $3,750,000
(5) Total fee paid: $2,500
X Fee paid previously with preliminary materials.
_____Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify
the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
TABLE OF CONTENTS
Page
I LETTER TO ZSTAR SHAREHOLDERS ii
II SUMMARY TERM SHEET 1
III INTRODUCTION 5
IV TERMS OF THE TRANSACTIONS. 5
(A) Date, Time and Place Information 5
(B) Dissenter=s Right of Appraisal 5
(C) Voting Securities and Principal
Holders Thereof 5
(D) Stock Ownership of Certain Beneficial
Owners and Management 6
(E) Directors and Executive Officers 7
(F) Compensation of Directors and
Executive Officers 8
(G) Authorization or Issuance of
Securities Otherwise Than For
Exchange 9
(H) Modification or Exchange of
Securities 10
(I) Discussion of Quantitative and
Qualitative Risk Factors 12
(J) Mergers, Consolidations, Acquisitions
and Similar Matters 22
(K) Matters Not Required to be Submitted 27
(L) Amendments of Charter, Bylaws or Other
Documents 27
(M) Voting Procedures 28
V INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO
MATTERS TO BE ACTED UPON 28
VI PROPOSALS BY SECURITY HOLDERS 28
VII FINANCIAL AND OTHER INFORMATION CONCERNING
ZSTAR 28
VIII FINANCIAL AND OTHER INFORMATION CONCERNING
ONVANTAGE 29
IX EXHIBITS
(2) Plan of Merger and Reorganization
Subsidiary Stock Purchase Agreement
(3) Certificate of Merger
(4) OnVantage 2000 Omnibus Stock Incentive Plan
(10) Loan Agreement
Convertible Promissory Note
Stock Subscription Agreement
(13) Annual Report to Shareholders
(99) Shareholder Consent Form
Board of Directors Resolutions
ZSTAR ENTERPRISES, INC.
A LETTER FROM THE BOARD OF DIRECTORS
CONCERNING THE PROPOSED MERGER AGREEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
Dear Zstar Shareholder:
The Board of Directors (the "Board") of Zstar Enterprises,
Inc., a Nevada Corporation ("Zstar"), seeks your written
consent to several proposals relating to its
reorganization and redomestication. This "Letter to Zstar
Shareholders" is attached to a definitive information
statement (the "Definitive Information Statement") as
required by Regulation 14C under the Securities Exchange
Act of 1934. Zstar mailed the Definitive Information
Statement to its Shareholders on June 14, 2000.
PLEASE READ THE ENTIRE DOCUMENT CAREFULLY, AND THEN COMPLETE THE
ATTACHED "SHAREHOLDER CONSENT FORM". YOU MAY ACCEPT OR REJECT ANY OR
ALL OF THE PROPOSALS. THE BOARD IS NOT ASKING FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND THE BOARD A PROXY.
The remaining portion of this Definitive Information
Statement will provide further details about the reorganization
and redomestication. The Definitive Information Statement will
also provide more information about the terms of a private
placement offering. Copies of the Merger Agreement and/or
any other document or exhibit discussed in this Definitive
information Statement are available upon request. To
receive a free copy of any document, please contact
Paul Wiebe at 1(800) 818-1887. Written requests can
be made to IPO Capital Corp. Bentall Tower 3, Suite 3000,
Burrard Street, Vancouver, B.C. V7X 1L4.
Zstar Enterprises, Inc.
By:__________________________
Mr. Eric Neil White
President & Chief Executive Officer
SUMMARY TERM SHEET
1. The Merger Proposal
The Board has adopted a Merger Agreement
("Merger") with OnVantage, Inc., a Delaware
corporation ("OnVantage"), in which a wholly
owned subsidiary of Zstar, a Delaware corporation
("Zstar Subsidiary"), will merge into OnVantage, and
OnVantage will be the surviving corporation of the
merger ("Surviving Corporation"). The Board has determined
that the Merger Agreement is in the best interest of Zstar.
If the Merger is completed, holders of OnVantage
Common Stock will receive 20,190,000 Shares of Common
Stock of Zstar ("Zstar Shares") in exchange for the Total
Capital Stock of OnVantage. Current Zstar Shareholders
will continue to hold their existing Zstar Shares after
the Merger. PLEASE NOTE THAT THE MERGER WILL RESULT IN A
CHANGE OF CONTROL OF ZSTAR. AFTER THE EXECUTION OF
THE MERGER, ONVANTAGESHAREHOLDERS WILL OWN 63.11% OF
ZSTAR(1). The total capital stock structure of Zstar
before and after the Merger will be as follows:
SCHEDULE 1
Zstar Shares Prior to Zstar Shares Issued Total Zstar Shares
Merger Agreement to OnVantage After Merger
Shareholders
11,800,000(2) 20,190,000 31,990,000
2. Proposal to Increase the Number of Authorized Shares
The current number of authorized shares of
common stock of Zstar ("Shares") is 30,000,000, with
10,550,000 Shares issued and outstanding. In order to effectuate
the Merger, Zstar must amend its Articles of Incorporation
to increase the number of authorized Shares from the current
30,000,000 Shares to 100,000,000 Shares. The increased
number of authorized shares will permit the issuance of
20,190,000 Shares of Zstar to OnVantage shareholders
in exchange for the Total Capital Stock of OnVantage.
3. Proposed Sale of Apex
As a condition precedent to the Merger, the
Board seeks authorization to sell Apex Canadian Holidays
Ltd., a wholly-owned subsidiary of Zstar and incorporated under
the laws of the Province of British Columbia ("Apex"),
(1)-Assumes the exercise of all purchase warrants issued
in the "Offering" as described below. If the Purchase
Warrants are not exercised, OnVantage shareholders will
own a greater percentage of Zstar.
(2)-Assumes the exercise of all purchase warrants issued
in the "Offering" as described below. The current number of
Zstar shares issued and ourstanding is 10,550,000 with
30,000,000 shares authorized.
1
in the event the Board, in its discretion deems such a
sale necessary or preferable. In conjunction with the sale,
Apex will sever all corporate ties with Zstar and
exist as an independent entity.
4. Proposal to Adopt Stock Option Plan
The Board seeks the authorization to adopt a
stock option plan ("2000 Omnibus Equity Incentive Plan").
The maximum aggregate number of shares of common stock subject
to the 2000 Omnibus Equity Incentive Plan is 5,000,000.
The shares may be authorized but unissued, or reacquired
common stock. Within the first 12 months from the Closing of
the Merger, total additional issuances under option
grants shall not exceed 3,325,000 shares. Notwithstanding
such limitation, any issuances of options under the Stock
Plan would result in further dilution of current Zstar shareholders.
5. Proposal to Authorize an Undesignated Class of Preferred Stock
The Board seeks your consent for the authorization of an
undesignated class of preferred stock ("Preferred Stock").
Currently, the issuance of Preferred Stock is not
authorized under Zstar's Articles of Incorporation.
The terms and description of the class of preferred stock
are undefined at the date of this Definitive Information
Statement. The Board of Directors has requested that the
shareholders grant the Board of Directors the authority to fix the
dividend rate and establish the provisions, if any, relating
to voting rights, redemption rate, sinking fund, liquidation
preferences and conversion rights for any series of Preferred
Stock issued in the future. Such preferences may place holders
of Preferred Stock in a superiorposition to holders of Zstar
Common Stock.
6. Proposal for Redomestication of Zstar
Currently, Zstar is incorporated and domiciled in the
State of Nevada. The Board has determined that it may be in the
strategic best interest of Zstar for Zstar to reincorporate as
a Delaware corporation. The Board believes that the redomestication
to Delaware may enhance Zstar's ability to attract new investors
in the future. Therefore, the Board seeks the authority to
redomesticate Zstar to Delaware. Please note that while
redomestication is probable, it is not certain to occur. Once
authorization is given to the Board, the Board
will make a determination on redomestication in the
near future, based on the best interest of Zstar and its
shareholders.
7. Proposal for Name Change
The Board believes the name of Zstar
Enterprises, Inc. should be changed to OnVantage, Inc. In
order to avoid any confusion with the Surviving Corporation of the
Merger, which is also known as OnVantage, Inc., it is expected that
the name of the Surviving Corporation will be changed to
OnVantage Technologies, Inc.
8. Election of the Board of Directors
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The annual election of the Board of Directors is
due at this time. Shareholders may accept or reject the
current list of candidates for the Board of Directors.
9. The Private Placement Offering(3)
(a) The Sale of Units
Zstar plans to make a private offering of 625,000 Units
at $6.00 per Unit (the "Offering"). Each Unit will be comprised of
one Share of Common Stock of Zstar and one purchase warrant
("Purchase Warrant"). Each Purchase Warrant will entitle the
holder to acquire one Share of Common Stock in Zstar for $6.00
per a period of two years from the closing of the Merger
Agreement. The Purchase Warrants will be forced to convert
within 15 days of the "Performance Milestone"(4), if the Performance
Milestone is achieved. All common shares underlying the Unit
are to have demand registration rights and be qualified for
resale to the public through an SB-2 registration statement
(at the expense of the Company) within 150 days of closing of
the Merger Agreement.
If the Purchase Warrants are exercised, each Purchase
Warrant will be exchanged for one Share of Common Stock in Zstar
at $6.00 per Share. If all Units are sold and all Purchase
Warrants are exercised, the maximum amount of the Offering
will be $7,500,000. The current number of Zstar Shares is
10,500,000. After the Offering and the exercise of all
Purchase Warrants, the total number of Zstar Shares then
outstanding will be 11,800,000, excluding any shares distributed
as part of the Merger.
SCHEDULE 2
Current Shares Shares from Shares from Total Shares
of Zstar Equity Financing Purchase Warrant After Offering
Exercise
10,550,000 625,000 625,000 11,800,000
(b) OnVantage Contingent Shares
To ensure completion of any mandatory conversion of the
Purchase Warrants, OnVantage shareholders shall receive a sufficient
number of warrants ("OnVantage Contingent Shares") that may be
exercised by OnVantage in the event less than 100% of the
Purchase Warrants are converted. The number of OnVantage
Contingent Shares will be computed prior to the "Raasch Loan
Conversion"(5) and the "Agent's Warrants"(6). If the Purchase
Warrants are not converted upon achieving the Milestone, the
resulting total combined ownership of (A) current shareholders in
Zstar and (B) Unit purchasers of the Offering shall equal to 22%
(3)-No consent is required or sought for the Offering.
Description of the Offering is for information purposes only.
(4)-For a detailed definition of the "Performance Milestone"
see Section 9(d) of this "Summary Term Sheet".
(5)-see Section 9(c) of this "Summary Term Sheet".
(6)-See Section IV(G)(5) of the Definitive Information Statement.
3
of Zstar after the conversion of the OnVantage Contingent Shares.
The OnVantage Contingent Shares will be cancelled immediately upon the
conversion of the Purchase Warrants.
(c) Raasch Loan Conversion
Mr. Ken Raasch shall convert his shareholder loans, as
verified by an independent party (estimated to be $2,500,000) into
restricted common stock at $6.00 per common share, upon closing of
the Merger Agreement ("Raasch Loan Conversion"). These shareholder
loans have been made pursuant to a Promissory Note between Mr.
Raasch and OnVantage,under which all principal and interest
(accruing at a rate of 8% per annum) shall be due and payable
on the Maturity Date of August 23, 2000.
(d) Investments in OnVantage
At the closing of the Merger Agreement (the "First Trounce"),
OnVantage will receive $3,750,000 in conjunction with the Private
Placement Offering. If OnVantage attains "proof of concept"
("Performance Milestone") on or before October 15, 2000 (the
"Second Trounce"), OnVantage will receive an additional
$3,750,000 through the exercise of the Purchase Warrants sold
in the Offering. The "Proof of Concept" shall be any of
the following: (A) at least 1,000 users of the OnVantage's
microportal technology by a significant national company (e.g.,
Merrill Lynch, E-Trade, Charles Schwab, QVC, Wells
Fargo, Answer Financial, or such other comparable
entity as acceptable to the Agent, such acceptance not to
be unreasonably withheld); (B) at least 5,000 users of the
OnVantage's microportal technology by a national company with a
presence in at least 25 states and acceptable to the Agent,
such acceptance not to be unreasonably withheld; or (C) at
least 10,000 users of the Company's microportal technology by
a regional company.
SCHEDULE 3
Stage Event Amount Source
of Funding
First Trounce(7) Signing of Merger $3,750,000 Sale of Units
Agreement with
OnVantage
Second Trounce Fulfillment of $3,750,000 Exercise of
Performance Milestone Purchase Warrants
by OnVantage/Zstar on or by
October 15, 2000
(7)-The First Traunch Closing will occur within three (3)
business days after obtaining shareholder consent to the
Merger. The Placement Agent shall use its best efforts to
obtain consent and has no knowledge of any facts which would
prevent such consent from being obtained.
4
III. INTRODUCTION
This Definitive Information Statement
is being furnished to holders of common
stock of Zstar Enterprises, Inc., a Nevada
Corporation ("Zstar") of record on May 25,
2000 (the "Record Date"), relating to the
solicitation of written consents to authorize
(a) the Merger, (b) the sale of Apex, a wholly
owned subsidiary of Zstar, (c) the Stock
Option Plan, (d) the creation of an undesignated
class of 5,000,000 preferred stock, (e) an increase in the
number of authorized shares of common stock from 30,000,000 to
100,000,000, (f) the redomestication of Zstar from
the State of Nevada to the State of Delaware, (g) the
change of Zstar's name to OnVantage, Incorporated, and (
g) the annual election of the Board of Directors. This Definitive
Information Statement also discloses an expected private
placement offering; however, no consent is requested from the
shareholders of Zstar for the private placement offering.
As a cost savings measure, and because we have
the ability to seek consent for the proposals rather than
hold a formal special shareholders meeting to consider the
proposals, we are soliciting shareholders consents in lieu
of solicitation of proxies to be voted at such a meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND US A PROXY.
IV. TERMS OF THE TRANSACTIONS
A. Date, Time and Place Information
Action concerning the proposals raised in
this Definitive Information Statement is to be taken by
written consent of the Shareholders. Shareholders must
submit their consents or objections to the proposals by June 30, 2000.
B. Dissenter's Right of Appraisal
Under Nevada Law, shareholders are not entitled
to dissenter's rights of appraisal with respect to the Company's
proposed amendment to the Company'sCertificate of Incorporation
to increase the number of authorized shares of Common Stock.
Shareholders are also not entitled to dissenter's rights of
appraisal withrespect to the Merger because the Merger involves
only an exchange of stock.
C. Voting Securities and Principal Holders Thereof
Currently, Zstar has only one class of voting
securities, a class of common stock, $0.001 par value.
("Shares"). As of the Record Date, Zstar has30,000,000
authorized Shares, with 10,550,000 Shares issued and outstanding.
The right of shareholders to consent or object to the proposals
contained in this Definitive Information Statement will be
determined by the Record Date.
5
D. The Security Ownership of Certain Beneficial Owners and
Management of Zstar
The following table sets forth certain information
regarding the beneficial ownership of the Common Stock as of
the Record Date, with respect to: (i) each current director
and each currently serving Executive Officer (as defined below)
of the Company;(ii) all current directors and Executive Officers
of the Company as a group; and (iii) each current beneficial owner
of five percent or more of Common Stock.
Name & Address Amount & Nature of Percentage
Beneficial Ownership
Bob Thast1 519,350 4.92%
8231 Dalemore Road Common Stock
Richmond, BC V7C 2A5
Sheri Thast2 252,000 2.39%
8231 Dalemore Road Common Stock
Richmond, BC V7C 2A5
George Dengin3 500,000 4.74%
4378 Ross Crescent Common Stock
West Vancouver, BC V7W 1B2
Wendy Dengin 500,000 4.74%
4378 Ross Crescent Common Stock
West Vancouver, BC V7W 1B2
Dengin Family Trust4 20,150 0.19%
4378 Ross Crescent Common Stock
West Vancouver, BC V7W 1B2
Janette Pantry5 20,000 0.19%
1401 Farrell Avenue Common Stock
Delta, BC Z4L 1V3
Eric Neil White6 10,000 0.19%
13371 21A Avenue Common Stock
Surrey, BC V4A 9N1
David Paul Wiebe 0 0.00%
595 Burrard Street,
Suite 3000
Vancouver, B.C. V7X 1L4
All Current Directors & 30,000 0.28%
Officers as a Group Common Stock
(2 Persons) 7
Notes:
1. Bob Thast holds shares through Thast Projects, Inc.
2. Bob Thast and Sheri Thast are husband and wife.
3. George Dengin and Wendy Dengin are husband and wife.
4. Dengin Family Trust controlled by George Dengin and Wendy Dengin.
5. Jannette Pantry is the fiancee of David Paul Wiebe, a current
director of Zstar.
6. Shares held through Eric White Holdings, Ltd.
7. Includes shares held by Jannette Pantry, fiancee to
David Paul Wiebe.
6
E. Directors and Executive Officers
1. Mr. Eric Neil White. Currently serves as President
and Chief Executive Officer of Zstar. Mr. White is also a member of
the Board of Directors of Zstar. From 1993 to the present, Mr. White
has been a partner at The Chancellor Partners. Mr. Whitereceived
his B.A. (Honours) from St. Thomas University in New Brunswick.
Mr. White was born on May 30, 1953 and resides at 13371 21A Avenue,
Surrey, B.C. V4A 9N1.
2. Mr. David Paul Wiebe. Mr. Wiebe is a member of the
Board of Directors of Zstar. Mr. Wiebe is Vice President, Corporate
Finance for IPO Capital Corp.,Canadian investment leader. Mr. Wiebe
focuses his efforts on financing for micro-cap public and private
technology companies. In addition to his six years in investment
banking, he gained a wide range of experience as an independent
business consultant. He started his career in sales, with Nestle.
Mr.Wiebe received his B.A. (1985) (Economics) and MBA (1989) from
the University of British Columbia, and obtained his CFA charter in
1998. Mr. Wiebe was born on July 10, 1962 and resides at 1401 Farrell
Avenue Delta, BC V4L 1V3.
7
F. Compensation of Directors and Executive Officers
None of the Officers and Directors ofZstar receive any
form of compensation, except that IPO Capital Corp., where Mr. Paul
Wiebe serves as Vice-President, shall receive Agent's Warrants for
services rendered in the private placement Offering. As part of the
fee structure to the Placement Agent, Zstar will issue warrants to the
Placement Agent ("Agent's Warrants") in an amount equal to 10% of the
equity securities (or equivalent) sold in the Offering. Each Agent's
Warrant will entitle the Agent to acquire one common share of Zstar at
the Offering Price within one year of the closing of the Merger Agreement
and at 125% of the Offering Price for the following year. The fee to
the Placement Agent for the Offering will also include 10% (in cash or
common shares at the Agent's discretion) of the gross proceeds raised,
as well as a corporate finance fee of $37,500 ($18,750 at each of the
First and Second Traunches), payable in cash or common shares at the
Placement Agent's discretion.
8
G. Authorization or Issuance of Securities Otherwise Than For
Exchange
1. Additional Shares of Common Stock. The current
number of authorizedshares of common stock of Zstar ("Shares") is
30,000,000, with 10,550,000 Shares issued and outstanding. In order
to effectuate the Merger, Zstar must amend its Articles of Incorporation
to increase the number of authorized Shares from the current 30,000,000
Shares to 100,000,000 Shares. The increased number of authorized shares
will permit theissuance of 20,190,000 Shares to OnVantage in exchange
for the Total Capital Stock OnVantage as stated in the Merger Agreement.
The terms and description of the additional Shares will be identical
to the terms of the current outstanding Shares.
2. A New Class of Preferred Stock. Zstar also seeks
the consent of itsshareholders to create a class of preferred stock
("Preferred Stock") to give Zstar flexibility for potential business
opportunities in the future. Currently, the issuance of Preferred
Stock is not authorized under Zstar's Articles of Incorporation.
The Board seeks the authorization of five million (5,000,000) shares
of Preferred Stock at a par value of one dollar ($1.00) per share
(the "Preferred Stock"). The terms anddescription of the class of
preferred stock is undefined as of the date of this Definitive
Information Statement. The Board has requested that the shareholders
grant the Board the authority to fix the dividend rate and establish
the provisions, if any, relating to voting rights, redemption rate,
sinking fund, liquidation preferencesand conversion rights for any
series of Preferred Stock issued in the future. Such preferences
may place holders of Zstar Preferred Stock in a superior position
to holdersof Zstar Shares.
3. A Private Offering of "Units". Zstar plans to
make a private offering of 625,000 Units (the "Offering") at $6.00
per Unit (the "Offering Price"). Each Unit will be comprised of
one Share of Common Stock of Zstar and one purchase warrant
("Purchase Warrant"). Each Purchase Warrant will entitle the
holder to acquire one common share of Zstar for $6.00 per a
period of two years from the closing of the Merger Agreement.
The Purchase Warrants will be forced to convert within 15 days of the
"Performance Milestone", if the Performance Milestone is achieved.
The Offering will be made in reliance upon an
exemption from registration afforded by Regulation S promulgated
under the U.S. Act of 1933(the "U.S. Act") and the Shares may not
be transferred, sold or otherwise exchanged unless in compliance
with the provision of Regulation S and/or pursuant to registration
with the U.S. Securities & Exchange Commission (the "Commission"),
or pursuant to anavailable exemption under the U.S. Act. The
Offering of the Shares will be made to not more than 20 persons,
each of whom must represent that by reason of such investor's
business or financial experience, such investor can be reasonably
assumed to be a sophisticated investor and have the capacity to
protect his or her own interests in connection with this investment.
9
All common shares underlying the Unit are to have
demand registration rights and be qualified for resale to
the public through an SB-2 registration statement (at the expense
of the Company) within 150 days of closing of the Merger Agreement.
4. OnVantage Contingent Shares. To ensure completion
of any mandatory conversion of the Purchase Warrants, OnVantage
shareholders shall receive a sufficient number of shares of common
stock of Zstar ("OnVantage Contingent Shares") that may be exercised
by OnVantage shareholders in the event less than 100% of the Purchase
Warrants are converted. If the Purchase Warrants are not converted
upon achieving the Milestone, the resulting total combined ownership
of (A) current shareholders in Zstar (i.e. immediately prior to
Merger Agreement Closing) and (B) Unit purchasers of the Offering
shall be equal to 22% of Zstar after the conversion of the
OnVantage Contingent Shares. The OnVantage Contingent Shares
will be cancelled immediately upon the conversion of all
Purchase Warrants.
5. Agent's Warrants. As part of the fee structure
to the Placement Agent, Zstar will issue warrants to the Placement
Agent ("Agent's Warrants") in an amount equal to 10% of the equity
securities (or equivalent) sold in the Offering. Each Agent's Warrant
will entitle the Agent to acquire one common share of Zstar at the
Offering Price within one year of the closing of the Merger Agreement
and at 125% of the Offering Price for the following year. The fee
to the Placement Agent for the Offering will also include 10%
(in cash or common shares at the Agent's discretion) of the gross
proceeds raised, as well as a corporate finance fee of $37,500
($18,750 at each of the First and Second Traunches), payable in
cash or common shares at the Placement Agent's discretion.
6. Raasch Loan Conversion. Mr. Ken Raasch shall
convert his shareholder loans, as verified by an independent
party (estimated to be $2,500,000) into restricted common stock
at $6.00 per common share, upon closing of the Merger Agreement.
("Raasch Loan Conversion"). These shareholder loans have been
made pursuant to a Promissory Note between Mr. Raasch and OnVantage,
under which all principal and interest (accruing at a rate of 8%
per annum) shall be due and payable on the Maturity Date of
August 23, 2000.
H. Modification or Exchange of Securities
1. Stock Exchange as part of Merger. If the
merger is completed, OnVantage will become a wholly owned
subsidiary of Zstar. Holders of OnVantage Common Stock will
receive 20,190,000 Shares of Zstar in exchange for the Total
Capital Stock of OnVantage. Current Zstar Shareholders will
continue to hold their existing Zstar Shares after the stock
merger. The stock exchange will result in a change of control of
Zstar.
2. Exercise of Purchase Warrants. If the Purchase
Warrants are exercised, each Purchase Warrant will be exchanged
for one Share of Common Stock in Zstar at $6.00 per Share. If
all Units are sold and all Purchase Warrants are exercised, the
10
maximum amount of the Offering will be $7,500,000. The current
number of Zstar Shares is 10,500,000. After the Offering and the
exercise of all Purchase Warrants, the total number of Zstar
Shares then outstanding will be 11,800,000.
If the Performance Milestone is achieved, the
exercise of the Stock Purchase Warrants is mandatory at $6.00
per Share. The Stock Purchase Warrants will be forced to convert
within 15 days of the Performance Milestone, if the Performance
Milestone is achieved ("Exercise Period"). In the event that less
than 100% of the Stock Purchase Warrants are not exercised within
the Exercise Period, the Stock Purchase Warrants will be redeemed
by the Company, and thereafter all rights of the holder to the Stock
Purchase Warrants and the Shares underlying the Stock Purchase
Warrants will be annulled and cancelled.
The Shares of Common Stock issuable on the
exercise of the Stock Purchase Warrants will be, when issued
in accordance with the Stock Purchase Warrants, fully paid and
non-assessable. The holders of the Stock Purchase Warrants have
no rights as stockholders until they exercise their Stock Purchase
Warrants.
The Stock Purchase Warrants will contain
provisions protecting against dilution resulting from the sale
of additional shares of Common Stock for less than the exercise
price of the Warrants or the current market price of the
Company's securities, excluding the 2000 Omnibus Equity Incentive
Plan. The exercise price will adjust in the event Zstar issues
shares of common stock, or securities convertible into or
exercisable for shares of common stock, at an aggregate price
per share of common stock of less than $6.00. Specifically,
the conversion price in effect immediately prior to such
issuance will be adjusted by multiplying such price by a
fraction, the numerator of which is the sum of the number of
shares of common stock outstanding or deemed to be outstanding
prior to such issuance plus the number of shares of common stock
that the aggregate consideration received in such issuance would
have been purchased at the conversion price in effect prior to
such issuance, and the denominator of which is the sum of the
number of sharesof common stock outstanding or deemed to be
outstanding prior to such issuance plus the number of shares of
common stock issued or deemed to be issued in such issuance. For
this purpose, common stock is deemed to have been issued if it
is subject to issuance upon conversion or exercise of outstanding
securities for an aggregate consideration per share of common
stock less than the conversion price in effect at the time of such
issuance.
The exercise price will also be subject to
the adjustments as the result of the payment of dividends
(and other distributions) in common stock on the outstanding
shares of common stock and subdivisions, combinations, and
reclassifications of common stock (or other securities directly
or indirectly exercisable for common stock) or effect a subdivision
or split of Zstar outstanding shares, the exercise price will be
arithmetically decreased. If Zstar combines or consolidates its
outstanding shares of common stock into a lesser number of shares,
then the exercise price will be arithmetically increased.
11
In the event of any reclassification of Zstar common stock
or recapitalization (other than as a result of stock dividend,
subdivision, or combination of shares, or any other event
described in the preceding paragraph), holders of the Stock Purchase
Warrants will be entitled to receive, upon conversion, the kind
and number of shares of common stock or other securities of property
to which such holders of Stock Purchase Warrants would be
entitled if they held the number of shares of common stock
into which the Stock Purchase Warrants were convertible.
For the life of the Warrants, the holders thereof
have the opportunity to profit from a rise in the market for the
Company's Common Stock, with a resulting dilution in the interest
of all other stockholders. However, the Warrants can only be
exercised if Shares of Common Stock are qualified for sale or
deemed to be exempt from qualification under applicable state
securities laws.
3. Exercise of OnVantage Contingent Shares. To
ensure completionof any mandatory conversion of the Purchase
Warrants, OnVantage shareholders shall receive a sufficient
number of shares of common stock of Zstar ("OnVantage Contingent
Shares") that may be exercised by OnVantage shareholders in the
event less than 100% of the Warrants are converted. If less
than 100% of the Purchase Warrants are converted, OnVantage
shareholders shall receive its OnVantage Contingent Shares.
If the Purchase Warrants are not converted within 15 days of
achievement of the Milestone, the resulting total combined
ownership of (A) current shareholders in Zstar and (B) Unit
purchasers of the Offering shall equal to 22% of Zstar
(computed prior to including the Raasch Loan Conversion and
Agent Warrants) after the delivery of the OnVantage Contingent Shares.
The OnVantage Contingent Shares will be cancelled immediately
upon the conversion of all Purchase Warrants.
4. Sale of Apex. The Board seeks to authorization
to sell Apex Canadian Holidays Ltd., a wholly-owned subsidiary of
Zstar and incorporated under the laws of the Province of British
Columbia ("Apex"), in the event the Board, in its discretion
deems such a sale preferable. Zstar expects it will exchange
the Total Common Stock of Apex for the cancellation of a
$250,000 promissory note held by Ms. Haliun Hongorzul
("Ms. Hongorzul"). As part of the consideration, Ms. Hongorzul
will also receive all cash in Zstar's corporate account, prior
to the Closing Date of the Merger Agreement, currently projected
at approximately $100,000. In conjunction with such sale,
Apex will sever all corporate ties with Zstar and exist as
an independent entity.
I. Discussion of Quantitative and Qualitative Risk Factors.
An investment in Zstar, and the granting of consents requested
herein, involves a high degree of risk. In addition to the other
information contained in this Definitive Information Statement,
the following factors should be considered carefully in evaluating
Zstar, OnVantage, the Merger and other issues for which consent is
requested.
See "Risk Factors" immediately following this Summary for
a discussion of certain factors that should be considered. Such
risks relate to (a) limitations on access to cash flow, (b) lack
of available current earnings, (c) dependence on additional
capital,
12
(d) investment structure, (e) dependence on third party
providers, (f) changes in technology (g) dependence on key personnel,
(h) competitive industry (i) risk of manufacturing and distribution
operations, (j) expansion into early stage markets,(k) risks inherent
in technology investment, (l) deficiency of earnings to fixed charges,
and (n) government regulatory restrictions.
1. Development Stage Company. OnVantage is a
development stage company and have recently begun to implement
its business plan. The likelihood of success of the OnVantage
must be considered in light of the expenses, complications and
delays frequently encountered in connection with the establishment
and expansion of new business and the competitive environment in
which OnVantage will operate. OnVantage's long-term viability,
profitability and growth will depend upon successful
commercialization of existing products, and the development
and commercialization of new products relative to its business
plan. As a development-stage company, OnVantage has no relevant
operating historyupon which an evaluation of its performance
can be made. Such performance must be considered in light of
the risks, expenses and difficulties frequently encountered in
establishing new products and markets in the evolving, highly
competitive Internet industry.
2. Limited Operating History and Rapidly
Evolving Markets. OnVantage has a limited operating history
and faces many of the risks and difficulties frequently
encountered in new and rapidly evolving markets, including
the Internet services market. These risks include the ability to:
A. Attract users of the affinity branded Microportal technology;
B. Increase awareness of the OnVantage brand;
C. Strengthen user loyalty;
D. Offer compelling and interesting content;
E. Maintain current strategic relationships, and develop new strategic
relationships;
F. Attract a large number of advertisers from a variety of industries
that wish to be associated with OnVantage content;
G. Respond effectively to competitive pressures;
H. Continue to develop and upgrade technology;
I. Attract, retain and motivate qualified personnel.
3. OnVantage May Not Be Able To Integrate Operations
From Acquisitions or Mergers. As part of the OnVantage business
strategy, it expects to enter into various business combinations
and acquisitions. Business combinations and acquisition transactions
are accompanied by a number of risks, including, among other things:
1. The difficulty of assimilating the operations and personnel of
acquired companies;
2. The potential disruption of ongoing business;
3. The inability of management to maximize its financial and
strategic position through
the successful incorporation of technology or content and rights
into products and
media properties;
13
4. Expenses associated with the transactions;
5. Additional expenses associated with amortization of acquired
intangible assets;
6. The difficulty of maintaining uniform standards, controls,
procedures and policies;
7. The impairment of relationships with employees and customers
as a result of integration
of new management personnel;
8. The potential unknown liabilities associated with acquired businesses.
The failure to adequately address these issues could have a material
adverse effect on the business, results of operations and financial
condition.
4. Seasonal and Cyclical Patterns May Affect the
Business of OnVantage. OnVantage believes that advertising sales
in traditional media, such as television and radio, generally are
lower in the first and third calendar quarters of each year. If the
Internet market makes the transition from an emerging to a more
developed market, seasonal and cyclical patterns may develop in
the future. As a result, if the industry follows the same seasonal
patterns as those in traditional media, OnVantage may experience
lower advertising revenues in the first and third calendar quarter
of each year. Seasonal and cyclical patterns in Internet advertising
may also affect revenues.
5. The Market for Internet Advertising is Still
Developing. OnVantage expects to derive a significant portion of
revenues from sponsorships and advertising as demand and market
acceptance for Internet advertising solutions continues
to develop. There are currently no widely accepted standards for
the measurement of the effectiveness of Internet advertising,
and the industry may need to develop standard measurements to
support and promote Internet advertising as a significant advertising
medium. If these standards do not develop, existing advertisers may
not continue their levels of Internet advertising. Furthermore,
advertisers that have traditionally relied upon other advertising
media may be reluctant to advertise on the Internet. Future
business would be adversely affected if the market for Internet
advertising fails to develop or develops more slowly than expected.
Different pricing models are used to sell advertising on the
Internet and it is difficult to predict which, if any, of
the models will emerge as the industry standard. This makes
it difficult to project future advertising rates and revenues.
Advertising revenues could be adversely affected if OnVantage
is unable to adapt to new forms of Internet advertising. Moreover,
software programs that limit or prevent advertising from being
delivered to an Internet user's computer are available. Widespread
adoption of this software could adversely affect the commercial
viability of Internet advertising.
6. Reliance on Third Parties to Measure Demographics.
OnVantage believes that it is important to advertisers that it
accurately measures thedemographics of the potential user base
and the delivery of advertisements on OnVantage's website.
OnVantage believes that it will depend on third parties to
provide many of these measurement tools and/or services. If
such third parties were unable to provide these tools and/or
services, OnVantage would need to create thetools and/or perform
the services itself. This could cause OnVantage to incur additional
costs or cause
14
interruptions in business until it replaces these
services.Companies may pay less for advertising if they perceive
the demographic measurements are not reliable.
7. Significant Growth Places a Strain on Resources.
If OnVantage is unable to manage growth effectively, business could
be adversely affected.OnVantage expects to experience significant
growth, both internally and through acquisitions. This anticipated
future growth would place a significant strain on its resources. As
part of this growth, OnVantage will implement operational and financial
systems, procedures and controls.
8. OnVantage May be Sued for Information Retrieved
From Its Website. OnVantage may be subject to claims for defamation,
negligence, copyright or trademark infringement, personal injury or
other legal theories relating to the information it may publish on
its website. OnVantage could also be subjected to claims based upon the
content that will be accessible from its websites through links to
other websites or through content and materials that may be posted
by members in chat rooms or bulletin boards. OnVantage will also offer
e-mail services, which may subject it to potential risks, such as
liabilities or claims resulting from unsolicited e-mail, lost or
misdirected messages, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. OnVantage believes that
any insurance that it may be able to procuremay not adequately
protect it against these types of claims.
9. Potential Product Liability for the Products
OnVantage May Sell. Consumers may sue OnVantage if any of the
products that it may sell are defective, fail to perform properly
or injure the user. OnVantage has very limited experience in
the sale of products and the development of relationships with
manufacturers or suppliers of such products. Although agreements
with manufacturers are expected to contain provisions intended to
limit its exposure to liability claims, these limitations may not
prevent all potential claims. OnVantage may be exposed to liability
claims inconnection with the information it provides. Liability
claims could require OnVantage to spend significant time and money
in litigation and to pay significant damages. As a result, these
claims, whether or not successful, could seriously damage OnVantage's
reputation and business.
10. Dependence on Key Personnel. OnVantage's
future success depends to a significant extent on the continued
services of senior management and other key personnel, particularly,
Ken Raasch, Chairman and Chief Executive Officer, and Anthony
Thomopoulos, Vice Chairman. OnVantage does not maintain "key person"
life insurance for any of its executives. The loss of either
Mr. Raasch or Mr. Thomopoulos would likely have a significantly
detrimental effect on the business.
11. Competition for Personnel in the Internet
Industry is Intense. OnVantage may be unable to retain key
employees or attract, assimilate or retain other highly
qualified employees in the future. OnVantage expects to
experience dfficulty in hiring and retaining highly skilled
employees with appropriatequalifications as a result of rapid
growth and expansion. In addition, there is significant competition
for qualified employees in the Internet industry in general. If
OnVantage does not succeed in attracting
15
new personnel or retaining and motivating
current personnel, business may be adversely affected.
12. Dependence on Continued Growth in Internet Usage.
The Internet market is new and rapidly evolving. OnVantage's business
would be adversely affected if Internet usage does not continue to
grow. A number of factors may inhibit Internet usage, including:
A. Inadequate network infrastructure;
B. Security concerns;
C. Inconsistent quality of service;
D. Lack of and availability of cost-effective, high-speed service; and
E. Consumers returning to traditional or alternative sources for information,
shopping and services.
If Internet usage continues to grow significantly,
the Internet infrastructure may not be able to support the demands
placed on it by such growth andits performance and reliability may
decline. In addition, websites have experienced interruptions in
service as a result of outages and other delays occurring throughout
the Internet network infrastructure. If these outages and delays
frequently occur in the future, Internet usage, as well as the
usage of OnVantage's websites, could decline or grow more slowly
than expected.
13. Responding to Rapid Technological Change.
The Internet market is expected to be characterized by rapidly
changing technologies, frequent new product and service introductions
and evolving industry standards. The recent growth of the Internet and
intense competition in the Internet industry exacerbate these market
characteristics. To achieve OnVantage's goals, OnVantage will need to
effectively integrate the various software programs and tools
required to enhance and improve product offerings and manage its
business. OnVantage's future success will depend on its ability to
adapt to rapidly changing technologies by continually improving the
performance features and reliability of its services. OnVantage may
experience difficulties that could delay or prevent the successful
development, introduction or marketing of new products and services.
In addition, newenhancements must meet the requirements of current
and prospective users and must achieve significant market acceptance.
OnVantage could also incur substantial costs if it needs to modify
its services or infrastructures to adapt to these changes.
14. System Failure/ Slow Down. Fire, floods,
earthquakes, power loss, telecommunications failures, break-ins
and similar events could damage the systems of OnVantage and/or
its service providers. Computer viruses, electronic break-ins or other
similar disruptive problems could also adversely affect OnVantage's
websites. The business of OnVantage could be adversely affected if
its systems were affected by any of these occurrences. Insurance
policies may not adequately compensate for losses that
may occur due to any failures or interruptions in these systems.
Websites must accommodate a high volume of traffic and deliver
frequently updated information. Websites have in the past
16
experienced slower response times or decreased traffic for a
variety of reasons. These types of occurrences in the future
could cause users toperceive OnVantage's websites as not
functioning properly and therefore cause users to
use another website or non-Internet methods to obtain needed
information. In addition, OnVantage's users will depend on
Internet service providers, online service providers
and other website operators for access to websites.These
providers may experience significant outages, delays and
other difficulties due to system failures unrelated to
OnVantage's future system.
15. Reliance on Third Parties. OnVantage will
be very dependent on various third parties for software, systems
and related services. Some of the third parties providing software
and services have a limited operating history, have relatively
immature technology and/or are themselves dependent on reliable
delivery of services from others. As a result, OnVantage's ability
to deliver various services to its future users may be adversely
affected by the failure of these third parties to provide reliable
software, systems and related services.
16. Liability if Third Parties Misappropriate User
Personal Information. If third parties were able to penetrate
OnVantage's network security or otherwise misappropriate user
personal information or credit card information, OnVantage could
be subject to liability arising from claims related to, among
other things, unauthorized purchases with credit card information,
impersonation or other similar fraudclaims or other misuse of
personal information, such as for unauthorized marketing
purposes. In addition, the Federal Trade Commission and state
agencies have beeninvestigating various Internet companies
regarding the use of personal information. OnVantage could incur
additional expenses if new regulations regarding the use of personal
information are introduced or if its privacy practices are investigated.
17. Internet Security Concerns Could Hinder
E-Commerce. The need to securely transmit confidential information
over the Internet has been a significant barrier to electronic
commerce and communications over the Internet. Any well-publicized
compromise of security, even if unrelated to OnVantage, could
deter people from using the Internet or using it to conduct
transactions that involve transmitting confidential
information. OnVantage may incur significant costs to protect
against the threat of security breaches or to alleviate
problems caused by such breaches.
18. Consumer Protection Privacy Regulations
Could Impair Ability to Obtain Information About Users. OnVantage's
network may capture information regarding members in order to
tailor content to them and assist advertisers in targeting their
advertising campaigns to particular demographic groups. However,
privacy concerns may cause users to resist providing the personal
data necessary to support this tailoring capability. Even the
perception of security and privacy concerns, whether or not valid,
may indirectly inhibit market acceptance of OnVantage's products and
services. In addition, legislative or regulatory requirements may
heighten these concerns if businesses must notify Internet users
that the data may be used bymarketing entities to direct product
promotion and advertising to the user. Other countries and political
entities, such as the European Economic Community, have adopted such
legislation or regulatory requirements.
17
If consumer privacy concerns are not adequately addressed,
our business, financial condition and results of operations
could be materially harmed.
OnVantage may use cookies to track demographic
information and user preferences. A cookie is information keyed
to a specific server, file pathway ordirectory location that is
stored on a user's hard drive, possibly without the user's knowledge,
but is generally removable by the user. Germany has imposed laws
limiting the use of cookies, and a number of Internet commentators,
advocates and governmental bodies in the United States and other
countries have urged thepassage of laws limiting or abolishing the
use of cookies. If these laws are passed, OnVantage's business,
financial condition and results of operations could be materially
harmed.
19. Government Regulations and Legal Uncertainties.
There are currently few laws or regulations that specifically
regulate communications or commerce on the Internet. However,
laws and regulations may be adopted in the future that address
issues such as user privacy, pricing and taxation, content,
copyrights, distribution, antitrust matters and the characteristics
and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting various types
of information and content over the Internet. Several telecommunications
companies have petitioned the Federal Communications Commission
to regulate Internet service providers and online service providers
in a manner similar to longdistance telephone carriers and to impose
access fees on those companies. This could increase the cost of
transmitting data over the Internet. Moreover, it may take years
to determine the extent to which existing laws relating to issues
such as property ownership, obscenity, libel and personal privacy
are applicable to the Internet or the application of laws and
regulations from jurisdictions whose laws do not currently
apply to OnVantage's business. Any new laws or regulations
relating to the Internet could adversely affect OnVantage's business.
Due to the global nature of the Internet, it is possible
that, although OnVantage's transmissions over the Internet originate
primarily in California, thegovernments of other states and foreign
countries might attempt to regulate OnVantage's business activities.
In addition, because OnVantage's service will be available
over the Internet in multiple states and foreign countries, these
jurisdictions may require OnVantage's to qualify to do business as
a foreign corporation in each of these states or foreign countries,
which could subject it to taxes and other regulations.
20. Potential Effects of Government Regulation. At
present, there are few laws or regulations that specifically address
access to or commerce on the Internet. The increasing popularity and
use of the Internet, however, enhance the risk that the governments of
the United States and other countries which OnVantage expects
to sell its products and services will seek to regulate the Internet
with respectto, among other things, user privacy, pricing, and the
characteristics and quality of products and services. OnVantage is
unable to predict the impact, if any, that future legislation, legal
decisions or regulations concerning the Internet may have on
its business, financial condition or results of operations.
18
21. Possible Infringement of Intellectual Property
Rights. OnVantage cannot be certain that steps taken in the future
to protect its intellectual property rights will be adequate or that
third parties will not infringe or misappropriate its proprietary
rights. Any infringement or misappropriation could have a material
adverse effect on OnVantage's future financial results. In addition,
it is believed from time to time that OnVantage may become involved
in intellectual property disputes with third parties, which may not
result in a favorable outcome for OnVantage.
22. Subjection to Possible Infringement Actions
Based on use of Domain Names, Content and Content Licensed From
Others. OnVantage expects to invest resources in acquiring domain
names for existing and potential future use. OnVantage cannot
guarantee that it will be entitled to use such names under
applicable trademark and similar laws or that other desired
domain names will be available. Furthermore, enforcing intellectual
property rights could entail significant expense and could prove
difficult or impossible. In addition, third parties could assert
claims of patent, trademark or copyright infringement or
misappropriation of creative ideas orformats against OnVantage
with respect to its use of domain names, content, microportal
or Web page formats, Web business methods or any third-party
content. OnVantage expects that participants in its markets
increasingly will be subject to infringement claims as the
number of services and competitors in its industry segment
grows. Any claims, with or without merit, could be time consuming
to defend, result in costly litigation, divert management attention,
require us to enter into costly royalty or licensing arrangements
or prevent OnVantage from using important technologies,ideas or
formats, any of which could materially harm its business, financial
condition or results of operations.
23. Failure of Computer and Software Products
to be Year 2000 Compliant. Many currently installed computer systems
and software products only accept two digits to identify the year in
any date. Thus, the year 2000 will appear as "00", which the system
might consider to be the year 1900 rather than the year 2000. This
could result in system failures, delays or miscalculations causing
disruptions to operations. The failure of systems maintained by third
parties to be Year 2000 compliant could cause OnVantage to incur
significant expense to remedy any problems, or otherwise seriously
damage our business. A significant Year 2000 related disruption of the
network services or equipment that third-party vendors provide to OnVantage
could also cause OnVantage's members or visitors to consider seeking
alternate providers or cause an unmanageable burden on technical support.
OnVantage has taken appropriate steps to ensure
that its current computer and computer dependent systems are year
2000 compliant. OnVantage does not anticipate incurring any
significant costs to modify its systems. OnVantage cannot, however,
predict how network and other computer systems that are not year
2000 compliant will affect its operations. Any interruptions in
OnVantage's operations due to year 2000 issues could negatively
affect OnVantage's operations and financial situation. OnVantage
believes that this risk is considered minimal with the volume of
business OnVantage is presently experiencing.
19
24. Need to Manage Expanding Operations and Key
Employees. If OnVantage is successful in achieving market acceptance
of its products, it will be required to expand its operations quickly,
requiring the establishment of technical operations, system administration,
and sales and marketing in each target market. This will likely result
in new and increased responsibilities for management andplace
significant strain on OnVantage's management, operating and
financial systems and other resources. To accommodate such
growth and compete effectively, OnVantage will be required to
implement and improve information systems, procedures and
controls, and to train, motivate and manage its work force.
OnVantage'sfuture success will depend to a significant extent
on the ability of its future management personnel to operate
effectively. There can be no assurance OnVantage's personnel,
systems, procedures and controls will be adequate to support
OnVantage's future operations.
OnVantage is dependent on its ability to continue
to attract and retain qualified technical, managerial and marketing
personnel. There is intensecompetition for qualified personnel in
the Internet industry, and there can be no assurance OnVantage will
be able to attract and retain the qualified personnel necessary for
the development of its business. The failure to recruit qualified
technical, managerial or marketing personnel could have a material
adverse effecton OnVantage's business, financial condition and
results of operations.
25. Capital Requirements. The continued
development and commercialization of OnVantage's products will
require a commitment of substantial funds. To the extent that the
proceeds from this Merger are insufficient to fund OnVantage's
activities, OnVantage may be required to raise additional capital
through equity or debtfinancing. OnVantage's actual capital
requirements will depend on many factors,including but not
limited to, the costs and timing of OnVantage's development and
launch activities, the success of OnVantage's development efforts,
the costs and timing of the expansion of OnVantage's sales and
marketing activities, the extent to which OnVantage's existing
and new products gain market acceptance, OnVantage's
ability to maintain existing collaborative relationships and
enter into new collaborative relationships, competing product
developments, the progress of OnVantage's commercialization efforts
and the commercialization efforts of OnVantage's competitors, the
costs involved in acquiring, prosecuting, maintaining, enforcing
and defendingintellectual property claims, developments related to
regulatory issues, and other factors.
OnVantage may seek to raise additional funds
through public or private financing, collaborative relationships
or other arrangements. Any additional equity financing may be
dilutive to shareholders, and debt financing, if available, may involve
significant restrictive covenants. Collaborative arrangements,
if necessary to raise additional funds, may require OnVantage
to relinquish its rights to certain of itstechnologies, products
or marketing territories. OnVantage's failure or inability to
raise capital when needed could have a material adverse effect
on OnVantage's business, financial condition and results of
operations. There can be no assurance that such financing will
be available on terms satisfactory to OnVantage, if at all.
20
26. Possible Need for Additional Capital.
If OnVantage's estimates or assumptions prove to be incorrect,
OnVantage may require additionalcapital. Additional funding, whether
obtained through public or private debt or equityfinancing, or from
strategic alliances, may not be available when needed or may not be
available on terms acceptable to OnVantage, if at all. Additional
financing may result in substantial dilution to existing
shareholders. Failure to secure needed additional financing,
if and when needed, may have a material adverse effect on
OnVantage's business, financial condition, and results of
operations.
27. Intellectual Property Protection.
OnVantage relies upon a combination of patents and patents
pending, proprietary technology and know-how, trademarks,
copyrights, confidentiality agreements and/or other contractual
covenants to establish and protect its intellectual property
rights. There can be no assurance that steps taken by OnVantage
to protect its intellectual property will be adequate to prevent
misappropriation of that intellectual property, or that OnVantage's
competitors will not independently develop products substantially
equivalent or superior to OnVantage's products. OnVantage believes
its businessdoes not infringe upon the valid proprietary rights
of others, but there can be no assurance that third parties will
not assert infringement claims against OnVantageand that, in the
event of an unfavorable ruling on any such claim, a license or
similar agreement to utilize the intellectual property rights
in question relied upon byOnVantage in the conduct of its
business will be available to OnVantage or reasonable terms,
if at all. The loss of such rights (or the failure by OnVantage
to obtain similar licenses or agreements) could have a material
adverse effect on OnVantage's business, financial condition and
results of operations.
28. Uncertain Acceptance and Maintenance of
Company Brand. OnVantage believes that the establishment and
maintenance of affinity branding identified with OnVantage's
products is critical to attracting and expanding its customer
and user base. While OnVantage is confident that its products
and the name OnVantage will provide an excellent foundation for
developing brand awareness, no assurance can be given that
such branding efforts will be successful. Promotion of brand
awareness among users will depend, among other things, on
OnVantage's success in its marketing efforts and the
usability of its products and services, none of which can
be assured.
29. Significant Control by Officers and
Directors. Following the Merger, OnVantage's directors,
executives and shareholders will beneficially own approximately
63.11% of the outstanding Shares in Zstar. This amount constitutes a
majority, and if such persons act in concert, they will have
significant power to elect a majority of directors and, subject
to certain limitations, effect or preclude fundamental corporate
transactions.
THIS LIST OF RISK FACTORS MAY NOT BE COMPREHENSIVE. THE COMPANY CAN MAKE
NOREPRESENTATION THAT THE FINANCIAL AND FORWARD-LOOKING STATEMENTS
ARE NECESSARILY THE MOST LIKELY RESULT. EACH INVESTOR SHOULD USE HIS
OR HER OWN EXPERIENCE AND THAT OF HIS OR HER OWN ADVISOR TO EVALUATE THE
FINANCIAL AND FORWARD-LOOKING STATEMENTS.
21
J. Mergers, Consolidations, Acquisitions and Similar Matters
1. The Merger. The Merger will be in the form
of a reverse triangular merger between Zstar, a Zstar Subsidiary,
and OnVantage. Under the Merger Agreement, a wholly owned subsidiary
of Zstar ("Zstar Subsidiary") will merge into OnVantage, in which
OnVantage will be the surviving corporation of the merger ("Surviving
Corporation"). If the merger is completed, OnVantage will become a
wholly owned subsidiary of Zstar. Holders of OnVantage Common Stock
will receive 20,190,000Shares of Zstar in exchange for the Total
Capital Stock of OnVantage. Current Zstar Shareholders will continue
to hold their existing Zstar Shares after the stock merger.
PLEASE NOTE THAT THE MERGER WILL RESULT IN A CHANGE OF CONTROL OF ZSTAR.
AFTER THE EXECUTION OF THE MERGER, ONVANTAGE SHAREHOLDERS WILL OWN AT
LEAST 63.11% OF ZSTAR.
2. Purpose of Merger. The Board of Directors
of Zstar believes that the Merger is in the best interest of Zstar
and will increase long term shareholder value through the
opportunities created by the combination.
3. Contact Information.
Zstar Enterprises, Inc.
c/o IPO Capital Corp.
Bentall Tower 3, Suite 3000
595 Burrad Street
Vancouver, BC V7X 1L4
OnVantage, Inc.
333 W. Santa Clara St. 1000
San Jose, CA 95113
4. Business of Zstar. Zstar provides internet
based hotel discounting services. Zstar sells hotel rooms, at
discount rates, directly to travelers who make their own arrangements
via the World Wide Web. Zstar also sells rooms at wholesale rates to
travel agencies. Zstar recognizes the growing influence that the
Internet has on communications and commerce and believes that the
travel sector is one of the areas that will see tremendous new
business opportunities through the Internet. Offering an electronic
means to access hotel products will allow Zstar to have worldwide
sales opportunities 24 hours a day and to accumulate knowledge
about client preferences and buying habits. The accumulated data
base of user preferences will enable the Zstar to offer its
customers specifically designed travel packages.
5. Business of OnVantage. OnVantage, Inc. is
an Internet software and marketing company that, through OnVantage's
Microportal interface, allows selected customers, known as "Affinity
Partners", to offer free or customer subsidized ISP service. Affinity
Partners offer such ISP service other value oriented opportunities
22
through the Affinity Partner's own personalized, branded Microportal
(licensed from and powered by OnVantage), allowing them to maximize
the value of their existing customer base. Currently working with
AT&T in a co-marketing agreement to create premiumsolutions and
relationships, it is anticipated that Affinity Partners will initially
consist of business entities with a large installed base of customers
or participantsincluding brokerage firms, banks, insurance companies,
automobile manufacturers, media and broadcast companies, pharmaceutical
companies, and transportation companies. OnVantage's unique business
model pays its Affinity Partners, maximizes click-through for merchants
and adds significant value to the customer experience.
6. Voting Requirement. Pursuant to Nevada law,
the proposed Merger requires approval by a majority of the shareholders
of Zstar.
7. Regulatory Approval.
The proposed Merger does not require approval from
any federal or state regulatory agency, except for the
filing of a Certificate of Merger with the Secretaries of
State of Delaware and Nevada.
8. Past Contacts, Transactions or Negotiations.
Other than the transactions disclosed in this Definitive Information
Statement, there have been no contacts, transactions or
negotiations between the parties during the last two years.
9. Relationship between the Placement Agent and
Zstar. The Placement Agent for the proposed Merger and private
placement Offeringis IPO Capital Corporation. Mr. Paul Wiebe is
the Vice-President of IPO Capital Corporation as well as a
director of Zstar. Mr. Paul Wiebe will be receiving
compensation in exchange for services rendered as an
IPO Capital representative. See Section IV(G)(5)
"Agent's Warrants" for the fee structure.
10. Book Value Per Share. As of February
29, 2000, the book value per share of Zstar Common Stock is
<0.01>. As of April 30, 2000, the book value per share of
OnVantage is 0.0263.
11. Cash Dividends Declared Per Share.
The cash dividends declared per share of Zstar Common Stock
is $0.00. The cash dividends declared per share of Zstar
Common Stock is $0.00.
12. Income (loss) Per Share from Continuing
Operations. The loss per common share from continuing operations
for Zstar as of February 29, 2000 is <0.01>. The loss per common
share from continuing operations for OnVantage as of
April 30, 2000 was <0.90>.
13. Information about Zstar. Zstar
Enterprises, Inc. was organized under the laws of the
State on Nevada on June 17, 1998. Zstar is authorized
to issue 30,000,000 shares of Common Stock with a par
value of $.001 per share, of which 10,550,000 shares are
issued and outstanding as of January 31, 1999. Zstar is
a Nevada corporation formed by a small founding group
with the intention of (i) providing internet
23
based hotel discounting services, and
(ii) serving as a holding company for
one or more future businesses not yet
identified.
On February 28, 1999, Zstar acquired all
of the issued and outstanding shares of stock of Apex
Canadian Holidays Ltd., a British Columbia, Canada,
corporation ("Apex"), for a sum of $50,000, full and
final payment of which was made on April 28, 1999. A
description of Apex's operations has been more fully set
forth in Paragraph C below.
Zstar proposes to sell hotel rooms, at
discount rates, directly to travelers who make their own
arrangements via the World Wide Web. Zstar also
proposes to sell rooms at wholesale rates to travel
agencies. The Zstar recognizes the growing influence
that the Internet has on communications and commerce.
Zstar believes that the travel sector is one of the areas
that will see tremendous new business opportunities
through the Internet. Zstar intends to create an
easy-to-use website where individuals can research,
design and book their own hotel packages at discount
prices.
Offering an electronic means to access
hotel products will allow Zstar to have worldwide sales
opportunities 24 hours a day and to accumulate
knowledge about client preferences and buying habits.
The accumulated data base of user preferences will
enable Zstar to offer its customers specifically designed
travel packages.
14. Information about OnVantage.
OnVantage, Inc., a Delaware corporation, was originally
incorporated under the name Familyroom.com, Inc. on
February 25, 1999. OnVantage is authorized to issue
100,000,000 shares of Common Stock with a par value
of $.0001 per share, of which 12,690,000 shares are
issued and outstanding as of May 23, 2000. OnVantage
is authorized to issue 10,000,000 shares of Preferred
Stock with a par value of $.0001 per share, of which
7,500,000 shares are issued and outstanding as of May
23, 2000.
OnVantage, Inc. is an Internet software
and marketing company that, through OnVantage's
Microportal interface, allows selected customers, known
as "Affinity Partners", to offer free or customer
subsidized ISP service. Affinity Partners offer such ISP
service other value oriented opportunities through the
Affinity Partner's own personalized, branded
Microportal (licensed from and powered by
OnVantage), allowing them to maximize the value of
their existing customer base. Currently working with
AT&T in a co-marketing agreement to create premium
solutions and relationships, it is anticipated that Affinity
Partners will initially consist of business entities with a
large installed base of customers or participants
including brokerage firms, banks, insurance companies,
automobile manufacturers, media and broadcast companies,
pharmaceutical companies, and transportation companies.
OnVantage's unique business model pays its Affinity Partners,
maximizes click-through for merchants and adds significant
value to the customer experience.
15. Description of Property. Neither
Zstar nor OnVantage currently possess any real property.
24
16. Legal Proceedings. Neither Zstar
nor OnVantage are currently involved in any legal proceedings.
25
17. Lock-Up Agreement. Except as
noted in Schedule 4 herein, all Shares received by
OnVantage Shareholders as part of the Merger
Agreement will be subject to a Lock-Up Agreement
("Lock-Up Agreement") (in addition to any restrictions
pursuant to Rule 144) mutually agreed upon by the
Placement Agent and OnVantage. The Units sold in the
Offering, and the Shares and Warrants underlying the
Units, will not be subject to the Lock-Up Agreement.
Schedule 4 lists specific Shares of the
Merger of OnVantage shareholders which will be
included in the SB-2 filing. With the exception of RD
Capital,, the Shares listed in Schedule 4 will remain
subject to a Lock-Up Agreement mutually agreed upon
by the Placement Agent and OnVantage, which is
expected to include certain restrictions on resale until
the Company achieves one of the following: (a) a
NASDAQ SmallCap or National market listing, or (b)
125,000 users of its microportal technology, or (c) a
$10,000,000 financing.
SCHEDULE 4
OnVantage Shares Participating Percentage Number
in SB-2 filing Participating in Participating in SB-2
SB-2 filing filing
Management and Key Consultants
Ken Raasch 10% 1,268,000
Tony Thomopoulos 10% 230,000
Lisa Nixon 10% 25,000
Shannon Pitts 10% 98,900
Eric Kuskey 10% 45,000
Landrum & Company 10% 11,000
Certain Employees
Bernie Sanders 100% 50,000
Others
Milton Raasch 50% 25,000
Elaine Raasch Ferris 50% 25,000
Donna Nash 50% 25,000
Diane Ledham 50% 25, 000
RD Capital 100% 250,000
Total Shares Participating in SB-2 filing 2,077,900
Total Shares given to OnVantage Shareholders
in Merger 20,190,000
Total Percentage of Shares Participating in SB-
2 filing 10.29%
26
18. Federal Income Tax Consequences.
It is intended by the parties that the Merger shall
constitute a tax free reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986, as
amended.
19. Accounting Treatment of
Transaction. The Merger will be accounted for in
accordance with generally accepted accounting
principles. In legal form, the Merger is a reverse
triangular merger, and the continuing legal entity
will be OnVantage as a wholly owned subsidiary of Zstar.
K. Matters Not Required to be Submitted
On May 26, 2000, OnVantage issued a
Promissory Note to Zstar for an amount up to
$3,750,000 for funds made availabe to OnVantage
("Promissory Note"). The Promissory Note has an
interest rate of 10% per annum and a maturity date of
December 31, 2002. Zstar has the option to convert any
unpaid balance into shares of common stock of
OnVantage., and upon conversion, funding of the First
Trounce shall be reduced by the total amount drawn on
the loan.
L. Amendments of Charter, Bylaws or Other Documents
1. Written consent is solicited for an
Amendment to the Articles of Incorporation to increase
the number of authorized Shares from 30,000,000 to a
proposed 100,000,000, in order to give effect to the
Merger Agreement.
2. Written consent is solicited for
the authorization of five million (5,000,000) shares of
Preferred Stock at a par value of one dollar ($1.00) per
share (the "Preferred Stock"). The Board has requested
that the shareholders grant the Board the authority to fix
the dividend rate and establish the provisions, if any,
relating to voting rights, redemption rate, sinking fund,
liquidation preferences and conversion rights for any
series of Preferred Stock issued in the future.
3. Written consent is solicited to
grant the Board the authority to redomesticate Zstar
from Nevada to Delaware. While redomestication is
probable, it is not certain to occur. The Board seeks the
authority to make a decision on redomestication in the
future, based on the best interests of Zstar.
4. Written consent is solicited to
change the name of Zstar from "Zstar Enterprises, Inc."
to "OnVantage, Inc." The Surviving Corporation of the
Merger, which will be a wholly owned subsidiary of
Zstar, will also have a name change in the near future to
avoid any confusion.
5. Written consent is solicited to grant
the Board the authority to sell Apex Canadian Holidays Ltd.,
a wholly-owned subsidiary of Zstar and incorporated under
the laws of the Province of British Columbia ("Apex"), in
the event the Board, in
27
its discretion deems such a sale preferable.
In conjunction with such sale, Apex will sever all corporate ties
with Zstar and exist as an independent entity.
M. Voting Procedures
The voting procedures for all measures
proposed in this Definitive Information Statement shall
be in accordance with the Charter and Bylaws of Zstar
as well as Nevada Corporate Law. Each proposal
contained in this Definitive Information Statement shall
require a majority vote for approval. Each share of
common stock shall be entitled to one vote. There is no
provision for cumulative voting. Since written consent
is solicited for each proposal, an absentation shall be
construed as a rejection of the proposal. Legal counsel
for Zstar shall count the votes for each proposal.
IV. INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE
ACTED UPON
No director of Zstar has informed Zstar that he or she
intends to oppose any of the proposals or actions
discussed in this Definitive Information Statement.
The Placement Agent for the proposed Merger
and private placement Offering is IPO Capital
Corporation. Mr. Paul Wiebe is the Vice-President of
IPO Capital Corporation as well as a director of Zstar.
Mr. Paul Wiebe will be receiving compensation in
exchange for services rendered as an IPO Capital
representative. See Section IV(G)(5) "Agent's
Warrants" for the fee structure.
V. PROPOSALS BY SECURITY HOLDERS
No security holder entitled to consent has
submitted to Zstar a proposal which is accompanied by
notice of such security holders' intention to present the
proposal for action at a future meeting of the
stockholders of the Zstar.
VII. FINANCIAL AND OTHER INFORMATION CONCERNING ZSTAR
This Definitive Information Statement
incorporates by reference the financial information of
Zstar's 10-KSB for the 1999 fiscal year ("Form 10-
KSB"). The Form 10-KSB will accompany the
Definitive Information Statement when the Definitive
Information Statement is filed with the U.S. Securities
and Exchange Commission. Zstar Shareholders can
receive copies of the Form 10-KSB, without charge,
upon written request to Paul Wiebe, at IPO Capital
Corp. Bentall Tower 3, Suite 3000, Burrard Street,
Vancouver, B.C. V7X 1L4, or by calling 1800-818-
1887.
28
VIII. FINANCIAL AND OTHER INFORMATION CONCERNING ONVANTAGE
A. Onvantage Management's Discussion And
Analysis Or Plan Of Operation. The following
information should be read in conjunction with the
interim financial statements and the notes thereto.
1. Forward Looking Statements.
All statements, other than statements of
historical facts, included in this report that address
activities, events or developments that OnVantage
expects, believes, intends or anticipates will or may
occur in the future, are forward-looking statements.
Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not
even be anticipated. Future events and actual results,
financial and otherwise, could differ materially from
those set forth in or contemplated by the forward-
looking statements herein. These risks and uncertainties
include, but are not limited to, OnVantage's reliance on
current revenues; the uncertainties associated with the
introduction of new products/services; management of
growth, including the ability to attract and retain
qualified employees; the ability to integrate acquisitions
made by OnVantage and the costs associated with such
acquisitions; dependence on its chief executive officer;
substantial competition from larger companies with
greater financial and other resources than OnVantage;
the success of its marketing strategy; its dependence on
suppliers for some of its products; currency fluctuations
and other risks associated with foreign sales and foreign
operations; quarterly fluctuations in revenues, income
and overhead expense; and potential product liability
risk associated with its existing and future products.
Readers are cautioned not to put undue reliance on
forward-looking statements. OnVantage disclaims any
intent or obligation to update publicly these forward-
looking statements, whether as a result of new
information, future events or otherwise.
2. Recent Developments
On February 25, 1999, OnVantage was
originally incorporated with the State of Delaware under
the name Familyroom.com, Inc. OnVantage is an
Internet software and marketing company that, through
OnVantage's Microportal interface, allows selected
customers, known as "Affinity Partners", to offer free or
customer subsidized ISP service. Affinity Partners offer
such ISP service other value oriented opportunities
through the Affinity Partner's own personalized,
branded Microportal (licensed from and powered by
OnVantage), allowing them to maximize the value of
their existing customer base.
In January 2000, OnVantage entered into
an independent consulting agreement with Willow Road
Software for development of the Microportal
application. Willow Road continues to remain a service
provider of OnVANTAGE and will remain responsible
for development of the software until operations are
transferred to an internal
29
team of developers.On March 29, 2000,
OnVANTAGE secured a co-marketing agreement
with AT&T to use its custom software to offset
the Affinity Partner's cost of providing free Internet access
to its customers. The OnVANTAGE solution is being
presented by AT&T's sales force as a bundled service
with their wholesale ISP offering.In May 2000,
OnVantage entered into an agreement with Griffinwerk
Productions of San Jose, CA to develop a website that
will meet OnVantage's business objectives. In addition,
Griffinwerk Productions will be responsible for the
management of the website and will provide office
and hardware server space.
OnVantage was funded with a promissory note from
founder Ken Raasch. On August 23, 1999 a portion of the
promissory note, in an amount of $492,750, was converted
into 7,500,000 shares of preferred stock in OnVantage.
The balance of the loan, as verified by an independent
party (estimated to be $2,500,000) shall be converted
into restricted common stock at $6.00 per common share,
upon closing of the Merger Agreement. These shareholder
loans have been made pursuant to a Promissory Note between Mr.
Raasch and OnVantage, under which all principal and
interest (accruing at a rate of 8% per annum) shall be
due and payable on the Maturity Date of August 23,
2000.
OnVantage is authorized to issue
100,000,000 shares of Common Stock with a par value
of $.0001 per share, of which 12,690,000 shares are
issued and outstanding as of May 23, 2000. OnVantage
is authorized to issue 10,000,000 shares of Preferred
Stock with a par value of $.0001 per share, of which
7,500,000 shares are issued and outstanding as of May
23, 2000.
The underlying assets and liabilities
acquired have been assigned the following values as of
April 30, 2000:
Cash $16,601
Accounts receivable $0
Prepaid expenses $9,734
Capital assets $104,165
Other assets $9,000
Goodwill $0
Accounts payable $(114,181)
Credit cards $(9,999)
Loan from Shareholder. $(2,149,413)
To meet its immediate working capital
requirements, OnVantage has secured a short-term loan
in the amount of $130,000 from Ken Raasch of
OnVantage. This is evidenced by an unsecured
promissory note bearing interest at 8% per annum dated
May 1, 2000, which is payable by OnVantage upon
receipts of the bridge loan.
In May 2000, OnVantage hired a President, a newly
created position. The President's primary short-term
objectives are to manage the integration of technology
to meet the requirements of OnVantage's Affinity Partners
and to manage growth of the company as it expands it operations.
30
3. Overview
OnVANTAGE ("Company") has
incurred significant net losses since OnVantage's
inception. As of April 30, 2000, OnVantage has
recorded a loss from continuing operations of
$1,099,035.
On February 25, 1999, OnVantage was
incorporated with the State of Delaware. OnVantage is
a NEW Delaware corporation formed by a small
founding group with the intention of providing a vehicle
to offset the cost of providing Internet access.
OnVantage will generate revenue
through both performance based and impression based
advertising revenue and the sale of sponsorship
packages to merchants that are interested in reaching the
target audience of OnVantage's Affinity Partners.
OnVantage recognizes that it offers its Affinity Partners
significant branding and marketing advantages by being
the gateway through which their audience enters and
stays connected to the Internet. By enabling its Affinity
Partners to offer their customers free or subsidized
Internet access, companies can simultaneously lower
their costs of customer acquisition, increase customer
retention, and increase the overall lifetime value of their
customers. With OnVantage's Microportal, companies
will stay in front of their customers 15+ hours per
month, resulting in greater opportunities for marketing
promotions and brand-building efforts.
In the B-toE space, OnVANTAGE can
offer significant value to employers who can use the
Microportal to increase productivity, attract new talent
through an enhanced benefits offering, and communicate
more effectively regarding company issues. The
Microportal can also be used as a vehicle to offer special
promotions to employees such as travel and
entertainment discounts.
In order to expand OnVantage's
operations, OnVantage anticipates incurring additional
expenses to:
1. Continue Microportal development
2. Build out the required database systems
3. Complete network architecture
4. Establish its co-location facility
OnVantage also intends to hire
additional employees as needed to implement
OnVantage's product development efforts. In
addition, OnVantage proposes to further expand
OnVantage's business development and sales
team to develop new and existing strategic
relationships with Affinity Partners and to
identify and secure relationships with premier
merchants that will advertise on the Microportal.
Lastly, OnVantage anticipates incurring
additional costs related to being a public
company, including directors and officers
liability insurance, investor relation programs
and professional service fees. As a result of these
expenditures and other related factors,
31
OnVantage expects to continue to incur losses
for the foreseeable future. OnVantage's quarterly
revenues and net income are subject to
fluctuation based on the timing of Microportal
launches with its Affinity Partners. Because of
these fluctuations, comparisons of operating
results from quarter to quarter for the current
year or for comparable quarters of the prior year
may be difficult. Except as set forth below, these
fluctuations are not expected to be significant
when considered on an annual basis.
REVENUES - OnVantage generates revenue through performance
based and impression based advertising vehicles. Revenue is recognized
at the time that the transaction is confirmed. OnVantage believes
that future revenues will result largely from the addition of Affinity
Partners and the accumulation of a large valuable audience that
uses the Microportal.
COST OF REVENUE - OnVantage expects cost of revenues will
consist of payments to advertising agencies forplacement of ads and sales
of sponsorship and a revenue share (projected to be 50% of revenue
after Microportal Operating Costs) paid to the Affinity Partner to
offset their cost of the Internet access.
SALES AND MARKETING EXPENSES - OnVantage expects that future
costs will consist primarily of costs associated
with developing OnVantage's various strategic
alliances, external advertising, promotion, trade
show, advertising sales and personnel expenses
associated with the establishment of a profitable
merchant pool. As a result of its plan to expand
its operations through internal growth
OnVantage expects these costs to increase in
absolute dollars, while decreasing as a
percentage of revenue.
GENERAL AND ADMINISTRATIVE EXPENSES - General and
administrative expenses currently consist of
management, consulting, accounting, legal and
expenditures for applicable overhead costs such
as office rent, wages and benefits, etc.
OnVantage expects general and administrative
expenses to continue to increase in absolute
dollars as OnVantage expands its staff and incurs
additional costs related to the growth of its
business.
4. Results Of Operations
Comparative results of OnVantage's operations to the prior
year are not available, since OnVantage was organized February 1999.
Three Months Ended March 31, 1999
Compared To Three Months Ended December 31, 1999:
OnVantage's net revenues for three months ended
March 31, 2000 and December 31, 1999 were $0.00 and
$0.00 respectively. OnVantage believes that the majority
of OnVantage's future revenues will result from the
revenue generated from performance based and
impression based advertising vehicles on its Microportal
application.
OnVantage's cost of revenues, mainly to
third parties, for the three months ended March 31, 2000
and December 31, 1999 were $0 and $0 respectively.
The two
32
primary costs of revenue are commissions paid
to advertising agencies for ad sales and revenue
contribution to Affinity Partners, of which there were no
in either quarter.
There currently are no selling and
marketing expenses for the period ended March 31,
2000. OnVantage expects that future costs will consist
primarily of costs associated with OnVantage's various
strategic alliances, external advertising, promotion, trade
show, advertising sales and personnel expenses
associated with marketing of OnVantage's website.
General and administrative expenses
consist primarily of amortization, compensation and
benefits for personnel, rent, management and
professional fees, and office related expenses.
OnVantage's general and administrative expenses for the
three months ended March 31, 2000 and 1999 were
$807,355.06 and $539,088.27 respectively, an increase
of approximately $268,266.79 or 50% from the prior
period. This dollar increase in expenses was incurred as
a result increases in legal, management and consulting
fees.
OnVantage's net loss for the quarter
ended March 31, 2000 and December 31, 1999 were
$807,355.06 and $539,088.27 respectively, an increase
of approximately $268,266.79 or 50% from the prior
period. The increase was due to greater general and
administrative expenses.
2. Liquidity And Capital Resources
Since OnVantage's inception,
OnVantage's operations and capital expenditures have
been financed primarily through a promissory note with
founder Ken Raasch.OnVantage's cash balances were
$30,144.65 and $14,800.27 for March 31, 2000 and
December 31, 1999, and increase of $15,344.38.
From the company's inception in
February, 1999 until April 30, 2000 net cash used in
operating activities was $2,630,741.74. Net cash used
in operating activities for 2000 consisted mostly of loss
from operations, no accounts receivable, offset by
increases in accounts payable, and non cash charges
such as depreciation and amortization.OnVantage
expect expenses to continue to increase for the
foreseeable future as it continue to evaluate possible
strategic acquisitions, products and technologies, expand
OnVantage's sales and marketing programs, purchase
equipment and conduct aggressive brand promotions.
33
B. Audited Financial Statements of OnVantage.
OnVANTAGE, INC.
(A Development Stage Company)
Balance Sheet
April 30, 2000
Assets
Cash $ 15,865
Subscriptions receivable-common stock-Note 3 803
Prepaid expenses 6,489
Property and equipment (net) Note 1 77,768
Deposit 9,000
Intangible assets (net) Note 1 20,365
Total Assets $ 130,290
Liabilities
Accounts payable Note 4 $ 114,181
Notes payable shareholders Note 5 2,149,413
Total Liabilities $2,263,594
Deficiency in Assets
Preferred stock 10,000,000 shares authorized,
7,500,000 shares issued and outstanding 492,750
(see supplemental schedule)
Common stock - 100,000,000 shares authorized,
12,337,500 shares issued and outstanding
(see supplemental schedule) 36,875
Common stock subscribed, 352,500 shares issued and
outstanding (see supplemental schedule) 803
Accumulated deficit during the development stage (2,663,732)
Deficiency in Assets (2,133,304)
Total Liabilities and Deficiency in Assets $ 130,290
34
OnVANTAGE, INC.
(A Development Stage Company)
Statements of Operations and Accumulated Deficit
For the Four Months Ended April 30, 2000 and
The Period From February 25, 1999 (Date of Inception) to April 30, 2000
Four Months February 25, 1999
Ended (Inception) to
April 30, 2000 April 30, 2000
Revenue
Interest income $ 18 $ 18
Expenses
Accounting 1,840 1,840
Advertising 2,500 2,595
Amortization 781 2,457
Consulting 10,090 178,746
Credit card fees 0 235
Depreciation 5,252 7,129
Discounts taken 0 (500)
Dues and subscriptions 751 1,056
Equipment rental 3,016 10,778
Insurance 10,497 24,842
Interest expense 1,191 1,374
Legal fees 83,391 328,609
Licenses and permits 170 9,027
Meals and entertainmen 6,006 13,277
Miscellaneous 918 2,639
Office supplies 6,667 21,395
Parking 1,377 3,535
Payroll taxes 24,762 32,957
Postage and delivery 2,321 4,528
Printing 4,590 22,268
Promotion 506 3,127
Rent 65,351 90,088
Reference material 1,534 1,826
Repairs and maintenance 1,578 2,088
Research and development 516,804 1,384,349
Salaries and wages 266,988 354,447
Taxes--state 800 1,600
Telephone and communications 15,389 36,695
Training 1,410 2,360
Travel 60,619 116,259
Utilities 1,954 2,124
Total Expenses 1,099,053 2,663,750
35
OnVANTAGE, INC.
(A Development Stage Company)
Statements of Operations and Accumulated Deficit
For the Four Months Ended April 30, 2000 and
The Period From February 25, 1999 (Date Inception) to April 30, 2000
Four Months February 25, 1999
Ended (Inception) to
April 30, 2000 April 30, 2000
Total Revenue (brought forward) $ 18 $ 18
Total Expenses (brought forward) 1,099,053 2,663,750
Net (Loss) (1,099,035) (2,663,732)
Accumulated Deficit--Beginning (1,564,697) 0
Accumulated Deficit--Ending $(2,663,732) $(2,663,732)
36
OnVANTAGE, INC.
(A Development Stage Company)
Statements of Cash Flows
For the Four Months Ended April 30, 2000 and
The Period From February 25, 1999 (Date of Inception) to April 30, 2000
Four Months February 25,1999
Ended (Inception) to
April 30,2000 April 30, 2000
Cash Flows From Operating Activities:
Net (loss) $(1,099,035) $(2,663,732)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization 781 2,457
Depreciation 5,252 7,129
(Increase) Decrease in prepaid expenses 3,245 (6,489)
(Increase) Decrease in deposit ( 5,000) (9,000)
Increase (Decrease) in payroll liabilities (9,852) 0
Increase (Decrease) in accounts payable 44,657 114,181
Net Cash Used By Operating Activities (1,059,952) (2,555,454)
Cash Flows From Investing Activities:
Cash payments for purchase of property
and equipment (24,118) (107,719)
Net Cash Used By Investing Activities (24,118) (107,719)
Cash Flows From Financing Activities:
Advances from shareholder 1,060,000 2,149,413
Cash received for stock issuance 25,135 529,625
Net Cash Provided By Financing Activities 1,085,135 2,679,038
Net Increase in Cash 1,065 15,865
Cash--Beginning of Period 14,800 0
Cash--End of Period $ 15,865 $ 15,865
Supplemental Disclosures
Interest paid $ 1,191 $ 1,374
37
EXHIBIT 2
AGREEMENT OF MERGER AND PLAN OF
REORGANIZATION
BY AND AMONG
ZSTAR ENTERPRISES, INC.
ZSTAR SUBSIDIARY, INC.
APEX CANADIAN HOLIDAYS, LTD.
AND
ONVANTAGE, INC.
38
TABLE OF CONTENTS
ARTICLE I
THE MERGER
1.1 The Merger
1.2 Effective Time
1.3 Effect of the Merger
1.4 Articles of Incorporation; Bylaws
1.5 Directors and Officers
1.6 Maximum Shares to Be Issued;
Effect on Capital Stock
1.7 Dissenting Shares
1.8 Surrender of Certificates
1.9 No Further Ownership Rights in
OnVantage Common Stock
1.10 Lost, Stolen or Destroyed Certificates
1.11 Tax Consequences and Accounting
Treatment
1.12 Taking of Necessary Action; Further
Action
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF ONVANTAGE
2.1 Organization of OnVantage
2.2 OnVantage Capital Structure
2.3 Subsidiaries
2.4 Authority
2.5 OnVantage Financial Statements
2.6 No Undisclosed Liabilities
2.7 No Changes
2.8 Tax and Other Returns and Reports
2.9 Restrictions on Business Activities
2.10 Title of Properties; Absence of Liens
and Encumbrances; Condition of
Equipment
2.11 Intellectual Property
2.12 Agreements, Contracts and
Commitments
2.13 Interested Party Transactions
2.14 Governmental Authorization
2.15 Litigation
2.16 Accounts Receivable
2.17 Minute Books
39
2.18 Environmental and OSHA
2.19 Brokers' and Finders' Fees
2.20 Labor Matters
2.21 Insurance
2.22 Compliance with Laws
2.23 Complete Copies of Materials
2.24 Binding Agreements; No Default
2.25 Proxy Statements
2.26 FIRPTA
2.27 Employee Benefit Plans
2.28 Representations Complete
2.29 Securities Act Compliance;
Registration
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF ZSTAR, APEX AND MERGER SUB
3.1 Organization, Standing and Power
3.2 Capital Structure
3.3 Subsidiaries
3.4 Authority
3.5 SEC Documents; Zstar Financial
Statements
3.6 No Undisclosed Liabilities
3.7 No Changes
3.8 Tax and Other Returns and Reports
3.9 Restrictions on Business Activities
3.10 Title of Properties; Absence of Liens
and Encumbrances; Condition of Equipment
3.11 Intellectual Property
3.12 Agreements, Contracts and
Commitments
3.13 Interested Party Transactions
3.14 Governmental Authorization
3.15 Litigation
3.16 Accounts Receivable
3.17 Minute Books
3.18 Environmental and OSHA
3.19 Brokers' and Finders' Fees
3.20 Labor Matters
3.21 Insurance
3.22 Compliance with Laws
3.23 Complete Copies of Materials
3.24 Binding Agreements; No Default
3.25 Proxy Statements
3.26 FIRPTA
40
3.27 Employee Benefit Plans
3.28 Representations Complete
3.29 Registration Statement; Proxy
Statement/Prospectus
3.30 Ownership of OnVantage Common
Stock
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of OnVantage
4.2 No Solicitation
4.3 Conduct of Business of Zstar, Apex
and Merger Sub
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus;
Registration Statement
5.2 Meeting of Zstar Stockholders; Proxy
Statement
5.3 Access to Information
5.4 Confidentiality
5.5 Expenses
5.6 Public Disclosure
5.7 Consents
5.8 Affiliate Agreements
5.9 Legal Requirements
5.10 Blue Sky Laws
5.11 Best Efforts; Additional Documents
and Further Assurances
5.12 Stock Options
5.13 Form S-8
5.14 Employment Agreements
5.15 Credit for Time Employed
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each
Party to Effect the Merger
6.2 Additional Conditions to Obligations
of OnVantage
6.3 Additional Conditions to the
Obligations of Zstar, Apex and
Merger Sub
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1 Survival of Representations and
Warranties
41
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination
8.2 Effect of Termination
8.3 Amendment
8.4 Extension; Waiver
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices
9.2 Interpretation
9.3 Counterparts
9.4 Miscellaneous
9.5 Governing Law
9.6 Attorneys' Fees
9.7 Arbitration
9.8 Rules of Construction
SCHEDULES
Schedule 2.1 Options and Warrants
Schedule 2.2 Financials
Schedule 2.3 Brokers' and Finders' Fee
EXHIBITS
Exhibit 6.2(m) Private Placement Description
42
AGREEMENT OF MERGER AND PLAN OF
REORGANIZATION
This AGREEMENT OF MERGER AND PLAN OF
REORGANIZATION (the "Agreement")
is made and entered into as of _______, 2000
among Zstar Enterprises, Inc., a Nevada corporation
("Zstar"), Apex Canadian Holidays, Ltd., a British
Columbia, Canada corporation and wholly-owned
subsidiary of Zstar ("Apex"), Zstar Subsidiary, Inc.,
a Delaware Corporation and a wholly-owned
subsidiary of Zstar ("Merger Sub"), and OnVantage,
Inc., a Delaware Corporation ("OnVantage").
RECITALS
A. The Board of Directors of each of OnVantage,
Zstar, Apex and Merger Sub believe it is in the
best interests of each company and their respective
stockholders that OnVantage and Merger Sub combine
into a single company through the statutory merger
of Merger Sub with and into OnVantage (the "Merger")
and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the
outstanding shares of Common Stock of OnVantage
("OnVantage Common Stock") shall be exchanged for
shares of Common Stock of Zstar ("Zstar Common Stock")
as determined in Section 1.6(a) of this Agreement.
C. OnVantage, Zstar, Apex and Merger Sub desire to
make certain representations and warranties and other
agreements in connection with the Merger.
D. The parties intend, by executing this Agreement,
to adopt a plan of reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants,
promises and representations set forth herein, and for
other good and valuable consideration, the parties
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as
defined in Section 1.2) and subject to and
upon the terms and conditions of this Agreement
and Delaware Law, Merger Sub shall be merged
with and into OnVantage. The separate corporate
existence of Merger Sub shall cease, and OnVantage
shall continue as the surviving corporation and as
a wholly owned subsidiary of Zstar. OnVantage, as
the surviving corporation after the Merger, is
hereinafter referred to as the "Surviving Corporation."
1.2 Effective Time. As promptly as practicable
after the satisfaction or waiver of the
conditions set forth in Article VI, the parties hereto
shall cause the Merger to be consummated by filing
a Certificate of Merger (the "Certificate of Merger")
43
with the Secretary of State of the States of Delaware
and Nevada, in such form as required by, and
executed in accordance with the relevant provisions
of, Delaware and Nevada Law (the time of such
filing being the "Effective Time"). The closing of
the transactions contemplated hereby (the
"Closing") shall take place at 10:00 a.m. at the
offices of OnVantage, on the date of the Effective
Time (the "Closing Date").
1.3 Effect of the Merger. At the Effective
Time, the effect of the Merger shall be as provided
under Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights,
privileges, powers and franchises of OnVantage and
Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of OnVantage
and Merger Sub shall become the debts, liabilities
and duties of the Surviving Corporation.
1.4 Articles of Incorporation: Bylaws.
(a) Unless otherwise determined by Zstar prior
to the Effective Time, at the Effective Time the
Articles of Incorporation of OnVantage, as in effect
immediately prior to the Effective Time, shall be
the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by
law and such Articles of Incorporation.
(b) The Bylaws of OnVantage, as in effect
immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter
amended.
1.5 Directors and Officers. The directors of
OnVantage immediately prior to the Effective Time
shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with
the Articles of Incorporation and Bylaws of the
Surviving Corporation, and the officers of
OnVantage immediately prior to the Effective Time
shall be the initial officers of the Surviving
Corporation, in each case until their respective
successors are duly elected or appointed and
qualified.
1.6 Maximum Shares to Be Issued: Effect on
Capital Stock. The number of shares of Zstar
Common Stock to be issued (including Zstar
Common Stock to be reserved for issuance upon
exercise of OnVantage's stock options assumed by
Zstar) in exchange for the acquisition by Zstar
of all outstanding OnVantage Common Stock, and all
unexpired and unexercised options to acquire
OnVantage Common Stock (the "Exchange") shall
be determined in accordance with Section 1.6(a);
provided, however, that such Exchange shall be
adjusted as provided in paragraph (e) below. No
adjustment shall be made in the number of shares of
Zstar Common Stock issued in the Merger as a
result of any cash proceeds received by OnVantage
from the date hereof to the Closing Date pursuant to
the exercise of currently outstanding options or
warrants to acquire OnVantage Common Stock.
Subject to the terms and conditions of this Agreement,
as of the Effective Time, by virtue of the Merger and
without any action on the part of Merger Sub,
OnVantage or the holder of any of the following
securities:
(a) Conversion of OnVantage Common
Stock. Immediately prior to the Effective Time,
all Holders of OnVantage Common Stock will receive
stock representing 63.11% ownership (approximately
20,190,000 Shares) of Zstar, on a pro rata basis of
their equity ownership, in exchange for all Shares of
Common Stock (approximately 20,190,000 Shares) of
OnVantage (such ratio of Zstar Shares to OnVantage
Shares being the "Exchange Ratio").
44
b) Cancellation of Merger Sub Stock. Each
share of Merger Sub Stock owned by any shareholder
immediately prior to the Effective Time shall be
canceled and extinguished without any conversion
thereof.
(c) Stock Options. At the Effective Time, all
options to purchase OnVantage Common Stock then
outstanding under the OnVantage's Stock Plan,
also known as the Familyroom.com, Inc. 1999 Stock
Plan (the "OnVantage Stock Plan") shall be assumed
by Zstar in accordance with Section 5.12.
(d) Capital Stock of OnVantage. Each share of
common stock, par value $0.0001 per share, of
OnVantage issued and outstanding immediately
prior to the Effective Time shall be converted
into and exchanged for one validly issued, fully
paid and nonassessable share of common stock, par
value $0.001 per share, of Zstar. Each stock
certificate of OnVantage evidencing ownership of
any such shares shall continue to evidence ownership
of such shares of capital stock of Zstar.
(e) Adjustments to Exchange Ratio. The Exchange
Ratio shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend
(including any dividend or distribution of securities
convertible into Zstar Common Stock or OnVantage
Common Stock), reorganization, recapitalization or
other like change with respect to Zstar Common Stock,
Merger Sub Common Stock or OnVantage Common Stock
occurring after the date hereof and prior to the
Effective Time.
(f) Fractional Shares. No fraction of a share of
Zstar Common Stock will be issued, but in lieu
thereof each holder of shares of OnVantage Stock
who would otherwise be entitled to a fraction of a
share of Zstar Common Stock (after aggregating all
fractional shares of Zstar Common Stock to be received
by such holder) shall be entitled to receive from
Zstar a whole share of Zstar Common Stock.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this
Agreement to the contrary, any shares of capital
stock of OnVantage held by a holder who has demanded
and perfected appraisal rights for such shares in
accordance with Delaware Law and who, as of the
Effective Time, has not effectively withdrawn such
appraisal rights ("Dissenting Shares"), shall not
be converted into or represent a right to receive
Zstar Common Stock pursuant to Section 1.6, but the
holder thereof shall only be entitled to such rights
as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection
(a), if any holder of shares of capital stock of
OnVantage who demands appraisal of such shares
under Delaware Law shall effectively withdraw
the right to appraisal, then, as of the later
of the Effective Time and the occurrence of such
event, such holder's shares shall automatically be
converted into and represent only the right to
receive Zstar Common Stock, without interest
45
thereon, upon surrender of the certificate
representing such shares.
(c) OnVantage shall give Zstar (i)prompt notice
of any written demands for appraisal of any
shares of capital stock of OnVantage, withdrawals
of such demands, and any other instruments served
pursuant to Delaware Law and received by OnVantage
and (ii) the opportunity to participate in all
negotiations and proceedings which take place
prior to the Effective Time with respect to demands
for appraisal under Delaware Law. OnVantage shall not,
except with the prior written consent of Zstar,
voluntarily make any payment before the Effective
Time with respect to any demands for appraisal of
capital stock of OnVantage or offer to settle or
settle any such demands.
1.8 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time,
Zstar, at its option, shall designate a bank or
trust to act as exchange agent (the "Exchange Agent")
in the Merger. Such bank or trust must be acceptable
to OnVantage, such acceptance not to be unreasonably
withheld.
(b) Zstar to Provide Common Stock. Promptly after the
Effective Time, Zstar shall make available to the
Exchange Agent for exchange in accordance with this
Article I the shares of Zstar Common Stock issuable
pursuant to Section 1.6 in exchange for outstanding
shares of OnVantage Stock.
(c) Exchange Procedures. Promptly after the Effective
Time, the Surviving Corporation shall cause to be
mailed to each holder of record of a certificate or
certificates (the "Certificates") which immediately
prior to the Effective Time represented outstanding
shares of OnVantage Common Stock whose shares were
converted into the right to receive shares of Zstar
Common Stock pursuant to Section 1.6, (i) a letter
of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Zstar may
reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange
for certificates representing shares of Zstar Common
Stock. Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents
as may be appointed by Zstar, together with such letter
of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of
such Certificate shall be entitled to receive in exchange
therefore a certificate representing the number of whole
shares of Zstar Common Stock to which such holder is
entitled pursuant to Section 1.6, and the Certificate
so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior
to the Effective Time, represented shares of OnVantage
Common Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment
of dividends, to evidence the ownership of the number of
full shares of Zstar Common Stock into which such shares
of OnVantage Common Stock shall have been so converted
in accordance with Section 1.6.
(d) Distributions With Respect to
Unexchanged Shares. No dividends or other
distributions declared or made after the Effective
Time with respect to Zstar Common Stock with a
46
record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with
respect to the shares of Zstar Common Stock
represented thereby until the holder of record of
such Certificate shall surrender such Certificate.
Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the
record holder of the certificates representing whole
shares of Zstar Common Stock issued in exchange
therefor, without interest, at the time of such
surrender, the amount of dividends or other
distributions with a record date after the Effective
Time theretofore paid with respect to such whole
shares of Zstar Common Stock.
(e) Transfers of Ownership. If any
certificate for shares of Zstar Common Stock is to
be issued in a name other than that in which the
certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance
thereof that the certificate so surrendered will be
properly endorsed and otherwise in proper form for
transfer and that the person requesting such
exchange will have paid to Zstar or any agent
designated by it any transfer or other taxes required
by reason of the issuance of a certificate for shares
of Zstar Common Stock in any name other than that
of the registered holder of the certificate
surrendered, or established to the satisfaction of
Zstar or any agent designated by it that such tax has
been paid or is not payable.
(f) No Liability. Notwithstanding
anything to the contrary in this Section 1.8, none of
the Exchange Agent, the Surviving Corporation or
any party hereto shall be liable to a holder of shares
of Zstar Common Stock, Merger Sub or OnVantage
Common Stock for any amount properly paid to a
public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in
OnVantage Common Stock. All shares of Zstar
Common Stock issued upon the surrender for
exchange of shares of OnVantage Common Stock
in accordance with the terms hereof (including any
cash paid in respect thereof) shall be deemed to
have been issued in full satisfaction of all rights
pertaining to such shares of OnVantage Common
Stock, and there shall be no further registration of
transfers on the records of the Surviving
Corporation of shares of OnVantage Common
Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled
and exchanged as provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates.
In the event any certificates evidencing shares of
OnVantage Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue
in exchange for such lost, stolen or destroyed
certificates, upon the making of an affidavit of that
fact by the holder thereof, such shares of Zstar
Common Stock (rounded up to next higher number
for fractional shares, if any), as may be required
pursuant to Section 1.6; provided, however, that
Zstar may, in its discretion and as a condition
precedent to the issuance thereof, require the owner
of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be
made against Zstar or the Exchange Agent with
respect to the certificates alleged to have been lost,
stolen or destroyed.
47
1.11 Tax Consequences and Accounting
Treatment. It is intended by the parties hereto that
the Merger shall constitute a reorganization within
the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended.
1.12 Taking of Necessary Action: Further
Action. If, at any time after the Effective Time, any
such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges,
powers and franchises of OnVantage and Merger
Sub, the officers and directors of OnVantage and
Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and
will take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
ONVANTAGE
OnVantage represents and warrants to Zstar
and Merger Sub, subject to the exceptions
specifically disclosed in the schedules (referencing
the appropriate section number) supplied by
OnVantage to Zstar and certified by OnVantage
(the "OnVantage Schedules"), as follows:
2.1 Organization of OnVantage. OnVantage
is a corporation duly organized, validly existing and
in good standing under the laws of the State of
Delaware. OnVantage has the corporate power to
own its property and to carry on its business as now
being conducted and as proposed to be conducted
by OnVantage. OnVantage is duly qualified to do
business and in good standing as a foreign
corporation in each jurisdiction in which the failure
to be so qualified would have a material adverse
effect on the business, assets (including intangible
assets), financial condition, or results of operations
("Material Adverse Effect") of OnVantage.
OnVantage has delivered a true and correct copy of
its Articles of Incorporation and Bylaws (or similar
governing instruments), each as amended to date, to
counsel for Zstar.
2.2 OnVantage Capital Structure.
The authorized capital stock of OnVantage consists
of 100,000,000 shares of Common Stock, par value
$0.0001 per share, and 10,000,000 shares of
Preferred Stock, par value $0.0001 per share. There
are 12,690,000 shares of OnVantage Common
Stock and 7,500,000 shares of Preferred Stock
issued and outstanding. All outstanding shares of
OnVantage Common Stock are duly authorized,
validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of OnVantage
or any agreement to which OnVantage is a party or
is bound. All outstanding shares of OnVantage
Preferred Stock are duly authorized, validly issued,
fully paid and nonassessable and are subject to
preemptive rights created by the Articles of
Incorporation of OnVantage. OnVantage has
currently reserved 3,410,000 shares of Common
Stock for issuance to employees and consultants
pursuant to OnVantage Stock Plan during the 12
months following the Closing and OnVantage
agrees that the total of (i) currently issued options
and (ii) options issued in the 12 months following
Closing shall not, in total, exceed this reserved
amount. A total of 6,700,000 shares have been
48
authorized, 0 shares have been exercised, 597,000
shares are subject to outstanding, unexercised
options and a balance of 6,103,000 shares remain
available for future grant. Schedule 2.1 sets forth
for each outstanding option the name of the holder
of such option, the number of shares subject to such
option, the exercise price of such option, the
number of shares as to which such option is
exercisable and, if the exercisability of such option
will be accelerated in any way by the transactions
contemplated by this Agreement, an indication of
the extent of such acceleration. Schedule 2.1 also
describes any repricing of options. Except as set
forth in Schedule 2.2(b) and (c), there are no other
options, warrants, calls, rights, commitments or
agreements of any character to which OnVantage is
a party or by which it is bound obligating
OnVantage to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital
stock of OnVantage or obligating OnVantage to
grant, extend or enter into any such option, warrant,
call, right, commitment or agreement.
2.3 Subsidiaries. OnVantage has no
subsidiaries or affiliated companies and does not
otherwise own any shares of stock or any interest in,
or control, directly or indirectly, any other
corporation, partnership, association, joint venture
or business entity.
2.4 Authority. OnVantage has all requisite
corporate power and authority to enter into this
Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of
this Agreement and the consummation of the
transactions contemplated hereby have been duly
authorized by all necessary corporate action on the
part of OnVantage, subject only to the approval of
the Merger and the other transactions contemplated
hereby by OnVantage's stockholders as
contemplated by Section 6.1(a). This Agreement
has been duly executed and delivered by
OnVantage and, subject to such approval,
constitutes the valid and binding obligation of
OnVantage. The execution and delivery of this
Agreement by OnVantage does not, and the
consummation of the transactions contemplated
hereby will not, conflict with, or result in any
violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of
any obligation or loss of a material benefit under (i)
any provision of the Articles of Incorporation or
Bylaws of OnVantage or (ii) any material mortgage,
indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to OnVantage or its
properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing
with, any court, administrative agency or
commission or other governmental authority or
instrumentality ("Governmental Entity"), is required
by or with respect to OnVantage in connection with
the execution and delivery of this Agreement or the
consummation of the transactions contemplated
hereby, except for (i) the filing of the Certificate of
Merger with the Delaware Secretary of State and
(ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be
required under applicable state and federal
securities laws and the laws of any foreign country.
2.5 OnVantage Financial Statements.
Schedule 2.2 includes OnVantage's audited
financial statements (balance sheets, income
statements and statements of cash flows) as of and
for the fiscal years ending December 31, 1999, and
OnVantage's unaudited financial statements as of
and for the three (3) months ending on March 31,
2000 (collectively, the "Financial Statements"). The
Financial Statements are complete and correct in all
49
material respects and have been prepared in
accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistent
throughout the periods indicated and consistent with
each other (except that the unaudited financial
statements for the three (3) months ending on
March 31, 2000 do not contain the notes necessary
to be in accordance with generally accepted
accounting principles). The Financial Statements
present fairly the financial condition and operating
results of OnVantage as of the dates and during the
periods indicated therein, subject, in the case of the
unaudited financial statements, to normal year-end
adjustments, which will not be material in the
aggregate. The unaudited balance sheet of
OnVantage as of March 31, 2000 hereinafter
referred to as the "OnVantage Balance Sheet."
2.6 No Undisclosed Liabilities. To the knowledge
of OnVantage, OnVantage does not have any liabilities
or obligations, either accrued or contingent (whether
or not required to be reflected in financial statements
in accordance with generally accepted accounting principles),
and whether due or to become due, which individually or in
the aggregate, (i) have not been reflected in OnVantage
Balance Sheet (including the notes thereto) or (ii)
have not been specifically described in this Agreement
or in OnVantage Schedules.
2.7 No Changes. Since the date of
OnVantage Balance Sheet there has not been,
occurred or arisen any:
(a) transaction by OnVantage except in the
ordinary course of business as conducted on
that date;
(b) capital expenditure by OnVantage, either
individually or in the aggregate, exceeding $50,000;
(c) destruction, damage to, or loss of any
assets (including without limitation intangible
assets) of OnVantage (whether or not covered by
insurance), either individually or in the aggregate,
exceeding [$15,000];
(d) labor trouble or claim of wrongful
discharge or other unlawful labor practice or action;
(e) change in accounting methods or practices
(including any change in depreciation or
amortization policies or rates, any change in
policies in making or reversing accruals, or any
change in capitalization of software development
costs) by OnVantage;
(f) declaration, setting aside, or payment of
a dividend or other distribution in respect to the
shares of OnVantage, or any direct or indirect
redemption, purchase or other acquisition by OnVantage
of any of its shares;
(g) increase in the salary or other compensation
payable or to become payable by OnVantage to any of its
officers, directors or employees, or the declaration,
payment, or commitment or obligation of any kind for
50
the payment, by OnVantage, of a bonus or other
additional salary or compensation to any such person;
(h) acquisition, sale or transfer of any
asset of OnVantage except in the ordinary course of
business;
(i) formation, amendment or termination of
any distribution agreement or any material contract,
agreement or license to which OnVantage is a party,
other than termination by OnVantage pursuant to the
terms thereof;
(j) loan by OnVantage to any person
or entity, or guaranty by OnVantage of any loan
except for expense advances in the ordinary course
of business consistent with past practice;
(k) waiver or release of any material
right or claim of OnVantage, including any write-
off or other compromise of any account receivable
of OnVantage;
(l) the commencement or notice or, to
OnVantage's knowledge, threat of commencement
of any governmental proceeding against or
investigation of OnVantage or its affairs;
(m) other event or condition of any
character that has or would, in OnVantage's
reasonable judgment, be expected to have a
Material Adverse Effect on OnVantage;
(n) issuance, sale or redemption by
OnVantage of any of its shares or of any other of its
securities other than issuances of shares of Common
Stock pursuant to outstanding options and warrants;
(o) change in pricing or royalties set
or charged by OnVantage except for discounts
extended in the ordinary course of business
consistent with past practice; or
(p) negotiation or agreement by
OnVantage to do any of the things described in the
preceding clauses (a) through (o) (other than
negotiations with Zstar and its representatives
regarding the transactions contemplated by this
Agreement).
2.8 Tax and Other Returns and Reports.
(a) Tax Returns and Audits.
OnVantage has accurately prepared and timely filed
all required federal, state, local and foreign returns,
estimates, information statements and reports
("Returns") relating to any and all Taxes relating or
attributable to OnVantage or its operations and such
Returns are true and correct in all material respects
and have been completed in accordance with
applicable law in all material respects. For the
purposes of this Agreement, a "Tax" or,
collectively, "Taxes," means any and all federal,
state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and
liabilities, including taxes based upon or measured
by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture,
51
employment, excise and property taxes, together
with all interest, penalties and additions imposed
with respect to such amounts and any obligations
under any agreements or arrangements with any
other person with respect to such amounts.
OnVantage has timely paid all Taxes required to be
paid with respect to such Returns and has withheld
with respect to its employees all federal and state
income taxes, FICA, FUTA and other Taxes it is
required to withhold. The accruals for Taxes on the
books and records of OnVantage are sufficient to
discharge the Taxes for all periods (or the portion of
any period) ending on or prior to the Closing Date.
OnVantage has not been delinquent in the payment
of any Tax nor, except as set forth in Schedule
2.8(a), is there any Tax deficiency outstanding,
proposed or assessed against OnVantage, nor has
OnVantage executed any waiver of any statute of
limitations on or extending the period for the
assessment or collection of any Tax. To the
knowledge of OnVantage, no audit or other
examination of any Return of OnVantage is
presently in progress. Except as set forth in
Schedule 2.8(a), OnVantage does not have any
liabilities for unpaid federal, state, local and foreign
Taxes, whether asserted or unasserted, known or
unknown, contingent or otherwise and OnVantage
has no knowledge of any basis for the assertion of
any such liability attributable to OnVantage, or their
respective assets or operations. OnVantage is not
(nor has it ever been) required to join with any other
entity in the filing of a consolidated tax return for
federal tax purposes or a consolidated or combined
return or report for state tax purposes. OnVantage is
not a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement. OnVantage has
provided, or made available, to Zstar or its legal
counsel copies of all federal, provincial and state
income and all sales and use Tax Returns of
OnVantage for all periods since their respective
dates incorporation. There are (and as of
immediately following the Closing there will be) no
liens on the assets of OnVantage relating to or
attributable to Taxes other than liens for Taxes not
then due and payable. OnVantage has no knowledge
of any basis for the assertion of any claim which, if
adversely determined, would result in liens on the
assets of OnVantage. OnVantage has no property
which is being sold, conveyed or transferred
pursuant to this Agreement which in the hands of
Zstar would be treated as being owned by persons
other than Zstar pursuant to Section 168(f)(8) of the
Internal Revenue Code of 1954 as in effect
immediately prior to the enactment of the Tax
Reform Act of 1986, or any analogous provisions of
any state law. None of the assets of OnVantage are
treated as "tax-exempt use property" within the
meaning of Section 168(h) of the Code. There is no
contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement,
covering any employee or former employee of
OnVantage that, individually or collectively, could
give rise to the payment of any amount that would
not be deductible pursuant to Sections 280G, 162 or
404 of the Code.
(b) No Penalty. OnVantage is not
subject to any penalty related to Taxes by reason of
a violation of any order, rule or regulation of, or a
default with respect to any return, report or
declaration required to be filed with, any
Governmental Entity to which it is subject, which
violations or defaults, individually or in the
aggregate, would have a Material Adverse Effect on
OnVantage.
2.9 Restrictions on Business Activities.
There is no agreement (assuming the parties thereto
other than OnVantage performed their respective
obligations thereunder as required), judgment,
injunction, order or decree binding upon OnVantage
which has or could reasonably be expected to have
the effect of materially prohibiting or materially
impairing any business practice of OnVantage, any
53
acquisition of property by OnVantage or the
conduct of business by OnVantage as currently
conducted or as currently proposed to be conducted.
2.10 Title of Properties: Absence of Liens
and Encumbrances: Condition of Equipment.
(a) OnVantage owns no real property.
To the knowledge of OnVantage, any property
leased by OnVantage is in good standing, valid and
effective in accordance with its respective terms,
and there is not with respect to OnVantage and, to
the knowledge of OnVantage, any other parties to
such leases, under any of such leases, any existing
default or event of default (or event which with
notice or lapse of time, or both, would constitute a
default and in respect of which OnVantage has not
taken adequate steps to prevent such default from
occurring), except where the lack of such good
standing, validity and effectiveness or the existence
of such default or event of default would not have
a Material Adverse Effect on OnVantage.
(b) OnVantage holds good and valid
title to, or, in the case of leased properties and
assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used
in its business, free and clear of any liens, charges,
pledges, security interests or other encumbrances,
except as reflected in OnVantage Financial
Statements except for liens for Taxes not yet due
and payable and except for such imperfections of
title and encumbrances, if any, which are not
substantial in character, amount or extent, and
which do not materially detract from the value, or
interfere with the present use, of the property
subject thereto or affected thereby.
(c) Any equipment (the
"Equipment") owned or leased by OnVantage,
except individual pieces of equipment owned by
OnVantage with an individual value of less than
$5,000, is, taken as a whole, (i) to the knowledge of
OnVantage, adequate for the conduct of the
business of OnVantage consistent with its past
practice, (ii) suitable for the uses to which it is
currently employed, (iii) in good operating
condition, (iv) regularly and properly maintained,
reasonable wear and tear excepted and (v) not
obsolete, dangerous or in need of renewal or
replacement, except for renewal or replacement in
the ordinary course of business.
2.11 Intellectual Property.
(a) To the knowledge of OnVantage,
OnVantage owns, or is licensed to use, all patents,
trademarks, trade names, service marks, copyrights,
and any applications therefor, maskworks, net lists,
schematics, technology, know-how, computer
software programs or applications and tangible or
intangible proprietary information or material
(excluding Commercial Software Rights (as defined
in paragraph (b) below)) that are used or currently
proposed to be used in the business of OnVantage
as currently conducted or as currently proposed to
be conducted (the "OnVantage Intellectual Property
Rights"). OnVantage is not, nor will it be as a result
of the execution and delivery of this Agreement or
the performance of its obligations hereunder, in
violation of any license, sublicense or agreement
described on such list. OnVantage is the sole and
exclusive owner or licensee of, with all right, title
and interest in and to (free and clear of any liens or
encumbrances), OnVantage Intellectual Property
53
Rights, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof
or the material covered thereby in connection with
the services or products in respect of which
OnVantage Intellectual Property Rights are being
used. No claims with respect to OnVantage
Intellectual Property Rights have been asserted or,
to the knowledge of OnVantage, are threatened by
any person, nor, to the knowledge of OnVantage, is
there any valid grounds for any bona fide claims (i)
to the effect that the manufacture, sale, licensing or
use of any product as now used, sold or licensed or
proposed for use, sale or license by OnVantage
infringes on any copyright, patent, trade mark,
service mark or trade secret, (ii) against the use by
OnVantage of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how
or computer software programs and applications
used in OnVantage's business as currently
conducted or as proposed to be conducted, or (iii)
challenging the ownership, validity or effectiveness
of any of OnVantage Intellectual Property Rights.
All trademarks, service marks and copyrights held
by OnVantage are valid and subsisting. To the
knowledge of OnVantage, there is no material
unauthorized use, infringement or misappropriation
of any of OnVantage Intellectual Property Rights by
any third party, including any employee or former
employee of OnVantage. To the knowledge of
OnVantage, OnVantage has not been sued or
charged as a defendant in any claim, suit, action or
proceeding which involves a claim of infringement
of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other
proprietary right of any third party and which has
not been finally terminated prior to the date hereof
nor does it have any knowledge of any such charge
or claim, and there is not any infringement liability
with respect to, or infringement or violation by,
OnVantage of any patent, trademark, service mark,
copyright, trade secret or other proprietary right of
another. To OnVantage's knowledge, no OnVantage
Intellectual Property Right or product of OnVantage
is subject to any outstanding order, judgment,
decree, stipulation or agreement restricting in any
manner the licensing thereof by OnVantage. There
is no outstanding order, judgment, decree or
stipulation on OnVantage, and OnVantage is not
party to any agreement, restricting in any manner
the licensing of OnVantage's products by
OnVantage. OnVantage has not entered into any
agreement to indemnify any other person against
any charge of infringement of any OnVantage
Intellectual Property Right. Each current and former
employee of and consultant to OnVantage has
signed a Proprietary Information and Inventions
Agreement substantially in OnVantage's standard
form as certified by OnVantage and delivered to
Zstar.
(b) "Commercial Software Rights" means
packaged commercially available software
programs generally available to the public through
retail dealers in computer software which have been
licensed to OnVantage pursuant to end-user licenses
and which are used in OnVantage's business but are
in no way a component of or incorporated in any of
OnVantage's products and related trademarks,
technology and know-how. To the best of
OnVantage's knowledge, OnVantage has not
breached or violated the terms of its license,
sublicense or other agreement relating to any
Commercial Software Rights and has a valid right
to use such Commercial Software Rights and has a
valid right to use such Commercial Rights under
such license and agreements. To the knowledge of
OnVantage, OnVantage is not, nor will it be as a
result of the execution and delivery of this
Agreement or the performance of its obligations
hereunder, in violation of any license, sublicense or
agreement relating to Commercial Software Rights.
No claims with respect to the Commercial Software
Rights have been asserted or, to the knowledge of
OnVantage, are threatened by any person against
OnVantage, nor to the knowledge of OnVantage is
54
there any valid grounds for any bona fide claims (i)
to the effect that the manufacture, sale, licensing or
use of any product as now used, sold or licensed or
proposed for use, sale or license by OnVantage
infringes on any copyright, patent, trade mark,
service mark or trade secret, (ii) against the use by
OnVantage of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how
or computer software programs and applications
used in OnVantage's business as currently
conducted or as proposed to be conducted, or (iii)
challenging the validity or effectiveness of any of
OnVantage's rights to use Commercial Software
Rights. To the knowledge of OnVantage, there is no
material unauthorized use, infringement or
misappropriation of any of the Commercial
Software Rights by OnVantage or any employee or
former employee of OnVantage during the period of
their employment. To the knowledge of OnVantage,
no Commercial Software Right is subject to any
outstanding order, judgment, decree, stipulation or
agreement restricting in any manner the use thereof
by OnVantage.
2.12 Agreements, Contracts and
Commitments. Except as identified on Schedule 2.4
or in any other Schedule, OnVantage does not have,
is not a party to nor is it bound by:
(a) any collective bargaining
agreements,
(b) any agreements that contain any
unpaid severance liabilities or obligations,
(c) any bonus, deferred
compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other
employee benefit plans or arrangements,
(d) any employment or consulting
agreement, contract or commitment with an
employee or individual consultant or salesperson or
consulting or sales agreement, contract or
commitment with a firm or other organization, not
terminable by OnVantage on thirty days notice
without liability, except to the extent general
principles of wrongful termination law may limit
OnVantage's ability to terminate employees at will,
(e) agreement or plan, including,
without limitation, any stock option plan, stock
appreciation right plan or stock purchase plan, any
of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by
the occurrence of any of the transactions
contemplated by this Agreement or the value of any
of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this
Agreement,
(f) any fidelity or surety bond or
completion bond,
(g) any lease of personal property
having a value individually in excess of [$10,000,]
(h) any agreement of indemnification
or guaranty not entered into in the ordinary course
of business,
55
(i) any agreement, contract or
commitment containing any convenant limiting the
freedom of OnVantage to engage in any line of
business or compete with any person,
(j) any agreement, contract or
commitment relating to capital expenditures and
involving future obligations in excess of [$10,000,]
(k) any agreement, contract or
commitment relating to the disposition or
acquisition of assets not in the ordinary course of
business or any ownership interest in any
corporation, partnership, joint venture or other
business enterprise,
(l) any mortgages, indentures, loans
or credit agreements, security agreements or other
agreements or instruments relating to the borrowing
of money or extension of credit, including
guaranties referred to in clause (h) hereof,
(m) any purchase order or contract
for the purchase of raw materials or acquisition of
assets involving [$10,000] or more in any single
instance or [$100,000] in the aggregate,
(n) any construction contracts,
(o) any distribution, joint marketing
or development agreement,
(p) any other agreement, contract or
commitment which involves [$10,000] or more and
is not cancelable without penalty within thirty (30)
days other than standard end-user licenses of
OnVantage's products and services in the ordinary
course of business consistent with past practice, or
(q) any agreement which is otherwise
material to OnVantage's business.
OnVantage has not breached, or received any claim
or threat that it has breached, any of the terms or
conditions of any agreement, contract or
commitment to which it is bound (including those
set forth in any of OnVantage Schedules) in such
manner as would permit any other party to cancel or
terminate the same. Each agreement, contract or
commitment required to be set forth in any of
OnVantage Schedules is in full force and effect
(assuming such agreement, contract or commitment
has been duly authorized, executed and delivered by
the other party or parties thereto) and, except as
otherwise disclosed or defaults fully remedied or
resolved, is not subject to any material default
thereunder of which OnVantage has knowledge by
any party obligated to OnVantage pursuant thereto.
2.13 Interested Party Transactions. No
officer, director or stockholder of OnVantage (nor
any sibling, descendant or spouse of any of such
persons, or any trust, partnership, corporation or
other entity in which any of such persons has or has
had an interest), has or has had, directly or
indirectly, (i) an interest in any entity which
furnished or sold, or furnishes or sells, services or
products which OnVantage furnishes or sells, or
proposes to furnish or sell, or (ii) any interest in any
entity which purchases from or sells or furnishes to,
OnVantage, any goods or services, or (iii) a
beneficial interest in any contract or agreement
required to be set forth in Schedule 2.12; provided,
that ownership of no more than one percent (1%) of
56
the outstanding voting stock of a publicly traded
corporation shall not be deemed an "interest in any
entity" for purposes of this Section 2.13.
2.14 Governmental Authorization. All
required and material federal, state, county, local
and foreign government consents, licenses, permits,
grants, or other authorizations have been issued to
OnVantage ("Government Authorization"). All
Government Authorization is in full force and effect
and constitutes the authorization required to permit
OnVantage to operate or conduct its business or
hold any interest in its properties.
2.15 Litigation. OnVantage is not a party to
any legal proceedings nor has any knowledge of
expected or threatened legal proceedings. For
purposes of this provision, OnVantage has
knowledge of expected or threatened legal
proceedings if an officer, director, shareholder, or
employee of managerial or supervisory capacity,
has such knowledge. Legal proceedings include,
without limitation to geography, all lawsuits,
demand for arbitration or mediation, and notices of
adversarial administrative action. There is no
judgment, decree or order enjoining OnVantage in
respect of, or the effect of which is to prohibit, any
business practice or the acquisition of any property
or the conduct of business of OnVantage.
2.16 Accounts Receivable. All receivables of
OnVantage arose in the ordinary course of business
at the aggregate amounts thereof, are collectible
(except to the extent reserved against as reflected in
OnVantage's Financial Statements) and are carried
at values determined in accordance with generally
accepted accounting principles consistently applied.
To the knowledge of OnVantage, none of the
receivables of OnVantage is subject to any claim of
offset, recoupment, setoff or counterclaim and there
are no facts or circumstances (whether asserted or
unasserted) that would give rise to any such claim.
No receivables are contingent upon the performance
by OnVantage of any obligation or contract except
for OnVantage's maintenance obligations under its
maintenance agreements (although no customer has
claimed that OnVantage has failed to perform its
maintenance obligations). No person has any lien,
charge, pledge, security interest or other
encumbrance on any of such receivables and no
agreement for deduction or discount has been made
with respect to any of such receivables.
2.17 Minute Books. The minute books of
OnVantage made available to counsel for Zstar
contain a complete and accurate summary of all
meetings of directors and stockholders since the
time of incorporation of OnVantage, and reflect all
transactions referred to in such minutes accurately
in all material respects.
2.18 Environmental and OSHA.
(a) Hazardous Material. To the
knowledge of OnVantage, as of the Closing, no
material amount of any substance that is regulated
by any Governmental Entity or that has been
designated by any Governmental Entity to be
radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without
limitation, PCBs, asbestos, urea-formaldehyde and
all substances listed pursuant to the United States
Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as
amended from time to time, and the United States
Resource Recovery and Conservation Act of 1976,
57
as amended from time to time, and the regulations
and publications promulgated pursuant to said laws
(a "Hazardous Material"), is present, as a result of
the actions of OnVantage (excluding failure of
OnVantage to remediate the presence of a
Hazardous Material resulting from the actions of
any previous owner or occupier of OnVantage
Property of which presence OnVantage does not
have knowledge) in violation of any law in effect on
or before the Closing Date, in, on or under any
property, including the land and the improvements,
ground water and surface water thereof, that
OnVantage or any of its past or present subsidiaries
has at any time owned, operated, occupied or leased
(collectively, "OnVantage Property"). In any event,
OnVantage does not know of the presence of any
Hazardous Material in, on or under any OnVantage
Property.
(b) Hazardous Materials Activities.
To the knowledge of OnVantage, atno time prior to
the Closing has OnVantage transported, stored,
used, manufactured, released or exposed its
employees or others to Hazardous Materials in
violation of any law in effect on or before the
Closing Date, nor has OnVantage disposed of,
transferred, sold, or manufactured any product
containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of the
Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery
Act of 1976, the Toxic Substances Control Act of
1976 and any other applicable state or federal acts
(including the rules and regulations thereunder) as
in effect on or before the Closing Date.
(c) Permits. OnVantage currently
holds no environmental approvals, permits, licenses,
clearances and consents and none are necessary for
the conduct of OnVantage's activities and
businesses that are currently being conducted.
2.19 Brokers' and Finders' Fees. Except as
set forth in Schedule 2.3, OnVantage has not
incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection
with this Agreement or any transaction contemplated
hereby.
2.20 Labor Matters. OnVantage is in
compliance in all material respects with all
currently applicable laws and regulations respecting
employment, discrimination in employment, terms
and conditions of employment and wages and hours
and occupational safety and health and employment
practices, and is not engaged in any unfair labor
practice. OnVantage has not received any notice
from any Governmental Entity, and to the
knowledge of OnVantage, there has not been
asserted before any Governmental Entity, any
claim, action or proceeding to which OnVantage is
a party or involving OnVantage, and there is neither
pending nor, to the knowledge of OnVantage,
threatened any investigation or hearing concerning
OnVantage arising out of or based upon any such
laws, regulations or practices. There are no pending
claims against OnVantage under any workers
compensation plan or policy or for long term
disability. OnVantage has complied in all material
respects with all applicable provisions of the
Consolidated Omnibus Budget Reconciliation Act
of 1985 and has no obligations with respect to any
former employees or qualifying beneficiaries
thereunder.
58
2.21 Insurance. Schedule There is no claim
by OnVantage pending under any of such policies
or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such
policies or bonds. All premiums payable under all
such policies and bonds have been paid and
OnVantage is otherwise in compliance in all
material respects with the terms of such policies and
bonds (or other policies and bonds providing
substantially similar insurance coverage). Such
policies of insurance and bonds are of the type and
in amounts customarily carried by persons
conducting businesses similar to those of
OnVantage. OnVantage does not know of any
threatened termination of or material premium
increase with respect to any of such policies.
OnVantage has never been denied insurance
coverage nor has any insurance policy of
OnVantage ever been canceled for any reason.
2.22 Compliance with Laws. To the
knowledge of OnVantage, OnVantage has complied
in all material respects with, is not in violation in
any material respect of, and has not received any
notices of violation with respect to, any federal,
state or local statute, law or regulation with respect
to the conduct of its business, or the ownership or
operation of its business, assets or properties.
2.23 Complete Copies of Materials.
OnVantage has delivered or made available true and
complete copies of each document (or summaries of
same) which has been requested by Zstar or its
counsel.
2.24 Binding Agreements: No Default. Each
of the contracts, agreements and other instruments
shown on the Exhibits and Schedules referred to in
this Agreement to which OnVantage is a party is a
legal, binding, and enforceable obligation by or
against OnVantage (assuming that such contracts,
agreements and instruments are binding on all other
parties thereto; OnVantage has no knowledge that
they are not) in accordance with its terms, and no
party with whom OnVantage has an agreement or
contract is, to OnVantage's knowledge, in default
thereunder or has breached any material terms or
provisions thereof (subject to all applicable
bankruptcy, insolvency, reorganization and other
laws applicable to creditors' rights and remedies and
to the exercise of judicial discretion in accordance
with general principles of equity).
2.25 Proxy Statements. In the event a proxy
statement and/or shareholder meeting is required
under Delaware Law, the information supplied by
OnVantage for inclusion in the proxy statement to
be sent to the stockholders of OnVantage in
connection with the meeting of OnVantage's
stockholders to consider the Merger and the other
transactions contemplated hereby (the "OnVantage
Stockholders' Meeting") (such proxy statement as
amended or supplemented is referred to herein as
the "Proxy Statement") shall not, on the date the
Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to OnVantage's
stockholders, at the time of OnVantage
Stockholders' Meeting and at the Effective Time,
contain any statement which, at such time and in
light of the circumstances under which it shall be
made, is false or misleading with respect to any
material fact, or shall omit to state any material fact
necessary in order to make the statements made
therein not false or misleading; or omit to state any
material fact necessary to correct any statement in
any earlier communication with respect to the
solicitation of proxies for OnVantage Stockholders'
Meeting which has become false or misleading. If
at any time prior to the Effective Time any event
relating to OnVantage or any of its affiliates,
officers or directors should be discovered by
OnVantage which should be set forth in an
amendment or a supplement to the Proxy Statement,
59
OnVantage shall promptly inform Zstar and Merger
Sub. Notwithstanding the foregoing, OnVantage
makes no representation or warranty with respect to
any information supplied by Zstar or Merger Sub
which is contained in any of the foregoing
documents.
2.26 FIRPTA. OnVantage is not, and has not
been at any time, a "United States real property
holding corporation" within the meaning of Section
897(c)(2) of the Code.
2.27 Employee Benefit Plans.
(a) To the knowledge of
OnVantage, (I) None of OnVantage's Employee
Plans promises or provides retiree medical or other
retiree welfare benefits to any person except as
required by applicable law, including but not
limited to COBRA; (II) all Employee Plans are in
compliance in all material respects with the
requirements prescribed by any and all applicable
statutes (including ERISA and the Code), orders, or
governmental rules and regulations currently in
effect with respect thereto (including all applicable
requirements for notification to participants or
beneficiaries or the Department of Labor, Internal
Revenue Service (the "IRS") or Secretary of the
Treasury), and OnVantage has performed in all
material respects all obligations required to be
performed by it under, is not in default under or
violation of, and has no knowledge of any default or
violation by any other party to, any of the Employee
Plans; (III) each Employee Plan intended to qualify
under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the
Code either has received a favorable determination
letter with respect to each such Employee Plan from
the IRS or still has a remaining period of time under
applicable Treasury Regulations or IRS
pronouncements in which to apply for such a
determination letter and to make any amendments
necessary to obtain a favorable determination; and
(IV) no Employee Plan is or within the prior six (6)
years has been subject to, and OnVantage has not
incurred and does not expect to incur any liability
under, Title IV of ERISA or Section 412 of the
Code and (V) nothing in any Employee Plan
precludes or interferes with Zstar's ability to cause
OnVantage to terminate (or consolidate, at Zstar's
option) any Employee Plan after the Closing;
provided that (i) the Employee Plans may be
terminated prospectively only, subject to rights
accrued by OnVantage's employees at the time of
such termination and (ii) not more than sixty days
notice may be required to terminate certain
Employee Plans.
(iii) To the knowledge of
OnVantage, noneof the following now exists or has
existed within the six-year period ending on the
date hereof with respect to any Employee Plan: (I)
any act or omission by OnVantage constituting a
violation of Section 402, 403, 404 or 405 of
ERISA; (II) any act or omission by OnVantage
which constitutes a violation of Sections 406 and
407 of ERISA and is not exempted by Section 408
of ERISA or which constitutes a violation of
Section 4975(c) of the Code and is not exempted by
Section 4975(d) of the Code; (III) any act or
omission by OnVantage constituting a violation of
Section 503, 510 or 511 of ERISA; or (IV) any act
or omission by OnVantage which could give rise to
liability under Section 502 of ERISA or under
Sections 4972 or 4975 through 4980 of the Code.
60
(iv) Each Employee Plan has
been maintained in substantial compliance with its
terms, and all contributions, premiums or other
payments due from OnVantage or any of its
subsidiaries to (or under) any such Employee Plan
have been fully paid or adequately provided for on
the audited OnVantage Financial Statements for the
most recently-ended fiscal year. All accruals
thereon (including, where appropriate proportional
accruals for partial periods) have been made in
accordance with generally accepted accounting
principles consistently applied on a reasonable
basis. There has been no amendment, written
interpretation or announcement (whether or not
written) by OnVantage with respect to, or change in
employee participation or coverage under, any
Employee Plan that would increase materially the
expense of maintaining such plans or arrangements,
individually or in the aggregate, above the level of
expense incurred with respect thereto for the most
recently-ended fiscal year.
(v) OnVantage has made
available to Zstar complete, accurate and current
copies of all Employee Plans and all amendments,
documents, correspondence and filings relating
thereto, including but not limited to any statements,
filings, reports or returns filed with any
governmental agency with respect to the Employee
Plans at any time within the three-year period
ending on the date hereof.
2.28 Representations Complete. None of the
representations or warranties made by OnVantage,
nor any statement made in any Schedule, Exhibit or
certificate furnished by OnVantage pursuant to this
Agreement, when read in its entirety, contains or
will contain any untrue statement of a material fact
at the Effective Time, or omits or will omit to state
any material fact necessary in order to make the
statements contained herein or therein, in the light
of the circumstances under which made, not
misleading.
2.29 SECURITIES ACT COMPLIANCE; REGISTRATION
(a) Securities Act Exemption.
The Zstar Common Stock to be issued upon the
Exchange for the OnVantage Common Stock pursuant to this
Agreement will not be registered under the Securities Act (as
defined below) in reliance on the exemptions from the
registration requirements of Section 4(2) of the Securities Act
and Regulation promulgated thereunder. Prior to the Closing
Date, each Holder of OnVantage Common Stock shall have
provided Zstar such representations, warranties, certifications
and additional information as Zstar may reasonably request to
ensure the availability of such exemptions from the
registration requirements of the Securities Act.
(b) Stock Restrictions.
In addition to any legend imposed by applicable state
securities laws or by any contract which continues in effect
after the Closing the certificates representing Zstar Common
Stock issued upon the Exchange pursuant to this Agreement
shall bear a restrictive legend (and stop transfer orders shall be
placed against the transfer thereof with Zstar's transfer agent),
stating substantially as follows:
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THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"). THEY MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED,
OR HYPOTHECATED UNLESS THEY HAVE
BEEN REGISTERED UNDER THE ACT OR
UNLESS AN EXEMPTION FROM REGISTRATION
IS AVAILABLE (AND, IN SUCH CASE, AN
OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY SHALL
HAVE BEEN DELIVERED TO THE COMPANY
TO THE EFFECT THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS NOT
REQUIRED TO BE REGISTERED UNDER THE
ACT).
(c) Holders' Restrictions Regarding Securities Law Matters.
Each Holder shall be bound by the following provisions:
(1) Such Holder will not offer, sell, or
otherwise dispose of any Zstar
Common Stock except in
compliance with the Securities Act
and the rules and regulations
thereunder.
(2) Such Holder will not sell, transfer
or otherwise dispose of any Zstar
Common Stock unless (i) such sale,
transfer or other disposition is
within the limitations of and in
compliance with Rule 144
promulgated by the SEC under the
Securities Act and the Holder
furnishes Zstar with an opinion of
counsel, reasonably satisfactory to
Zstar and its counsel, (ii) in the
opinion of counsel, satisfactory to
Zstar and its counsel, some other
exemption from registration under
the Securities Act is available with
respect to any such proposed sale,
transfer, or other disposition of the
Zstar Common Stock or (iii) the
offer and sale of the Zstar Common
Stock is registered under the
Securities Act.
(3) Each Holder hereby represents,
warrants and as set forth below,
and all such representations and
warranties shall be ture and correct
as of the Colsing Date: such
Holder will acquire the Zstar
Common Stock for its own account
for the purpose of investment and
not with a view to, or for sale in
connection with, any distribution
thereof in violation of the federal
securities laws and has no current
intent to dispose of the Zstar
Common Stock;
(4) Such Holder understands that the
Zstar Common Stock has not been
registered under the Securities Act
by reason of a specific exemption
therefrom, and may not be
transferred or resold except
pursuant to an effective registration
statement or exemption from
registration (and based upon an
opinion of counsel, if Zstar so
requests) and each certificate
representing Zstar Common Stock
will be endorsed with the legend
provided herein;
(5) Such Holder has substantial
experience in business and finance
and in evaluating and investing in
securities in companies similar to
Zstar so that he is capable of
evaluating the merits and risks of
acquiring the Zstar Common
Stock to be issued to such Holder
and has the capacity to protect his
own interests. Such Holder must
bear the economic risk of holding
the Zstar Common Stock
indefinitely unless such securities
are registered pursuant to the
Securities Act, or an exemption
from registration is available for
the disposition thereof. Such
Holder understands that there is
no assurance that any exemption
from registration under the
Securities Act will be available;
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(6) Such Holder understands that the
availability of the exemptions from
registration under the Securities
Act depends upon, among other
things, the bona fide nature of the
investment intent and the accuracy
of such Holder's representations as
expressed herein;
(7) Such Holder understands that a
public market has recently been
created for the Zstar Common
Stock but that there is no assurance
that a public market will be
maintained for the Zstar Common
Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
ZSTAR, APEX AND MERGER SUB
Zstar, Apex and Merger Sub represent and
warrant to OnVantage, subject to the exceptions
specifically disclosed in the schedules supplied and
initialed by Zstar to OnVantage (the "Zstar
Schedules"), as follows:
3.1 Organization, Standing and Power. Zstar
is a corporation duly organized, validly existing and
in good standing under the laws of the State of
Nevada. Apex is a corporation duly organized,
validly existing and in good standing under the laws
of the Providence of British Columbia, Canada.
Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware. Each of Zstar, Apex and Merger
Sub has the corporate power to own its properties
and to carry on its business as now being conducted
and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to
be so qualified would have a Material Adverse
Effect on Zstar, Apex and Merger Sub taken as a
whole. Zstar has made available a true and correct
copy of the Articles of Incorporation and Bylaws of
each of Zstar, Apex and Merger Sub, as amended to
date, to counsel for OnVantage.
3.2 Capital Structure.
(a) The authorized stock of Zstar
consists of 30,000,000 shares of Common Stock,
par value $0.001 per share, of which 10,550,000
shares were issued and outstanding as of May 25,
2000. The authorized capital stock of Apex consists
of _____ shares of Common Stock, par value $__
per share, ____ shares of which, as of the date
hereof, are issued and outstanding and are held by
Zstar. The authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, par
value $__ per share, 100 shares of which, as of the
date hereof, are issued and outstanding and are held
by Zstar. All such shares have been duly authorized,
and all such issued and outstanding shares have
been validly issued, are fully paid and
nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof.
Zstar has also reserved [(i) ____ shares of Common
Stock for issuance to employees and consultants
pursuant to Zstar's ____ Stock Plan, as amended,
(ii) ____ shares of Common Stock for issuance to
directors under its ____ Stock Plan, as amended,
(iii) an aggregate of __ shares of Common Stock for
issuance under the __ Employee Stock Plan, as
amended, and the Subsidiary Employee Stock
Purchase Plan, as amended]. There are no other
options, warrants, calls, rights, commitments or
agreements of any character to which Zstar is a
party or by which it is bound obligating Zstar to
issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of Zstar or
obligating Zstar to grant, extend or enter into any
such option, warrant, call, right, commitment or
agreement.
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(b) The shares of Zstar Common
Stock to be issued pursuant to the Merger will be
duly authorized, validly issued, fully paid, and
nonassessable.
3.3 Subsidiaries. Other than Apex and
Merger Sub, Zstar has no subsidiaries or affiliated
companies and does not otherwise own any shares
of stock or any interest in, or control, directly or
indirectly, any other corporation, partnership,
association, joint venture or business entity.
3.4 Authority. Zstar, Apex and Merger Sub
have all requisite corporate power and authority to
enter into this Agreement and to consummate the
transactions contemplated hereby. Upon
shareholder approval of this Agreement and the
transaction contemplated hereby, the execution and
delivery of this Agreement and the consummation
of the transactions contemplated hereby will have
been duly authorized by all necessary corporate
action on the part of Zstar, Apex and Merger Sub.
This Agreement has been duly executed and
delivered by Zstar, Apex and Merger Sub and,
subject to such shareholder approval, constitutes the
valid and binding obligations of Zstar, Apex and
Merger Sub. The execution and delivery of this
Agreement do not, and the consummation of the
transactions contemplated hereby will not, conflict
with, or result in any violation of, or default (with
or without notice or lapse of time, or both), or give
rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a
material benefit under (i) any provision of the
Articles of Incorporation or Bylaws of Zstar, Apex
and Merger Sub or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or
regulation applicable to Zstar, Apex or Merger Sub
or their properties or assets, other than any such
conflicts, violations, defaults, terminations,
cancellations or accelerations which individually or
in the aggregate would not have a material adverse
effect on the ability of Zstar, Apex or Merger Sub
to consummate the transactions contemplated
hereby. No consent, approval, order or authorization
of, or registration, declaration or filing with, any
Governmental Entity, is required by or with respect
to Zstar, Apex and Merger Sub in connection with
the execution and delivery of this Agreement by
Zstar, Apex and Merger Sub or the consummation
by Zstar, Apex and Merger Sub of the transactions
contemplated hereby, except for (i) the filing of the
Certificate of Merger with the Delaware Secretary
of State, or (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings
as may be required under applicable state and
federal securities laws and the laws of any foreign
country.
3.5 SEC Documents; Zstar Financial
Statements. Zstar has furnished or made available to
OnVantage a true and complete copy of its Form
10-KSB for the fiscal year ending 1999, and its
Informaion Statement dated ______, 2000
(collectively, the "SEC Documents"), which Zstar
filed under the 1934 Exchange Act ("Exchange
Act") with the Securities and Exchange
Commission (the "SEC"). As of their respective
filing dates, the SEC Documents complied in all
material respects with the requirements of the
Exchange Act, and none of the SEC Documents
contained any untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary to make the statements made
therein, in light of the circumstances in which they
were made, not misleading, except to the extent
corrected by a subsequently filed document with the
SEC. All prior SEC filings of Zstar are complete,
accurate and filed on a timely basis. The financial
statements of Zstar, including the notes thereto,
included in the SEC Documents (the "Zstar
Financial Statements") comply as to form in all
material respects with applicable accounting
requirements and with the published rules and
regulations of the SEC with respect thereto, have
been prepared in accordance with generally
accepted accounting principles consistently applied
(except as may be indicated in the notes thereto or,
in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly present the
consolidated financial position of Zstar at the dates
thereof and of its operations and cash flows for the
periods then ended (subject, in the case of unaudited
statements, to normal, recurring audit adjustments).
There has been no change in Zstar accounting
policies or estimates except as described in the
notes to Zstar Financial Statements. Zstar has no
material obligations other than (i) those set forth in
Zstar Financial Statements and (ii) those not
required to be set forth in Zstar Financial
Statements under generally accepted accounting
principles.
64
3.6 No Undisclosed Liabilities. Neither
Zstar, Apex or Merger Sub has any liabilities or
obligations, either accrued or contingent (whether
or not required to be reflected in financial
statements in accordance with generally accepted
accounting principles), and whether due or to
become due, which individually or in the aggregate,
(i) have not been reflected in the Zstar Financial
Statements (including the notes thereto) or (ii) have
not been specifically described in this Agreement or
in Zstar, Apex or Merger Sub Schedules.
3.7 No Changes. Since the date of Zstar
Financial Statements, there has not been, occurred
or arisen any:
(a) transaction by Zstar, Apex or
Merger Sub except in the ordinary course of
business as conducted on that date;
(b) capital expenditure by Zstar,
Apex or Merger Sub, either individually or in the
aggregate, exceeding $10,000;
(c) destruction, damage to, or loss of
any assets (including without limitation intangible
assets) of Zstar, Apex or Merger Sub (whether or
not covered by insurance), either individually or in
the aggregate, exceeding $5,000;
(d) labor trouble or claim of wrongful
discharge or other unlawful labor practice or action;
(e) change in accounting methods or
practices (including any change in depreciation or
amortization policies or rates, any change in
policies in making or reversing accruals, or any
change in capitalization of software development
costs) by Zstar, Apex or Merger Sub;
65
(f) declaration, setting aside, or
payment of a dividend or other distribution in
respect to the shares of Zstar, Apex or Merger Sub,
or any direct or indirect redemption, purchase or
other acquisition by Zstar, Apex or Merger Sub of
any of its shares;
(g) increase in the salary or other
compensation payable or to become payable by
Zstar, Apex or Merger Sub to any of its officers,
directors or employees, or the declaration, payment,
or commitment or obligation of any kind for the
payment, by Zstar, Apex or Merger Sub, of a bonus
or other additional salary or compensation to any
such person;
(h) acquisition, sale or transfer of any
asset of Zstar, Apex or Merger Sub except in the
ordinary course of business;
(i) formation, amendment or
termination of any distribution agreement or any
material contract, agreement or license to which
Zstar, Apex or Merger Sub is a party, other than
termination by Zstar, Apex or Merger Sub pursuant
to the terms thereof;
(j) loan by Zstar, Apex or Merger
Sub to any person or entity, or guaranty by Zstar,
Apex or Merger Sub of any loan except for expense
advances in the ordinary course of business
consistent with past practice;
(k) waiver or release of any material
right or claim of Zstar, Apex or Merger Sub,
including any write-off or other compromise of any
account receivable of Zstar, Apex or Merger Sub;
(l) the commencement or notice or, to
Zstar's, Apex's or Merger Sub 's knowledge, threat
of commencement of any governmental proceeding
against or investigation of Zstar, Apex or Merger
Sub or its affairs;
(m) other event or condition of any
character that has or would, in Zstar's, Apex's or
Merger Sub's reasonable judgment, be expected to
have a Material Adverse Effect on Zstar, Apex or
Merger Sub;
(n) issuance, sale or redemption by
Zstar, Apex or Merger Sub of any of its shares or of
any other of its securities other than issuances of
shares of Common Stock pursuant to outstanding
options and warrants;
(o) change in pricing or royalties set
or charged by Zstar, Apex or Merger Sub except for
discounts extended in the ordinary course of
business consistent with past practice; or
66
(p) negotiation or agreement by
Zstar, Apex or Merger Sub to do any of the things
described in the preceding clauses (a) through (o)
(other than negotiations with OnVantage and its
representatives regarding the transactions
contemplated by this Agreement).
3.8 Tax and Other Returns and Reports.
(a) Tax Returns and Audits. Except
as provided in Schedule 3.8(a), Zstar, Apex and
Merger Sub have accurately prepared and timely
filed all required federal, state, local and foreign
returns, estimates, information statements and
reports ("Returns") relating to any and all Taxes
relating or attributable to Zstar, Apex and Merger
Sub or their operations and such Returns are true
and correct in all material respects and have been
completed in accordance with applicable law in all
material respects. For the purposes of this
Agreement, a "Tax" or, collectively, "Taxes,"
means any and all federal, state, local and foreign
taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes
based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added,
ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and
additions imposed with respect to such amounts and
any obligations under any agreements or
arrangements with any other person with respect to
such amounts. Zstar, Apex and Merger Sub have
timely paid all Taxes required to be paid with
respect to such Returns and has withheld with
respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes it is required to
withhold. The accruals for Taxes on the books and
records of Zstar, Apex and Merger Sub are
sufficient to discharge the Taxes for all periods (or
the portion of any period) ending on or prior to the
Closing Date. Neither Zstar, Apex or Merger Sub
has been delinquent in the payment of any Tax nor
is there any Tax deficiency outstanding, proposed
or assessed against Zstar, Apex or Merger Sub, nor
has Zstar, Apex or Merger Sub executed any waiver
of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
No audit or other examination of any Return of
Zstar, Apex or Merger Sub is presently in progress.,
Zstar, Apex or Merger Sub does not have any
liabilities for unpaid federal, state, local and foreign
Taxes, whether asserted or unasserted, known or
unknown, contingent or otherwise and neither Zstar,
Apex nor Merger Sub has knowledge of any basis
for the assertion of any such liability attributable to
Zstar, Apex or Merger Sub, or their respective
assets or operations. Neither Zstar, Apex or Merger
Sub is (nor have any of them ever been) required to
join with any other entity in the filing of a
consolidated tax return for federal tax purposes or
a consolidated or combined return or report for state
tax purposes. Neither Zstar, Apex or Merger Sub
are a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement. Zstar, Apex
and Merger Sub have provided, or made available,
to OnVantage or its legal counsel copies of all
federal, provincial and state income and all sales
and use Tax Returns of Zstar, Apex and Merger Sub
for all periods since their respective dates
incorporation. There are (and as of immediately
following the Closing there will be) no liens on the
assets of Zstar, Apex or Merger Sub relating to or
attributable to Taxes. Neither Zstar, Apex or Merger
Sub has knowledge of any basis for the assertion of
any claim which, if adversely determined, would
result in liens on the assets of Zstar, Apex or
Merger Sub. Zstar, Apex or Merger Sub has no
property which is being sold, conveyed or
transferred pursuant to this Agreement which in the
hands of OnVantage would be treated as being
owned by persons other than OnVantage pursuant
to Section 168(f)(8) of the Internal Revenue Code
of 1954 as in effect immediately prior to the
enactment of the Tax Reform Act of 1986, or any
analogous provisions of any state law. None of the
assets of Zstar, Apex or Merger Sub are treated as
"tax-exempt use property" within the meaning of
Section 168(h) of the Code. There is no contract,
agreement, plan or arrangement, including but not
limited to the provisions of this Agreement,
covering any employee or former employee of
Zstar, Apex or Merger Sub that, individually or
collectively, could give rise to the payment of any
amount that would not be deductible pursuant to
Sections 280G, 162 or 404 of the Code.
67
(b) No Penalty. Neither Zstar, Apex
or Merger Sub is subject to any penalty by reason of
a violation of any order, rule or regulation of, or a
default with respect to any return, report or
declaration required to be filed with, any
Governmental Entity to which it is subject, which
violations or defaults, individually or in the
aggregate, would have a Material Adverse Effect on
Zstar, Apex or Merger Sub.
3.9 Restrictions on Business Activities.
There is no agreement (assuming the parties thereto
other than Zstar, Apex and Merger Sub performed
their respective obligations thereunder as required),
judgment, injunction, order or decree binding upon
Zstar, Apex or Merger Sub which has or could
reasonably be expected to have the effect of
materially prohibiting or materially impairing any
business practice of Zstar, Apex or Merger Sub, any
acquisition of property by Zstar, Apex or Merger
Sub or the conduct of business by Zstar, Apex or
Merger Sub as currently conducted or as currently
proposed to be conducted.
3.10 Title of Properties: Absence of Liens
and Encumbrances: Condition of Equipment.
(a) To the knowledge of Zstar, Apex
and Merger Sub, all leases are in good standing,
valid and effective in accordance with their
respective terms, and there is not with respect to
Zstar, Apex or Merger Sub and, to the knowledge of
Zstar, Apex and Merger Sub, any other parties to
such leases, under any of such leases, any existing
default or event of default (or event which with
notice or lapse of time, or both, would constitute a
default and in respect of which Zstar, Apex and/or
Merger Sub have not taken adequate steps to
prevent such default from occurring), except where
the lack of such good standing, validity and
effectiveness or the existence of such default or
event of default would not have a Material Adverse
Effect on Zstar, Apex or Merger Sub.
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(b) Zstar, Apex and Merger Sub hold
good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all
of its respective tangible properties and assets, real,
personal and mixed, used in its business, free and
clear of any liens, charges, pledges, security
interests or other encumbrances, except as reflected
in Zstar's Financial Statements and except for such
imperfections of title and encumbrances, if any,
which are not substantial in character, amount or
extent, and which do not materially detract from the
value, or interfere with the present use, of the
property subject thereto or affected thereby.
(c) Any equipment owned or leased
by Zstar, Apex and the Merger Sub (the
"Equipment") is, taken as a whole, (i) to the
knowledge of Zstar, Apex and Merger Sub,
adequate for the conduct of the business of Zstar,
Apex and Merger Sub consistent with their past
practice, (ii) suitable for the uses to which it is
currently employed, (iii) in good operating
condition, (iv) regularly and properly maintained,
reasonable wear and tear excepted and (v) not
obsolete, dangerous or in need of renewal or
replacement, except for renewal or replacement in
the ordinary course of business.
3.11 Intellectual Property.
(a) Zstar, Apex and Merger Sub own,
or is licensed to use, all patents, trademarks,
trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists,
schematics, technology, know-how, computer
software programs or applications and tangible or
intangible proprietary information or material
(excluding Commercial Software Rights (as defined
in paragraph (b) below)) that are used or currently
proposed to be used in the business of Zstar, Apex
and Merger Sub respectively as currently conducted
or as currently proposed to be conducted
(individually and collectively the "Zstar Intellectual
Property Rights"). Zstar, Apex and Merger Sub are
not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its
obligations hereunder, in violation of any license,
sublicense or agreement described on such list.
Zstar, Apex and/or Merger Sub is the sole and
exclusive owner or licensee of, with all right, title
and interest in and to (free and clear of any liens or
encumbrances), Zstar Intellectual Property Rights,
and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof
or the material covered thereby in connection with
the services or products in respect of which Zstar
Intellectual Property Rights are being used. No
claims with respect to Zstar Intellectual Property
Rights have been asserted or, to the knowledge of
Zstar, Apex or Merger Sub, are threatened by any
person, nor, to the knowledge of Zstar, Apex or
Merger Sub, is there any valid grounds for any bona
fide claims (i) to the effect that the manufacture,
sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license
by Zstar, Apex or Merger Sub infringes on any
copyright, patent, trade mark, service mark or trade
secret, (ii) against the use by Zstar, Apex or Merger
Sub of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or
computer software programs and applications used
in Zstar's, Apex's or Merger Sub's business as
currently conducted or as proposed to be conducted,
or (iii) challenging the ownership, validity or
effectiveness of any of Zstar Intellectual Property
Rights. All trademarks, service marks and
copyrights held by Zstar, Apex or Merger Sub are
valid and subsisting. To the knowledge of Zstar,
Apex or Merger Sub, there is no material
unauthorized use, infringement or misappropriation
of any of Zstar Intellectual Property Rights by any
third party, including any employee or former
employee of Zstar, Apex or Merger Sub. Zstar,
Apex or Merger Sub has not been sued or charged
as a defendant in any claim, suit, action or
proceeding which involves a claim of infringement
of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other
proprietary right of any third party and which has
not been finally terminated prior to the date hereof
nor does it have any knowledge of any such charge
or claim, and there is not any infringement liability
with respect to, or infringement or violation by,
Zstar, Apex or Merger Sub of any patent,
trademark, service mark, copyright, trade secret or
other proprietary right of another. To Zstar's,
Apex's or Merger Sub's knowledge, no Zstar
Intellectual Property Right or product of Zstar,
Apex or Merger Sub is subject to any outstanding
order, judgment, decree, stipulation or agreement
restricting in any manner the licensing thereof by
Zstar, Apex or Merger Sub. There is no outstanding
order, judgment, decree or stipulation on Zstar,
Apex or Merger Sub, and Zstar, Apex or Merger
Sub is not party to any agreement, restricting in any
manner the licensing of Zstar's, Apex's or Merger
Sub 's products by Zstar, Apex or Merger Sub.
Zstar, Apex or Merger Sub has not entered into any
agreement to indemnify any other person against
any charge of infringement of any Zstar Intellectual
Property Right. Each current and former employee
of and consultant to Zstar, Apex and Merger Sub
has signed a Proprietary Information and Inventions
Agreement substantially in Zstar's, Apex's or
Merger Sub's standard form as certified by Zstar,
Apex or Merger Sub respectively and delivered to
OnVantage.
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(b) "Commercial Software Rights" means
packaged commercially available software
programs generally available to the public through
retail dealers in computer software which have been
licensed to Zstar, Apex or Merger Sub pursuant to
end-user licenses and which are used in Zstar's,
Apex's or Merger Sub 's business but are in no way
a component of or incorporated in any of Zstar's,
Apex's or Merger Sub 's products and related
trademarks, technology and know-how. To the best
of Zstar's, Apex's or Merger Sub 's knowledge,
Zstar, Apex or Merger Sub has not breached or
violated the terms of its license, sublicense or other
agreement relating to any Commercial Software
Rights and has a valid right to use such Commercial
Software Rights and has a valid right to use such
Commercial Rights under such license and
agreements. Zstar, Apex or Merger Sub is not, nor
will it be as a result of the execution and delivery of
this Agreement or the performance of its obligations
hereunder, in violation of any license, sublicense or
agreement relating to Commercial Software Rights.
No claims with respect to the Commercial Software
Rights have been asserted or, to the knowledge of
Zstar, Apex or Merger Sub, are threatened by any
person against Zstar, Apex or Merger Sub, nor to
the knowledge of Zstar, Apex or Merger Sub is
there any valid grounds for any bona fide claims (i)
to the effect that the manufacture, sale, licensing or
use of any product as now used, sold or licensed or
proposed for use, sale or license by Zstar, Apex or
Merger Sub infringes on any copyright, patent,
trade mark, service mark or trade secret, (ii) against
the use by Zstar, Apex or Merger Sub of any
trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer
software programs and applications used in Zstar's,
Apex's or Merger Sub's business as currently
conducted or as proposed to be conducted, or (iii)
challenging the validity or effectiveness of any of
Zstar's, Apex's or Merger Sub's rights to use
Commercial Software Rights. To the knowledge of
Zstar, Apex or Merger Sub, there is no material
unauthorized use, infringement or misappropriation
of any of the Commercial Software Rights by Zstar,
Apex or Merger Sub or any employee or former
employee of Zstar, Apex or Merger Sub during the
period of their employment. To the knowledge of
Zstar, Apex and/or Merger Sub, no Commercial
Software Right is subject to any outstanding order,
judgment, decree, stipulation or agreement
restricting in any manner the use thereof by
OnVantage.
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3.12 Agreements, Contracts and
Commitments. Apex and/or Merger Sub do not
have, are not a party to nor are they bound by:
(a) any collective bargaining
agreements,
(b) any agreements that contain any
unpaid severance liabilities or obligations,
(c) any bonus, deferred
compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other
employee benefit plans or arrangements,
(d) any employment or consulting
agreement, contract or commitment with an
employee or individual consultant or salesperson or
consulting or sales agreement, contract or
commitment with a firm or other organization, not
terminable by Zstar, Apex or Merger Sub on thirty
days notice without liability, except to the extent
general principles of wrongful termination law may
limit Zstar's, Apex's or Merger Sub's ability to
terminate employees at will,
(e) agreement or plan, including,
without limitation, any stock option plan, stock
appreciation right plan or stock purchase plan, any
of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by
the occurrence of any of the transactions
contemplated by this Agreement or the value of any
of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this
Agreement,
(f) any fidelity or surety bond or
completion bond,
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(g) any lease of personal property
having a value individually in excess of $3,000,
(h) any agreement of indemnification
or guaranty not entered into in the ordinary course
of business,
(i) any agreement, contract or
commitment containing any convenant limiting the
freedom of Zstar, Apex or Merger Sub to engage in
any line of business or compete with any person,
(j) any agreement, contract or
commitment relating to capital expenditures and
involving future obligations in excess of $3,000,
(k) any agreement, contract or
commitment relating to the disposition or
acquisition of assets not in the ordinary course of
business or any ownership interest in any
corporation, partnership, joint venture or other
business enterprise,
(l) any mortgages, indentures, loans
or credit agreements, security agreements or other
agreements or instruments relating to the borrowing
of money or extension of credit, including
guaranties referred to in clause (h) hereof,
(m) any purchase order or contract
for the purchase of raw materials or acquisition of
assets involving $3,000 or more in any single
instance or $10,000 in the aggregate,
(n) any construction contracts,
(o) any distribution, joint marketing
or development agreement,
(p) any other agreement, contract or
commitment which involves $3,000 or more and is
not cancelable without penalty within thirty (30)
days other than standard end-user licenses of
Zstar's, Apex's or Merger Sub's products and
services in the ordinary course of business
consistent with past practice, or
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(q) any agreement which is otherwise
material to Zstar's, Apex's or Merger Sub's
business. Neither Zstar, Apex or Merger Sub has
breached, or received any claim or threat that it has
breached, any of the terms or conditions of any
agreement, contract or commitment to which it is
bound (including those set forth in any of Zstar,
Apex or Merger Sub Schedules) in such manner as
would permit any other party to cancel or terminate
the same. Each agreement, contract or commitment
required to be set forth in any of Zstar, Apex or
Merger Sub Schedules is in full force and effect
(assuming such agreement, contract or commitment
has been duly authorized, executed and delivered by
the other party or parties thereto) and, except as
otherwise disclosed or defaults fully remedied or
resolved, is not subject to any material default
thereunder of which Zstar, Apex or Merger Sub has
knowledge by any party obligated to Zstar, Apex or
Merger Sub pursuant thereto.
3.13 Interested Party Transactions. No
officer, director or stockholder of Zstar, Apex or
Merger Sub (nor any sibling, descendant or spouse
of any of such persons, or any trust, partnership,
corporation or other entity in which any of such
persons has or has had an interest), has or has had,
directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells,
services or products which Zstar, Apex or Merger
Sub furnishes or sells, or proposes to furnish or sell,
or (ii) any interest in any entity which purchases
from or sells or furnishes to, Zstar, Apex or Merger
Sub, any goods or services, or (iii) a beneficial
interest in any contract or agreement required to be
set forth in Schedule 3.12; provided, that ownership
of no more than one percent (1%) of the outstanding
voting stock of a publicly traded corporation shall
not be deemed an "interest in any entity" for
purposes of this Section 3.13.
3.14 Governmental Authorization. All
required and material federal, state, county, local
and foreign government consents, licenses, permits,
grants, or other authorization have been issued to
Zstar, Apex or Merger Sub ("Government
Authorization"). All Government Authorization is
in full force and effect and constitute all the
authorizations required to permit Zstar, Apex or
Merger Sub to operate or conduct its business or
hold any interest in its properties.
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3.15 Litigation. Neither Zstar, Apex nor
Merger Sub are a party to any legal proceedings nor
has any knowledge of expected or threatened legal
proceedings. For purposes of this provision, Zstar.
Apex or Merger Sub has knowledge of expected or
threatened legal proceedings if an officer, director,
shareholder, or employee of managerial or
supervisory capacity, has such knowledge. Legal
proceedings include, without limitation to
geography, all lawsuits, demand for arbitration or
mediation, and notices of adversarial administrative
action. There is no judgment, decree or order
enjoining Zstar, Apex or Merger Sub in respect of,
or the effect of which is to prohibit, any business
practice or the acquisition of any property or the
conduct of business of Zstar, Apex or Merger Sub.
3.16 Accounts Receivable. All receivables of
Zstar, Apex or Merger Sub arose in the ordinary
course of business at the aggregate amounts thereof,
are collectible (except to the extent reserved against
as reflected in Zstar's Financial Statements) and are
carried at values determined in accordance with
generally accepted accounting principles
consistently applied. To the knowledge of Zstar,
Apex and/or Merger Sub, none of the receivables of
Zstar, Apex or Merger Sub is subject to any claim
of offset, recoupment, setoff or counterclaim and
there are no facts or circumstances (whether
asserted or unasserted) that would give rise to any
such claim. No receivables are contingent upon the
performance by Zstar, Apex or Merger Sub of any
obligation or contract except for Zstar's, Apex's or
Merger Sub's maintenance obligations under its
respective maintenance agreements (although no
customer has claimed that Zstar, Apex or Merger
Sub has failed to perform its maintenance
obligations). No person has any lien, charge,
pledge, security interest or other encumbrance on
any of such receivables and no agreement for
deduction or discount has been made with respect to
any of such receivables.
3.17 Minute Books. The minute books of
Zstar, Apex and Merger Sub made available to
counsel for OnVantage contain a complete and
accurate summary of all meetings of directors and
stockholders since the time of incorporation of each
of Zstar, Apex and Merger Sub, and reflect all
transactions referred to in such minutes accurately
in all material respects.
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3.18 Environmental and OSHA.
(a) Hazardous Material. As of the
Closing, no material amount of any substance that
is regulated by any Governmental Entity or that has
been designated by any Governmental Entity to be
radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without
limitation, PCBs, asbestos, urea-formaldehyde and
all substances listed pursuant to the United States
Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as
amended from time to time, and the United States
Resource Recovery and Conservation Act of 1976,
as amended from time to time, and the regulations
and publications promulgated pursuant to said laws
(a "Hazardous Material"), is present, as a result of
the actions of Zstar, Apex or Merger Sub (excluding
failure of Zstar, Apex or Merger Sub to remediate
the presence of a Hazardous Material resulting from
the actions of any previous owner or occupier of
Zstar, Apex or Merger Sub Property of which
presence Zstar, Apex or Merger Sub does not have
knowledge) in violation of any law in effect on or
before the Closing Date, in, on or under any
property, including the land and the improvements,
ground water and surface water thereof, that Zstar,
Apex or Merger Sub or any of its past or present
subsidiaries has at any time owned, operated,
occupied or leased (collectively, "Zstar Property").
In any event, neither Zstar, Apex or Merger Sub
knows of the presence of any Hazardous Material
in, on or under any Zstar Property.
(b) Hazardous Materials Activities.
At no time prior to the Closing has Zstar, Apex or
Merger Sub transported, stored, used,
manufactured, released or exposed its employees or
others to Hazardous Materials in violation of any
law in effect on or before the Closing Date, nor has
Zstar, Apex or Merger Sub disposed of, transferred,
sold, or manufactured any product containing a
Hazardous Material (collectively "Hazardous
Materials Activities") in violation of the
Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery
Act of 1976, the Toxic Substances Control Act of
1976 and any other applicable state or federal acts
(including the rules and regulations thereunder) as
in effect on or before the Closing Date.
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(c) Permits. Zstar, Apex or Merger
Sub currently holds no environmental approvals,
permits, licenses, clearances and consents and none
are necessary for the conduct of Zstar's, Apex's or
Merger Sub's activities and businesses that are
currently being conducted.
3.19 Brokers' and Finders' Fees. Except as
set forth in Schedule 3.19, Zstar, Apex and/or
Merger Sub have not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any
transaction contemplated hereby.
3.20 Labor Matters. Zstar, Apex and Merger
Sub are in compliance in all material respects with
all currently applicable laws and regulations
respecting employment, discrimination in
employment, terms and conditions of employment
and wages and hours and occupational safety and
health and employment practices, and is not
engaged in any unfair labor practice. Neither Zstar,
Apex or Merger Sub has received any notice from
any Governmental Entity, and to the knowledge of
Zstar, Apex or Merger Sub, there has not been
asserted before any Governmental Entity, any
claim, action or proceeding to which Zstar, Apex or
Merger Sub is a party or involving Zstar, Apex or
Merger Sub, and there is neither pending nor, to the
knowledge of Zstar, Apex or Merger Sub,
threatened any investigation or hearing concerning
Zstar, Apex or Merger Sub arising out of or based
upon any such laws, regulations or practices. There
are no pending claims against Zstar, Apex or
Merger Sub under any workers compensation plan
or policy or for long term disability. Zstar, Apex
and Merger Sub have complied in all material
respects with all applicable provisions of the
Consolidated Omnibus Budget Reconciliation Act
of 1985 and have no obligations with respect to any
former employees or qualifying beneficiaries
thereunder. Schedule 3.20 lists all current
executives of Zstar, Apex and Merger Sub and their
current salary and vacation accruals.
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3.21 Insurance. Zstar, Apex and Merger Sub
will provide access to OnVantage to all insurance
policies and fidelity bonds covering the assets,
business, equipment, properties, operations,
software errors and omissions, employees, officers
and directors of Zstar, Apex and Merger Sub as
well as all claims made under any insurance policy
by Zstar, Apex or Merger Sub since June 17, 1998.
There is no claim by Zstar, Apex or Merger Sub
pending under any of such policies or bonds as to
which coverage has been questioned, denied or
disputed by the underwriters of such policies or
bonds. All premiums payable under all such policies
and bonds have been paid and Zstar, Apex and
Merger Sub are otherwise in compliance in all
material respects with the terms of such policies and
bonds (or other policies and bonds providing
substantially similar insurance coverage). Such
policies of insurance and bonds are of the type and
in amounts customarily carried by persons
conducting businesses similar to those of Zstar,
Apex and Merger Sub. Neither Zstar, Apex or
Merger Sub knows of any threatened termination of
or material premium increase with respect to any of
such policies. Neither Zstar, Apex or Merger Sub
has ever been denied insurance coverage nor has
any insurance policy of Zstar, Apex or Merger Sub
ever been canceled for any reason.
3.22 Compliance with Laws. Zstar, Apex and
Merger Sub have complied in all material respects
with, is not in violation in any material respect of,
and has not received any notices of violation with
respect to, any federal, state or local statute, law or
regulation with respect to the conduct of their
respective business, or the ownership or operation
of its business, assets or properties.
3.23 Complete Copies of Materials. Zstar,
Apex or Merger Sub have delivered or made
available true and complete copies of each
document (or summaries of same) which has been
requested by OnVantage or its counsel.
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3.24 Binding Agreements: No Default. Each
of the contracts, agreements and other instruments
shown on the Exhibits and Schedules referred to in
this Agreement to which Zstar, Apex or Merger Sub
is a party is a legal, binding, and enforceable
obligation by or against Zstar, Apex or Merger Sub
(assuming that such contracts, agreements and
instruments are binding on all other parties thereto;
Zstar, Apex or Merger Sub has no knowledge that
they are not) in accordance with its terms, and no
party with whom Zstar, Apex or Merger Sub has an
agreement or contract is, to Zstar's, Apex's or
Merger Sub's knowledge, in default thereunder or
has breached any material terms or provisions
thereof (subject to all applicable bankruptcy,
insolvency, reorganization and other laws
applicable to creditors' rights and remedies and to
the exercise of judicial discretion in accordance
with general principles of equity).
3.25 Proxy Statements. In the event a
shareholder meeting is required under Nevada or
Delaware Law, the information supplied by Zstar,
Apex or Merger Sub for inclusion in the proxy
statement to be sent to the stockholders of Zstar,
Apex or Merger Sub in connection with the meeting
of their respective stockholders to consider the
Merger and the other transactions contemplated
hereby (the "Zstar Stockholders' Meetings") (such
proxy statement as amended or supplemented is
referred to herein as the "Proxy Statement") shall
not, on the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first
mailed to Zstar, Apex and/or Merger Sub
stockholders, at the time of Zstar Stockholders'
Meetings and at the Effective Time, contain any
statement which, at such time and in light of the
circumstances under which it shall be made, is false
or misleading with respect to any material fact, or
shall omit to state any material fact necessary in
order to make the statements made therein not false
or misleading; or omit to state any material fact
necessary to correct any statement in any earlier
communication with respect to the solicitation of
proxies for Zstar Stockholders' Meetings which has
become false or misleading. If at any time prior to
the Effective Time any event relating to Zstar, Apex
or Merger Sub or any of its affiliates, officers or
directors should be discovered by Zstar, Apex or
Merger Sub which should be set forth in an
amendment or a supplement to the Proxy Statement,
Zstar, Apex or Merger Sub shall promptly inform
OnVantage. Notwithstanding the foregoing, Zstar,
Apex and Merger Sub make no representation or
warranty with respect to any information supplied
by OnVantage which is contained in any of the
foregoing documents.
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3.26 FIRPTA. Neither Zstar, Apex or
Merger Sub is, nor has not been at any time, a
"United States real property holding corporation"
within the meaning of Section 897(c)(2) of the
Code.
3.27 Employee Benefit Plans.
(a) Zstar, Apex and Merger Sub will
provide OnVantage access to all employee benefit
plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA") and all bonus, stock option,
stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other
similar fringe or employee benefit plans, programs
or arrangements, and any current or former
employment or executive compensation or
severance agreements, written or otherwise, for the
benefit of, or relating to, any employee of Zstar,
Apex or Merger Sub, any trade or business (whether
or not incorporated) which is a member or which is
under common control with Zstar, Apex or Merger
Sub (an "ERISA Affiliate") within the meaning of
Section 414 of the Code, or any subsidiary of Zstar,
Apex or Merger Sub (together, the "Employee
Plans").
(b) (I) None of the
Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any
person except as required by applicable law,
including but not limited to COBRA; (II) all
Employee Plans are in compliance in all material
respects with the requirements prescribed by any
and all applicable statutes (including ERISA and the
Code), orders, or governmental rules and
regulations currently in effect with respect thereto
(including all applicable requirements for
notification to participants or beneficiaries or the
Department of Labor, Internal Revenue Service (the
"IRS") or Secretary of the Treasury), and Zstar,
Apex and Merger Sub have performed in all
material respects all obligations required to be
performed by it under, is not in default under or
violation of, and has no knowledge of any default or
violation by any other party to, any of the Employee
Plans; (III) each Employee Plan intended to qualify
under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the
Code either has received a favorable determination
letter with respect to each such Employee Plan from
the IRS or still has a remaining period of time under
applicable Treasury Regulations or IRS
pronouncements in which to apply for such a
determination letter and to make any amendments
necessary to obtain a favorable determination; and
(IV) no Employee Plan is or within the prior six (6)
years has been subject to, and neither Zstar, Apex or
Merger Sub has incurred nor expect to incur any
liability under, Title IV of ERISA or Section 412 of
the Code and (V) nothing in any Employee Plan
precludes or interferes with OnVantage's ability to
cause Zstar, Apex or Merger Sub to terminate (or
consolidate, at OnVantage's option) any Employee
Plan after the Closing; provided that (i) the
Employee Plans may be terminated prospectively
only, subject to rights accrued by OnVantage's
employees at the time of such termination and (ii)
not more than sixty days notice may be required to
terminate certain Employee Plans.
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(iii) None of the following
now exists or has existed within the six-year period
ending on the date hereof with respect to any
Employee Plan: (I) any act or omission by Zstar,
Apex or Merger Sub constituting a violation of
Section 402, 403, 404 or 405 of ERISA; (II) any act
or omission by Zstar, Apex or Merger Sub which
constitutes a violation of Sections 406 and 407 of
ERISA and is not exempted by Section 408 of
ERISA or which constitutes a violation of Section
4975(c) of the Code and is not exempted by Section
4975(d) of the Code; (III) any act or omission by
Zstar, Apex or Merger Sub constituting a violation
of Section 503, 510 or 511 of ERISA; or (IV) any
act or omission by Zstar, Apex or Merger Sub
which could give rise to liability under Section 502
of ERISA or under Sections 4972 or 4975 through
4980 of the Code.
(iv) Each Employee Plan has
been maintained in substantial compliance with its
terms, and all contributions, premiums or other
payments due from Zstar, Apex or Merger Sub or
any of its subsidiaries to (or under) any such
Employee Plan have been fully paid or adequately
provided for on the audited Zstar Financial
Statements for the most recently-ended fiscal year.
All accruals thereon (including, where appropriate
proportional accruals for partial periods) have been
made in accordance with generally accepted
accounting principles consistently applied on a
reasonable basis. There has been no amendment,
written interpretation or announcement (whether or
not written) by Zstar, Apex or Merger Sub with
respect to, or change in employee participation or
coverage under, any Employee Plan that would
increase materially the expense of maintaining such
plans or arrangements, individually or in the
aggregate, above the level of expense incurred with
respect thereto for the most recently-ended fiscal
year.
(v) Zstar, Apex and Merger
Sub have made available to OnVantage complete,
accurate and current copies of all Employee Plans
and all amendments, documents, correspondence
and filings relating thereto, including but not
limited to any statements, filings, reports or returns
filed with any governmental agency with respect to
the Employee Plans at any time within the three-
year period ending on the date hereof.
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3.28 Representations Complete. None of the
representations or warranties made by Zstar, Apex
or Merger Sub, nor any statement made in any
Schedule, Exhibit or certificate furnished by Zstar,
Apex or Merger Sub pursuant to this Agreement,
when read in its entirety, contains or will contain
any untrue statement of a material fact at the
Effective Time, or omits or will omit to state any
material fact necessary in order to make the
statements contained herein or therein, in the light
of the circumstances under which made, not
misleading.
3.29 Ownership of OnVantage Common
Stock. As of the date of execution of this
Agreement, neither Zstar, Apex or Merger Sub
owns any shares of OnVantage Common Stock.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of OnVantage.
During the period from the date of this Agreement
and continuing until the earlier of the termination of
this Agreement or the Effective Time, OnVantage
agrees (except to the extent that Zstar shall
otherwise consent in writing), to carry on its
business in the usual, regular and ordinary course in
substantially the same manner as heretofore
conducted and, to the extent consistent with such
business, use all reasonable efforts consistent with
past practice and policies to preserve intact
OnVantage's present business organizations, keep
available the services of its present officers and key
employees and preserve their relationships with
customers, suppliers, distributors, licensors,
licensees, and others having business dealings with
it, to the end that OnVantage's goodwill and
ongoing businesses shall be unimpaired at the
Effective Time. OnVantage shall promptly notify
Zstar of any event or occurrence or emergency not,
in the reasonable judgment of OnVantage, in the
ordinary course of business of OnVantage, and any
event which could, in the reasonable judgment of
OnVantage, have a Material Adverse Effect on
OnVantage. Except as expressly contemplated by
this Agreement or set forth in Schedule 4.1,
OnVantage shall not, without the prior written
consent of Zstar (such consent not to be
unreasonably withheld):
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(a) Except pursuant to existing
contractual provisions of options outstanding on the
date hereof, accelerate, amend or change the period
of exercisability of options or restricted stock
granted under the employee stock plans of
OnVantage or authorize cash payments in exchange
for any options granted under any of such plans;
(b) Enter into any commitment or
transaction not in the ordinary course of business (i)
to be performed over a period longer than six (6)
months in duration, or (ii) to purchase fixed assets
for a purchase price in excess of $50,000;
(c) Grant any severance or
termination pay (i) to any director or (ii) to any
employee except (x) payments made pursuant to
standard written agreements outstanding on the date
hereof or (y) in the case of employees who are not
officers, grants which are made in the ordinary
course of business in accordance with OnVantage's
standard past practices;
(d) Except for licenses granted to
end-users pursuant to OnVantage's standard license
agreements, transfer to any person or entity any
rights to OnVantage's Intellectual Property;
(e) Enter into or amend any
agreements pursuant to which any other party is
granted exclusive marketing or other rights of any
type or scope with respect to any products of
OnVantage;
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(f) Violate, amend or otherwise
modify the terms of any of the contracts or
agreements required to be set forth in OnVantage
Schedules;
(g) Commence any litigation;
(h) Declare or pay any dividends on
or make any other distributions (whether in cash,
stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its
capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in
substitution for shares of capital stock of
OnVantage, or repurchase or otherwise acquire,
directly or indirectly, any shares of its capital stock
except from former employees, directors and
consultants in accordance with agreements
providing for the repurchase of shares at cost in
connection with any termination of service to
OnVantage;
(i) Issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, or
purchase or propose the purchase of, any shares of
its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire,
or other agreements or commitments of any
character obligating it to issue any such shares or
other convertible securities except for the issuance
of shares of capital stock upon exercise of options
outstanding on the date hereof;
(j) Cause or permit any amendments
to its Articles of Incorporation or Bylaws;
(k) Acquire or agree to acquire by
merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other
manner, any business or any corporation,
partnership, association or other business
organization or division thereof, or otherwise
acquire or agree to acquire any assets which are
material, individually or in the aggregate, to the
business of OnVantage;
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(l) Sell, lease, license or otherwise
dispose of any of its properties or assets which are
material, individually or in the aggregate, to the
business of OnVantage, except in the ordinary
course of business;
(m) Incur any indebtedness for
borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of
OnVantage or guarantee any debt securities of
others;
(n) Adopt or amend any employee
benefit plan, or enter into any employment contract,
pay any special bonus or special remuneration to
any director or employee, or increase the salaries or
wage rates of its employees;
(o) Revalue any of its assets,
including without limitation writing down the value
of inventory or writing off notes or accounts
receivable other than in the ordinary course of
business;
(p) Pay, discharge or satisfy in an
amount in excess of $50,000 in any one case any
claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities
reflected or reserved against in OnVantage
Financial Statements (or the notes thereto);
(q) Make or change any material
election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any
material Return or any amendment to a material
Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent
to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of
Taxes; or
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(r) Take, or agree in writing or otherwise to
take, any of the actions described in Sections 4.1(a)
through (q) above, or any action which would make
any of the representations or warranties or
covenants of OnVantage contained in this
Agreement materially untrue or incorrect.
4.2 No Solicitation. Prior to the Effective
Time, OnVantage will not (nor will OnVantage
permit any of OnVantage's officers, directors,
stockholders affiliated with any officer or director
or OnVantage's agents, representatives or affiliates
to) directly or indirectly, take any of the following
actions with any party other than Zstar and its
designees:
(a) solicit, encourage, initiate or
participate in any negotiations or discussions with
respect to, any offer or proposal to acquire all or
substantially all of OnVantage's business and
properties or capital stock whether by merger,
purchase of assets, tender offer or otherwise,
(b) except as required by law and
except for disclosures made to financial institutions
and others in the ordinary course of business,
disclose any information not customarily disclosed
to any person other than its attorneys or financial
advisors concerning OnVantage's business and
properties or afford to any person or entity access to
its properties, books or records, or
(c) assist or cooperate with any
person to make any proposal to purchase all or any
part of OnVantage's capital stock or assets, other
than licensing of software in the ordinary course of
business.
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In the event OnVantage shall receive any
offer or proposal, directly or indirectly, of the type
referred to in clause (a) or (c) above, or any request
for disclosure or access pursuant to clause (b)
above, such party shall immediately inform Zstar as
to any such offer or proposal and will cooperate
with Zstar by furnishing any information it may
reasonably request.
4.3 Conduct of Business of Zstar, Apex and
Merger Sub. During the period from the date of this
Agreement and continuing until the earlier of the
termination of this Agreement or the Effective
Time, Zstar, Apex and Merger Sub agree (except to
the extent that OnVantage shall otherwise consent
in writing), to carry on its business in the usual,
regular and ordinary course in substantially the
same manner as heretofore conducted and, to the
extent consistent with such business, use all
reasonable efforts consistent with past practice and
policies to preserve intact Zstar's, Apex's and
Merger Sub's present business organizations, keep
available the services of their present officers and
key employees and preserve their relationships with
customers, suppliers, distributors, licensors,
licensees, and others having business dealings with
it, to the end that Zstar's, Apex's and Merger Sub's
goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Zstar, Apex
and/or Merger Sub shall promptly notify
OnVantage of any event or occurrence or
emergency not, in the reasonable judgment of Zstar,
Apex and/or Merger Sub, in the ordinary course of
business of Zstar, Apex or Merger Sub, and any
event which could, in the reasonable judgment of
Zstar, Apex and/or Merger Sub, have a Material
Adverse Effect on Zstar, Apex or Merger Sub.
Except as expressly contemplated by this
Agreement or set forth in Schedule 4.1, Zstar, Apex
and/or Merger Sub shall not, without the prior
written consent of OnVantage:
(a) Except pursuant to existing
contractual provisions of options outstanding on the
date hereof, accelerate, amend or change the period
of exercisability of options or restricted stock
granted under the employee stock plans of Zstar,
Apex or Merger Sub or authorize cash payments in
exchange for any options granted under any of such
plans;
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(b) Enter into any commitment or
transaction not in the ordinary course of business (i)
to be performed over a period longer than six (6)
months in duration, or (ii) to purchase fixed assets
for a purchase price in excess of $5,000;
(c) Grant any severance or
termination pay (i) to any director or (ii) to any
employee except (x) payments made pursuant to
standard written agreements outstanding on the date
hereof or (y) in the case of employees who are not
officers, grants which are made in the ordinary
course of business in accordance with Zstar, Apex
or Merger Sub standard past practices;
(d) Except for licenses granted to
end-users pursuant to Zstar's, Apex's or Merger
Sub's standard license agreements, transfer to any
person or entity any rights to Zstar Intellectual
Property;
(e) Enter into or amend any
agreements pursuant to which any other party is
granted exclusive marketing or other rights of any
type or scope with respect to any products of Zstar,
Apex or Merger Sub;
(f) Violate, amend or otherwise
modify the terms of any of the contracts or
agreements required to be set forth in Zstar, Apex
or Merger Sub Schedules;
(g) Commence any litigation;
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(h) Declare or pay any dividends on
or make any other distributions (whether in cash,
stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its
capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in
substitution for shares of capital stock of Zstar,
Apex or Merger Sub, or repurchase or otherwise
acquire, directly or indirectly, any shares of its
capital stock except from former employees,
directors and consultants in accordance with
agreements providing for the repurchase of shares
at cost in connection with any termination of
service to Zstar, Apex or Merger Sub;
(i) Issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, or
purchase or propose the purchase of, any shares of
its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire,
or other agreements or commitments of any
character obligating it to issue any such shares or
other convertible securities except for the issuance
of shares of capital stock upon exercise of options
outstanding on the date hereof;
(j) Cause or permit any amendments
to its Articles of Incorporation or Bylaws;
(k) Acquire or agree to acquire by
merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other
manner, any business or any corporation,
partnership, association or other business
organization or division thereof, or otherwise
acquire or agree to acquire any assets which are
material, individually or in the aggregate, to the
business of Zstar, Apex or Merger Sub;
(l) Sell, lease, license or otherwise
dispose of any of its properties or assets which are
material, individually or in the aggregate, to the
business of Zstar, Apex or Merger Sub, except in
the ordinary course of business;
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(m) Incur any indebtedness for
borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of
Zstar, Apex or Merger Sub or guarantee any debt
securities of others;
(n) Adopt or amend any employee
benefit plan, or enter into any employment contract,
pay any special bonus or special remuneration to
any director or employee, or increase the salaries or
wage rates of its employees;
(o) Revalue any of its assets,
including without limitation writing down the value
of inventory or writing off notes or accounts
receivable other than in the ordinary course of
business;
(p) Pay, discharge or satisfy in an
amount in excess of $10,000 in any one case any
claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities
reflected or reserved against in Zstar Financial
Statements (or the notes thereto);
(q) Make or change any material
election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any
material Return or any amendment to a material
Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent
to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of
Taxes; or
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(r) Take, or agree in writing or otherwise to
take, any of the actions described in Sections 4.3(a)
through (q) above, or any action which would make
any of the representations or warranties or
covenants of Zstar, Apex or Merger Sub contained
in this Agreement materially untrue or incorrect.
4.4 No Solicitation. Prior to the Effective
Time, neither Zstar, Apex or Merger Sub will (nor
will Zstar, Apex or Merger Sub permit any of
Zstar's, Apex's or Merger Sub's officers, directors,
stockholders affiliated with any officer or director
or Zstar's, Apex's or Merger Sub's agents,
representatives or affiliates to) directly or indirectly,
take any of the following actions with any party
other than OnVantage and its designees:
(a) solicit, encourage, initiate or
participate in any negotiations or discussions with
respect to, any offer or proposal to acquire all or
substantially all of Zstar's, Apex's or Merger Sub's
business and properties or capital stock whether by
merger, purchase of assets, tender offer or
otherwise,
(b) except as required by law and
except for disclosures made to financial institutions
and others in the ordinary course of business,
disclose any information not customarily disclosed
to any person other than its attorneys or financial
advisors concerning Zstar's, Apex's or Merger
Sub's business and properties or afford to any
person or entity access to its properties, books or
records, or
(c) assist or cooperate with any
person to make any proposal to purchase all or any
part of Zstar's, Apex's or Merger Sub's capital
stock or assets, other than licensing of software in
the ordinary course of business.
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In the event Zstar, Apex or Merger Sub shall
receive any offer or proposal, directly or indirectly,
of the type referred to in clause (a) or (c) above, or
any request for disclosure or access pursuant to
clause (b) above, such party shall immediately
inform OnVantage as to any such offer or proposal
and will cooperate with OnVantage by furnishing
any information it may reasonably request.
ARTICLE V
ADDITIONAL AGREEMENTS
Zstar and OnVantage shall make all necessary
filings with respect to the Merger under the
Securities Act and the Exchange Act and the
rules and regulations thereunder, under applicable
Blue Sky or similar securities laws, rules and
regulations and shall use all reasonable efforts
required approvals and clearances with respect
thereto.
5.2 Information Statement. Zstar shall
promptly after the date hereof take all action
necessary in accordance with SEC and Nevada Law
and its Articles of Incorporation and Bylaws to
secure Zstar's Shareholders' consent. In connection
with the Zstar Shareholders' consent, Zstar shall
prepare and deliver to its shareholders an
Information Statement. The Information Statement
shall be subject to OnVantage's approval, which
shall not be unreasonably withheld, and shall
include the unanimous recommendation of the
Board of Directors of Zstar in favor of (i) the
Merger (ii) the increase in the number of authorized
Common Stock shares of Zstar to 100,000,000, (iii)
the sale of Apex, at the board's discretion (iv) the
adoption of a Zstar Stock Option Plan, (v) the
authorization of an undesignated class of preferred
stock, (vi) the redomestication of Zstar as a
Delaware corporation, at the board's discretion,
(vii) the name change from Zstar to "OnVantage,
Inc.". Zstar shall also provide information on the
Private Placement Offering of 625,000 Units for
$3,750,000 (each Unit consisting of a share of stock
and a warrant, such warrant having a mandatory
conversion upon certain conditions) and the other
transactions contemplated hereby, which
recommendation shall not be changed.
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5.3 Access to Information. Each party shall
afford the other parties and their accountants,
counsel and other representatives, reasonable access
during normal business hours during the period
prior to the Effective Time to (a) all of its
properties, books, contracts, commitments and
records, and (b) all other information concerning
the business, properties and personnel as such party
may reasonably request. Each party agrees to
provide to the other party and its accountants,
counsel and other representatives copies of internal
financial statements promptly upon request. No
information or knowledge obtained in any
investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or
warranty contained herein or the conditions to the
obligations of the parties to consummate the
Merger.
5.4 Confidentiality. From the date hereof to
and including the Effective Time, the parties hereto
shall maintain, and cause their directors, employees,
agents and advisors to maintain, in confidence and
not disclose or use for any purpose, except the
evaluation of the transactions contemplated hereby
and the accuracy of the respective representations
and warranties of the parties hereto contained
herein, information concerning the other parties
hereto and obtained directly or indirectly from such
parties, or their directors, employees, agents or
advisors, except such information as is or becomes
(a) available to the non-disclosing party from third
parties not subject to an undertaking of
confidentiality or secrecy; (b) generally available to
the public other than as a result of a breach by the
non-disclosing party hereunder; or (c) required to be
disclosed under applicable law; and except such
information as was in the possession of such party
prior to obtaining such information from such other
party as to which the fact of prior possession such
possessing party shall have the burden of proof. In
the event that the transactions contemplated hereby
shall not be consummated, all such information
which shall be in writing shall be returned to the
party furnishing the same, including to the extent
reasonably practicable, copies or reproductions
thereof which may have been prepared.
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5.5 Expenses. Whether or not the Merger is
consummated, all expenses incurred in connection
with the Merger and this Agreement ("Expenses")
shall be the obligation of the party incurring such
expenses except that extra-ordinary out-of-pocket
expenses incurred by any party at another party's
request in furtherance of such requesting party's
due diligence efforts shall be borne by the
requesting party. If the Merger shall be
consummated, Zstar shall only be responsible for all
Expenses incurred by any party.
5.6 Public Disclosure. Unless otherwise
required by law, prior to the Effective Time no
disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement shall be
made by any party hereto unless approved by Zstar
and OnVantage prior to release, provided that such
approval shall not be unnecessarily withheld,
subject, in the case of Zstar, to Zstar's obligation to
comply with applicable securities laws.
5.7 Consents. Each of Zstar and OnVantage
shall promptly apply for or otherwise seek, and use
its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation
of the Merger, and each party shall use its best
efforts to obtain all consents, waivers and approvals
under any agreements, contracts, licenses or leases
in order to preserve the benefits thereunder ; all of
such consents and approvals are set forth in
Schedule 5.7.
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5.8 Affiliate Agreements. Each party shall
provide information and documents as the other
party shall reasonably request for purposes of
reviewing a list of "affiliates" of OnVantage or
Zstar within the meaning of Rule 145 (each such
person an "Affiliate") promulgated under the
Securities Act ("Rule 145"). Each party shall use its
best efforts to deliver or cause to be delivered to the
other party, concurrently with the execution of this
Agreement (and in any case prior to the Effective
Time) from each of the Affiliates of such party, an
executed Affiliate Agreement in the form attached
hereto as Exhibit 5.8. Zstar shall be entitled to place
appropriate legends on the certificates evidencing
any Zstar Common Stock to be received by such
Affiliates pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to
the transfer agent for Zstar Common Stock,
consistent with the terms of such Affiliate
Agreements.
5.9 Legal Requirements. Each of Zstar,
Apex, Merger Sub and OnVantage will take all
reasonable actions necessary to comply promptly
with all legal requirements which may be imposed
on them with respect to the consummation of the
transactions contemplated by this Agreement and
will promptly cooperate with and furnish
information to any party hereto in connection with
any such requirements imposed upon such other
party in connection with the consummation of the
transactions contemplated by this Agreement and
will take all reasonable actions necessary to obtain
(and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or
authorization of, or any registration, declaration or
filing with, any Governmental Entity or other
person, required to be obtained or made in
connection with the taking of any action
contemplated by this Agreement. The foregoing
obligations shall not be construed to require any
party to pay money or other consideration to
stockholders of any party to undue influence such
stockholders to vote in favor of the Merger and the
transactions contemplated hereby.
5.10 Blue Sky Laws. Zstar shall take such
steps as may be necessary to comply with the
securities and blue sky laws of all jurisdictions
which are applicable to the issuance of Zstar
Common Stock pursuant hereto. OnVantage shall
use its best efforts to assist Zstar as may be
necessary to comply with the securities and blue sky
laws of all jurisdictions which are applicable in
connection with the issuance of Zstar Common
Stock pursuant hereto.
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5.11 Best Efforts: Additional Documents and
Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the
transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the request of
another party hereto, shall execute and deliver such
other instruments and do and perform such other
acts and things as may be reasonably necessary or
desirable for effecting completely the
consummation of this Agreement and the
transactions contemplated hereby.
5.12 Stock Options
(a) At the Effective Time, each
outstanding option to purchase shares of OnVantage
Common Stock (each a "OnVantage Option")
whether or not under the OnVantage Stock Plan,
whether vested or unvested, shall be, in connection
with the Merger, assumed by Zstar. Each
OnVantage Option so assumed by Zstar under this
Agreement shall continue to have, and be subject to,
the same terms and conditions set forth in
OnVantage Stock Plan and as provided in the
respective option agreements immediately prior to
the Effective Time, except that (i) such OnVantage
Option shall be exercisable only for that number of
whole shares of Zstar Common Stock equal to the
product of the number of shares of OnVantage
Common Stock that were issuable upon exercise of
such OnVantage Option immediately prior to the
Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of
shares of Zstar Common Stock, and (ii) the per
share exercise price for the shares of Zstar Common
Stock issuable upon exercise of such assumed
OnVantage Option shall be equal to the quotient
determined by dividing the exercise price per share
of OnVantage Common Stock at which such OnVantage
Incentive Option was exercisable immediately prior
to the Effective Time by the Exchange Ratio, rounded
up to the nearest whole cent, all in accordance with
the rules of Section 424(a) of the Code, and the
regulations promulgated thereunder, and such rules
shall apply even with respect to options that are
not "incentive stock options" (within the meaning of
Section 424 of the Code) and any further contingent
rights to acquire equity securities of OnVantage
shall continue to be rights to acquire equity
securities of OnVantage or the Surviving Corporation,
but not Zstar.
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(b) It is the intention of the parties
that OnVantage Incentive Options assumed by Zstar
qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code
to the extent OnVantage Incentive Options qualified
as incentive stock options immediately prior to the
Effective Time.
5.13 Form S-8. Zstar will file a registration
statement on Form S-8 for the Zstar Stock Plan and
the outstanding OnVantage Common Stock Options
(that are eligible for registration on Form S-8) prior
to the Closing.
5.14 Credit for Time Employed. For
purposes of determining the eligibility of any
OnVantage employee to receive benefits under any
Zstar employee benefit plan, or for determining the
amount or scope of any such benefit for which a
OnVantage employee is eligible, the time such
employee was employed by OnVantage shall be
credited to such employee as if such employee had
been employed by Zstar for such period; provided,
however, that for purposes of Zstar's sabbatical
program, no such credit shall be given. In addition,
Zstar shall credit OnVantage employees with all
vacation accrued as of the Closing Date.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party
to Effect the Merger. The respective obligations of
each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) Stockholder Approval. This
Agreement and the Merger and other transactions
contemplated hereby (including without limitation
any Employment Agreements) shall have been
approved and adopted by the requisite vote of the
stockholders of Zstar and/or OnVantage.
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(b) No Injunctions or Restraints:
Illegality. No temporary restraining order,
preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative
agency or commission or other governmental
authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; nor shall
there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the
consummation of the Merger illegal.
6.2 Additional Conditions to Obligations of
OnVantage. The obligations of OnVantage to
consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may
be waived, in writing, exclusively by OnVantage:
(a) Representations, Warranties and
Covenants. The representations and warranties of
Zstar, Apex and Merger Sub in this Agreement shall
be true and correct in all material respects on and as
of the Effective Time as though such
representations and warranties were made on and as
of such time and Zstar, Apex and Merger Sub shall
have performed and complied in all material
respects with all covenants, obligations and
conditions of this Agreement required to be
performed and complied with by it as of the
Effective Time.
(b) Certificate of Zstar. OnVantage
shall have been provided with a certificate executed
on behalf of Zstar, Apex and Merger Sub by their
respective Presidents and Chief Financial Officers
or Treasurers to the effect that, as of the Effective
Time:
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(i) all representations and
warranties made by Zstar, Apex and Merger Sub
under this Agreement are true and complete in all
material respects; and
(ii) all covenants, obligations
and conditions of this Agreement to be performed
by Zstar, Apex and Merger Sub on or before such
date have been so performed in all material
respects.
(c) Satisfactory Form of Legal
Matters. The form, scope and substance of all legal
matters and accountants contemplated hereby and
all closing documents and other papers delivered
hereunder shall be reasonably acceptable to counsel
to OnVantage.
(d) Legal Opinion. OnVantage shall
have received a legal opinion from Mound, Cotton
and Wollan, counsel to Zstar, substantially in the
form of Exhibit 6.2 hereto.
(e) No Material Adverse Changes.
There shall not have occurred any event, fact or
condition that has had or reasonably would be
expected to have a Material Adverse Effect on
Zstar, Apex or Merger Sub.
(f) Zstar shareholders have approved
the Merger, such approval in compliance with all
State and Federal laws;
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(g) Zstar shareholders have approved
the increase in the number of authorized Common
Stock shares of Zstar to 100,000,000, such approval
in compliance with all State and Federal laws, and
said increase has been made effective;
(h) Zstar shareholders have approved
the sale of Apex, at the board's discretion, such
approval in compliance with all State and Federal
laws, and at OnVantage's option, said spin-off has
occurred;
(i) Zstar shareholders have approved
the adoption of a Zstar Stock Plan, such approval in
compliance with all State and Federal laws and said
Stock Plan has been made effective;
(j) Zstar shareholders have approved
the authorization of an undesignated class of
preferred stock, such approval in compliance with
all State and Federal laws, and said class of stock
has been made effective;
(k) Zstar shareholders have approved
the redomestication of Zstar as a Delaware
corporation, such approval is in compliance with all
State and Federal laws, and at OnVantage's
discretion, said redomestication has been made
effective;
(l) Zstar shareholders have approved
the name change from Zstar to "OnVantage, Inc.",
such approval in compliance with all State and
Federal laws, and said name change has been made
effective;,
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(m) Zstar has successfully made a
fully subscribed Private Placement Offering on the
terms stated in its Schedule 14C "Information
Statement" to Zstar shareholders and in compliance
with all State and Federal laws.;
(n) Zstar has filed a registration
statement on Form S-8 for the Zstar Stock Plan and
the outstanding OnVantage Common Stock Options
(that are eligible for registration on Form S-8) prior
to the Closing.
6.3 Additional Conditions to the Obligations
of Zstar, Apex and Merger Sub. The obligations of
Zstar, Apex and Merger Sub to consummate and
effect this Agreement and the transactions
contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be
waived, in writing, exclusively by Zstar:
(a) Representations, Warranties and
Covenants. The representations and warranties of
OnVantage in this Agreement shall be true and
correct in all material respects on and as of the
Effective Time as though such representations and
warranties were made on and as of such time and
OnVantage shall have performed and complied in
all material respects with all covenants, obligations
and conditions of this Agreement required to be
performed and complied with by it as of the
Effective Time. To the extent that, prior to the
Effective Time, OnVantage delivers to Zstar in
accordance with Section 9.1 a written statement (i)
advising Zstar that an event (a "Post-Execution
Event") has occurred (specifying in reasonable
detail such event) subsequent to the date of
execution of this Agreement that would render any
representation or warranty made by OnVantage in
this Agreement untrue if such representation or
warranty were made as of the Effective Time and
(ii) confirming that such representation or warranty
was true as of the date of execution of this
Agreement, and Zstar shall subsequently waive the
failure to satisfy the condition set forth in Section
6.3(a) with respect to such representation or
warranty, Zstar shall have no remedy in respect of
such untrue representation or warranty.
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(b) Certificate of OnVantage. Zstar
shall have been provided with a certificate executed
on behalf of OnVantage by its President and Chief
Financial Officer to the effect that, as of the
Effective Time:
(i) all representations and
warranties made by OnVantage under this
Agreement are true and complete in all material
respects; and
(ii) all covenants, obligations
and conditions of this Agreement to be performed
by OnVantage on or before such date have been so
performed in all material respects.
(c) Third Party Consents. Any and all
consents, waivers and approvals required from third
parties relating to the contracts and agreements of
OnVantage so that the Merger and other
transactions contemplated hereby do not adversely
affect the rights of, and benefits to, OnVantage
thereunder shall have been obtained.
(d) Satisfactory Form of Legal and
Accounting Matters. The form, scope and substance
of all legal and accounting matters contemplated
hereby and all closing documents and other papers
delivered hereunder shall be reasonably acceptable
to Zstar's counsel.
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(e) Legal Opinion. Zstar shall have
received a legal opinion from Landrum & Company
or Pillsbury Madison Sutro, legal counsel to
OnVantage, in substantially the form of Exhibit
6.3(e) hereto.
(f) No Material Adverse Changes.
There shall not have occurred any event, fact or
condition which has had or reasonably would be
expected to have a Material Adverse Effect on
OnVantage.
(g) Affiliate Agreement. Zstar shall
have received from each of the Affiliates of
OnVantage an executed Affiliate Agreement which
shall be in full force and effect.
(h) Dissenters. The number of shares
of OnVantage Common Stock held by holders who
either (i) have exercised appraisal rights or (ii)
retain the ability to exercise such appraisal rights
shall not exceed three percent (3%) of the
outstanding OnVantage Common Stock.
(i) Employment Agreements. The
Employment Agreements shall have been duly
executed and delivered and shall be in full force and
effect.
(j) Section Intentionally Deleted.
(k) Board Approval. The Board of
Directors of Zstar shall have approved the Merger
and the terms of this Agreement.
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(m) Proprietary Information
Agreement. Each current employee at OnVantage
shall have executed a proprietary information
agreement in the form attached hereto as Exhibit
6.3(n).
(n) Accredited Investors. As of the
Effective Time, there shall be no more than thirty-
five (35) stockholders who are not "accredited
investors," as that term is defined in Regulation D
promulgated under the Securities Act.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1 Survival of Representations and
Warranties. All covenants to be performed prior to
the Effective Time, and all representations and
warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall
terminate at Closing, except for representations and
warranties related to share ownership and share
transfers shall survive the Merger. All covenants to
be performed after the Effective Time shall
continue indefinitely.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be
terminated and the Merger abandoned at any time
prior to the Effective Time:
(a) by mutual consent of OnVantage
and Zstar;
(b) by Zstar if Zstar, Apex and
Merger Sub are not in material breach of their
obligations under this Agreement and there has
been a material breach of any representation,
warranty, covenant or agreement contained in this
Agreement on the part of OnVantage and such
breach has not been cured within fifteen (15) days
after notice to OnVantage.
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(c) by OnVantage if it is not in
material breach of its obligations under this
Agreement and there has been a material breach of
any representation, warranty, covenant or
agreement contained in this Agreement on the part
of Zstar, Apex or Merger Sub and such breach has
not been cured within 15 days after notice to Zstar;
(d) by any party hereto if: (i) the
Closing has not occurred by August 15, 2000; (ii)
there shall be a final nonappealable order of a
federal or state court in effect preventing
consummation of the Merger; (iii) there shall be any
action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental
Entity which would make consummation of the
Merger illegal; or (iv) there shall be any action
taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental
Entity, which would (A) prohibit Zstar's or
OnVantage's ownership or operation of all or a
material portion of the business of OnVantage or
Zstar, or compel Zstar or OnVantage to dispose of
or hold separate all or a material portion of the
business or assets of OnVantage or Zstar as a result
of the Merger or (B) render Zstar, Apex, Merger
Sub or OnVantage unable to consummate the
Merger, except for any waiting period provisions.
Where action is taken to terminate this
Agreement pursuant to this Section 8.1, it shall be
sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party
taking such action.
104
8.2 Effect of Termination. In the event of
termination of this Agreement as provided in
Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on
the part of Zstar, Apex, Merger Sub or OnVantage
or their respective officers, directors or
stockholders, except if such termination results
from the breach by a party hereto of any of its
representations, warranties, covenants or
agreements set forth in this Agreement (it being
understood that termination of this Agreement
because of failure of OnVantage to satisfy the
condition set forth in Section 6.3(a) as a result of
the occurrence of a Post-Execution Event shall not
be deemed to be a termination resulting from such
a breach of representation or warranty.)
8.3 Amendment. This Agreement may be
amended by the parties hereto at any time before or
after approval of matters presented in connection
with the Merger by the stockholders of those parties
required by applicable law to so approve but, after
any such stockholder approval, no amendment shall
be made which by law requires the further approval
of stockholders of a party without obtaining such
further approval. This Agreement may not be
amended except by an instrument in writing signed
on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior
to the Effective Time any party hereto may, to the
extent legally allowed, (i) extend the time for the
performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties
made to such party contained herein or in any
document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or
conditions for the benefit of such party contained
herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing
signed on behalf of such party. Waiver of any
term or provision of this Agreement, or
forbearance to enforce any term, provision or
breach thereof, shall not constitute a waiver as to
any subsequent breach or failure of the same term
or provision or a waiver of any other term or
provision.
105
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other
communications hereunder shall be in writing and
shall be deemed given if delivered personally or by
commercial delivery service, or mailed by
registered or certified mail (return receipt
requested) or sent via telecopy to the parties at the
following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to Zstar or Merger Sub, to:
Zstar Enterprises, Inc. ____________ ____________
Attention: ________ Phone: ________ Fax: ________
with a copy at the same address to the attention of
the General Counsel and with a copy to:
MOUND, COTTON & WOLLAN
Attention: ALBERT PINZON, ESQ.
Phone: (212) 804-4207, Fax: ________
(b) if to OnVantage, to:
OnVantage, Inc.
333 West Santa Clara Street, Suite 1000
San Jose, California 95113
with copies to:
OnVantage Counsel
LANDRUM & COMPANY
Attention: JAY LANDRUM, ESQ.,
Phone: 408-278-1600, Fax: 408-278-8608
and
PILLSBURY MADISON & SUTRO
Attention: RICHARD BEBB, ESQ.,
Phone: 650-233-4780, Fax: 650-233-4545
106
9.2 Interpretation. When a reference is made
in this Agreement to Schedules or Exhibits, such
reference shall be to a Schedule or Exhibit to this
Agreement unless otherwise indicated. The words
"include," "includes" and "including" when used
herein shall be deemed in each case to be followed
by the words "without limitation." The table of
contents and headings contained in this Agreement
are for reference purposes only and shall not affect
in any way the meaning or interpretation of this
Agreement.
9.3 Counterparts. This Agreement may be
executed in one or more counterparts, all of which
shall be considered one and the same agreement and
shall become effective when one or more
counterparts have been signed by each of the parties
and delivered to the other party, it being understood
that all parties need not sign the same counterpart.
9.4 Miscellaneous. This Agreement and the
documents and instruments and other agreements
among the parties hereto (a) constitute the entire
agreement among the parties with respect to the
subject matter hereof and supersede all prior
agreements and understandings, both written and
oral, among the parties with respect to the subject
matter hereof; (b) are not intended to confer upon
any other person any rights or remedies hereunder;
and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.
9.5 Governing Law. This Agreement shall be
governed in all respects, including validity,
interpretation and effect, by the laws of the State of
California . All parties hereto agree to submit to the
jurisdiction of the federal and state courts of the
State of California, agree to the venue of Santa
Clara County, California and further agree that
service of documents commencing any suit therein
may be made as provided in Section 9.1.
107
9.6 Attorneys' Fees. If any party to this
Agreement brings an action against another party to
this Agreement to enforce its rights under this
Agreement, the prevailing party shall be entitled to
recover its reasonable costs and expenses, including
reasonable attorneys' fees and costs, incurred in
connection with such action, including any appeal
of such action.
9.7 Arbitration. Except as otherwise
provided in Article VII, any controversy or claim
arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration in
Santa Clara County, California in accordance with
the rules of the American Arbitration Association,
and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having
jurisdiction thereof.
9.8 Rules of Construction. The parties
hereto agree that they have been represented by
counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of
any law, regulation, holding or rule of construction
providing that ambiguities in an agreement or other
document will be construed against the party
drafting such agreement or document.
IN WITNESS WHEREOF, Zstar, Apex,
Merger Sub, and OnVantage have caused this
Agreement to be signed by themselves or their duly
authorized respective officers, all as of the date first
written above.
108
ZSTAR ENTERPRISES, INC.
By:______________________________
Its:
APEX CANADIAN HOLIDAYS, LTD.
By:______________________________
Its:
ZSTAR SUBSIDIARY, INC.
By:______________________________
Its:
ONVANTAGE, INC.
By:____________
Its:
109
FIRST AMENDMENT TO
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
BY AND AMONG
ZSTAR ENTERPRISES, INC., ZSTAR SUBSIDIARY, INC.,
APEX CANADIAN HOLIDAYS, LTD., AND ONVANTAGE, INC.
This FIRST AMENDMENT TO AGREEMENT OF MERGER AND
PLAN OF REORGANIZATION (the "Amendment") is made
and entered into as of June 8, 2000 among Zstar
Enterprises, Inc., a Nevada corporation ("Zstar"),
Apex Canadian Holidays, Ltd., a British Columbia,
Canada corporation and wholly-owned subsidiary
of Zstar ("Apex"), Zstar Subsidiary, Inc., a
Delaware Corporation and a wholly-owned subsidiary
of Zstar ("Merger Sub"), and OnVantage, Inc., a
Delaware Corporation ("OnVantage").
RECITALS
WHEREAS, an AGREEMENT OF MERGER AND PLAN OF
REORGANIZATION (the "Agreement") was made and entered
into as of May 26, 2000 among Zstar, Apex, Merger Sub,
and OnVantage
WHEREAS, OnVantage, Zstar, Apex and
Merger Sub desire to modify certain Conditions to
the Merger set forth in the Agreement.
NOW, THEREFORE, in consideration of
the covenants, promises and representations set
forth herein, and for other good and valuable
consideration, the parties agree as follows:
1. Article VI, Section 6.2(d) ("Legal Opinion")
shall be deleted in its entirety.
2. Article VI, Section 6.3(e) ("Legal Opinion")
shall be deleted in its entirety.
IN WITNESS WHEREOF, Zstar, Apex, Merger Sub, and
OnVantage have caused this Agreement to be signed by
themselves or their duly authorized respective officers,
all as of the date first written above.
110
ZSTAR ENTERPRISES, INC.
By:______________________________
Its:
APEX CANADIAN HOLIDAYS, LTD.
By:______________________________
Its:
ZSTAR SUBSIDIARY, INC.
By:______________________________
Its:
ONVANTAGE, INC.
By:____________
Its:
SUBSIDIARY STOCK PURCHASE AGREEMENT
AMONG
ZSTAR ENTERPRISES, INC.
AND
APEX CANADIAN HOLIDAYS, LTD.
AND
MS. HALIUN HONGORZUL
JUNE ________, 2000
This Agreement is entered into on June
_________, 2000, by and among Ms. Haliun
Hongorzul, (the ABuyer@), and Zstar Enterprises, Inc.,
a Nevada Corporation (the ASeller@). The Buyer and
the Sellers are referred to collectively herein as the
"Parties."
111
The Seller owns all of the outstanding capital
stock of Apex Canadian Holidays, Ltd., a wholly-
owned subsidiary of the Seller incorporated under the
laws of the Province of British Columbia (the
"Target").
This Agreement contemplates a transaction in
which the Buyer will purchase from the Seller, and
the Seller will sell to the Buyer, all of the outstanding
capital stock of the Target in return for the
cancellation of a promissory note issued by the Seller
and held by the Buyer.
Now, therefore, in consideration of the
premises and the mutual promises herein made, and in
consideration of the representations, warranties, and
covenants herein contained, the Parties agree as
follows.
1. Purchase and Sale of Target Shares.
(a) Basic Transaction. On and subject to the
terms and conditions of this Agreement, the Buyer
agrees to purchase from each of the Seller, and the
Seller agrees to sell to the Buyer, all of its Target
Shares for the consideration specified below in #1(b).
(b) Consideration. The Buyer agrees to pay to
the Seller at the Closing Date $_________________
(the APurchase Price@) by delivery and cancellation of
the Promissory Note attached as Exhibit A hereto in
the aggregate principal amount of
$_______________, [exact sum of Promissory Note],
originally issued by the Seller and held by the Buyer.
112
(c) Additional Consideration to the Buyer. As
part of the consideration given to the Buyer for the
cancellation of the Promissory Note, the Seller will
pay the Buyer $__________________, which
constitutes the remaining sum in the Seller's corporate
account at the Closing Date of this Agreement. See
#1(d) for a definition of the Closing Date
(d) The Closing. The closing of the
transaction contemplated by this Agreement (the
AClosing@) shall take place at the offices of
__________________________, on June ___, 2000
(the "Closing Date")
(e) Deliveries at the Closing. At the Closing,
(i) the Seller will deliver to the Buyer the various
certificates, instruments, and documents referred to in
#6(a) below, (ii) the Buyer will deliver to the Seller
the various certificates, instruments, and documents
referred to in #6(b) below, (iii) each of the Seller will
deliver to the Buyer stock certificates representing all
of his or its Target Shares, endorsed in blank or
accompanied by duly executed assignment
documents, and (iv) the Buyer will deliver to each of
the Seller the consideration specified in #1(b) above.
2. Representations and Warranties Concerning
the Transaction.
(a) Representations and Warranties of the
Seller. The Seller represents and warrants to the
Buyer that the statements contained in this #2(a) are
correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing
Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement
throughout this #2(a)) with respect to himself or itself,
except as set forth in Annex I attached hereto.
113
(i) Organization of Seller. The Seller
is a corporation, duly organized, validly existing, and
in good standing under the laws of the State of
Nevada.
(ii) Authorization of Transaction. The
Seller has full power and authority (including full
corporate power and authority) to execute and deliver
this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and
legally binding obligation of the Seller, enforceable in
accordance with its terms and conditions. The Seller
need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any
government or governmental agency in order to
consummate the transactions contemplated by this
Agreement.
(iii) Target Shares. The Seller holds
of record and owns beneficially the number of Target
Shares set forth next to its name, free and clear of any
restrictions on transfer (other than any restrictions
under the Securities Act and state securities laws),
taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and
demands. The Seller is not a party to any option,
warrant, purchase right, or other contract or
commitment that could require the Seller to sell,
transfer, or otherwise dispose of any capital stock of
the Target (other than this Agreement). The Seller is
not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting
of any capital stock of the Target.
114
(b) Representations and Warranties of the
Buyer. The Buyer represents and warrants to the
Seller that the statements contained in this #2(b) are
correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing
Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement
throughout this #2(b)), except as set forth in Annex II
attached hereto.
(i) Organization of the Buyer.
(ii) Authorization of Transaction. The
Buyer has full power and authority to execute and
deliver this Agreement and to perform her obligations
hereunder. This Agreement constitutes the valid and
legally binding obligation of the Buyer, enforceable in
accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any
government or governmental agency in order to
consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the
execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated
hereby, will [(A)] violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is
subject or any provision of its charter or bylaws [or
(B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which
it is bound or to which any of its assets is subject].
115
(iv) Brokers' Fees. [The Buyer has no
liability or obligation to pay any fees or commissions
to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for
which any Seller could become liable or obligated.]
(v) Investment. The Buyer is not
acquiring the Target Shares with a view to or for the
sale in connection with any distribution thereof within
the meaning of the Securities Act of 1933 or the
Securities Exchange Act of 1934. The Buyer (A)
understands that the Target Shares have not been, and
will not be, registered under the Securities Act of
1933, or under any state securities laws and are being
offered and sold in reliance upon federal and state
exemptions for transactions not involving any public
offering; (B) is acquiring the Target Shares for her
own account for investment purposes only; (C) is a
sophisticated investor with knowledge and experience
in business and financial matters; (D) has received
certain information concerning the Seller and has had
the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks
inherent in holding the Target Shares; (E) is able to
bear the economic risk and lack of liquidity inherent
in holding the Target Shares; and (F) is an Accredited
Investor.
3. Representations and Warranties Concerning
the Target.
The Seller represent and warrant to the Buyer
that the statements contained in this #3 are correct and
complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as
though made then and as though the Closing Date
were substituted for the date of this Agreement
throughout this #3, except as set forth in the
disclosure schedule delivered by the Seller to the
Buyer on the date hereof and initialed by the Parties
(the Disclosure Schedule). The Disclosure Schedule
will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this
#3.
116
(a) Organization, Qualification, and
Corporate Power. The Target is a corporation duly
organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation.
The Target is duly authorized to conduct business and
is in good standing under the laws of each jurisdiction
where such qualification is required, except where the
lack of such qualification would not have a material
adverse effect on the business, financial condition,
operations, results of operations, or future prospects of
the Target. The Target has full corporate power and
authority to carry on the businesses in which it is
engaged and to own and use the properties owned and
used by it. #3(a) of the Disclosure Schedule lists the
directors and officers of Target.
(b) Subsidiaries. The Target has no
subsidiaries unless provided in #3(f) of the Disclosure
Schedule. Any representations and warranties
applicable to the Target are equally applicable to any
Subsidiaries of the Target. #3(f) sets forth for each
Subsidiary of the Target (i) its name and jurisdiction
of incorporation, (ii) the number of shares of
authorized capital stock of each class of its capital
stock, (iii) the number of issued and outstanding
shares of each class of its capital stock, the names of
the holders thereof, and the number of shares held by
each such holder, and (iv) the number of shares of its
capital stock held in treasury.
4. Pre-Closing Covenants.
The Parties agree as follows with respect to
the period between the execution of this Agreement
and the Closing.
(a) General. Each of the Parties will use his or
its reasonable best efforts to take all action and to do
all things necessary [, proper, or advisable] in order to
consummate and make effective the transactions
contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions
set forth in #6 below).
117
(b) Notices and Consents. The Seller will
cause the Target to give any notices to third parties,
and will cause the Target to use its reasonable best
efforts to obtain any third party consents, that the
Buyer reasonably may request in connection with the
matters referred to in #3(c) above. Each of the Parties
will (and the Seller will cause the Target to) give any
notices to, make any filings with, and use its
reasonable best efforts to obtain any authorizations,
consents, and approvals of governments and
governmental agencies in connection with the matters
referred to in #2(a)(ii), #2(b)(ii), and #3(c) above.
Without limiting the generality of the foregoing, each
of the Parties will file (and the Seller will cause the
Target to file) any Notification and Report Forms and
related material that he or it may be required to file
with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice
under the Hart-Scott-Rodino Act, will use his or its
reasonable best efforts to obtain (and the Seller will
cause the Target to use its reasonable best efforts to
obtain) a waiver from the applicable waiting period,
and will make (and the Seller will cause the Target to
make) any further filings pursuant thereto that may be
necessary [, proper, or advisable] in connection
therewith.
(c) Operation of Business. The Seller will not
cause or permit the Target to engage in any practice,
take any action, or enter into any transaction outside
the Ordinary Course of Business. Without limiting
the generality of the foregoing, the Seller will not
cause or permit the Target to (i) declare, set aside, or
pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock, (ii)
_____________, or (iii) otherwise engage in any
practice, take any action, or enter into any transaction
of the sort described in #3(h) above.
118
(d) Preservation of Business. The Seller will
cause the Target to keep its business and properties
substantially intact, including its present operations,
physical facilities, working conditions, and
relationships with lessors, licensors, suppliers,
customers, and employees.
(e) Full Access. The Seller will permit, and the
Seller will cause the Target to permit, representatives
of the Buyer to have full access at all reasonable
times, and in a manner so as not to interfere with the
normal business operations of the Target to all
premises, properties, personnel, books, records
(including tax records), contracts, and documents of
or pertaining of the Target. The Buyer will treat and
hold as such any Confidential Information it receives
from the Seller, the Target, in the course of the
reviews contemplated by this #4(e), will not use any
of the Confidential Information except in connection
with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, will return to
the Seller, and the Target all tangible embodiments
(and all copies) of the Confidential Information which
are in its possession.
(f) Notice of Developments. The Seller will
give prompt written notice to the Buyer of any
material adverse development causing a breach of any
of the representations and warranties in #3 above.
Each Party will give prompt written notice to the
others of any material adverse development causing a
breach of any of his or its own representations and
warranties in #2 above. No disclosure by any Party
pursuant to this #4(f), however, shall be deemed to
amend or supplement Annex I, Annex II, or the
Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of
covenant.
119
(g) Exclusivity. The Seller will not (and the
Seller will not cause or permit the Target to) (i)
solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the
acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of
the Target (including any acquisition structured as a
merger, consolidation, or share exchange) or (ii)
participate in any discussions or negotiations
regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other
manner any effort or attempt by any Person to do or
seek any of the foregoing. The Seller will vote its
Target Shares in favor of any such acquisition
structured as a merger, consolidation, or share
exchange.
5. Post-Closing Covenants.
The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the
Closing any further action is necessary to carry out the
purposes of this Agreement, each of the Parties will
take such further action (including the execution and
delivery of such further instruments and documents)
as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless
the requesting Party is entitled to indemnification
therefor under #7 below). The Seller acknowledge
and agree that from and after the Closing the Buyer
will be entitled to possession of all documents, books,
records (including tax records), agreements, and
financial data of any sort relating to the Target.
120
(b) Transition. The Seller will not take any
action that is designed or intended to have the effect
of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Target
from maintaining the same business relationships with
the Target after the Closing as it maintained with the
Target prior to the Closing.
(c) Confidentiality. The Seller will treat and
hold as such all of the Confidential Information,
refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver
promptly to the Buyer or destroy, at the request and
option of the Buyer, all tangible embodiments (and all
copies) of the Confidential Information which are in
his or its possession. In the event that the Seller is
requested or required (by oral question or request for
information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand,
or similar process) to disclose any Confidential
Information, that Seller will notify the Buyer
promptly of the request or requirement so that the
Buyer may seek an appropriate protective order or
waive compliance with the provisions of this 5(d). If,
in the absence of a protective order or the receipt of a
waiver hereunder, the Seller is, on the advice of
counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for
contempt, that Seller may disclose the Confidential
Information to the tribunal; provided, however, that
the disclosing Seller shall use his or its reasonable
best efforts to obtain, at the reasonable request of the
Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the
Confidential Information required to be disclosed as
the Buyer shall designate.
6. Conditions to Obligation to Close.
120
(a) Conditions to Obligation of the Buyer.
The obligation of the Buyer to consummate the
transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties
set forth in #2(a) and #3 above shall be true and
correct in all material respects at and as of the Closing
Date;
(ii) the Seller shall have performed and
complied with all of their covenants hereunder in all
material respects through the Closing;
(iii) the Target shall have procured all
of the material third party consents specified in #4(b)
above, all of the title insurance commitments,
policies, and riders specified in #4(h) above, and all of
the surveys specified in #4(i) above;
(iv) no action, suit, or proceeding shall
be pending before any court or quasi-judicial or
administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of
any of the transactions contemplated by this
Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the
right of the Buyer to own the Target Shares and to
control the Target, or (D) affect materially and
adversely the right of the Target to own its assets and
to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in
effect);
121
(v) the Seller shall have delivered to
the Buyer a certificate to the effect that each of the
conditions specified above in #6(a)(i)-(iv) is satisfied
in all respects;
(vi) all applicable waiting periods (and
any extensions thereof) under the Hart-Scott-Rodino
Act shall have expired or otherwise been terminated
and the Parties, the Target, shall have received all
other material authorizations, consents, and approvals
of governments and governmental agencies referred to
in #2(a)(ii), #2(b)(ii), and #3(c) above;
(vii) the relevant parties shall have
entered into side agreements in form and substance as
set forth in Exhibits C-1 through C- attached hereto
and the same shall be in full force and effect;
(viii) the Buyer shall have received the
resignations, effective as of the Closing, of each
director and officer of the Target; and
(ix) all actions to be taken by the Seller
in connection with consummation of the transactions
contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect
the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the
Buyer.
The Buyer may waive any condition specified
in this 6(a) if it executes a writing so stating at or prior
to the Closing.
122
(b) Conditions to Obligation of the Seller. The
obligation of the Seller to consummate the
transactions to be performed by them in connection
with the Closing is subject to satisfaction of the
following conditions:
(i) the representations and warranties
set forth in #2(b) above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) the Buyer shall have performed and
complied with all of its covenants hereunder in all
material respects through the Closing;
(iii) no action, suit, or proceeding shall
be pending before any court or quasi-judicial or
administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of
any of the transactions contemplated by this
Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded
following consummation (and no such injunction,
judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the Buyer shall have delivered to
the Seller a certificate to the effect that each of the
conditions specified above in #6(b)(i)-(iii) is satisfied
in all respects;
(v) all applicable waiting periods (and
any extensions thereof) under the Hart-Scott-Rodino
Act shall have expired or otherwise been terminated
and the Parties, the Target, shall have received all
other material authorizations, consents, and approvals
of governments and governmental agencies referred to
in #2(a)(ii), #2(b)(ii), and #3(c) above;
123
(vi) the relevant parties shall have
entered into side agreements in form and substance as
set forth in Exhibits C-, C-, ... and C and the same
shall be in full force and effect;
(vii) all actions to be taken by the
Buyer in connection with consummation of the
transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required
to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the
Requisite Seller.
The Requisite Seller may waive any
condition specified in this #6(b) if they execute a
writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. The Buyer and
the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(b) Effect of Termination. If any Party
terminates this Agreement pursuant to #7(a) above, all
rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any
other Party (except for any liability of any Party then
in breach); provided, however, that the confidentiality
provisions contained in #5(e) above shall survive
termination.
124
8. Miscellaneous.
(a) No Third-Party Beneficiaries. This
Agreement shall not confer any rights or remedies
upon any Person other than the Parties and their
respective successors and permitted assigns.
(b) Entire Agreement. This Agreement
(including the documents referred to herein)
constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or
representations by or among the Parties, written or
oral, to the extent they related in any way to the
subject matter hereof.
(c) Succession and Assignment. This
Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their
respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its
rights, interests, or obligations hereunder without the
prior written approval of the Buyer and the Requisite
Seller; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder
to one or more of its Affiliates and (ii) designate one
or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(d) Counterparts. This Agreement may be
executed in one or more counterparts, each of which
shall be deemed an original but all of which together
will constitute one and the same instrument.
(e) Headings. The section headings contained
in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or
interpretation of this Agreement.
125
(f) Notices. All notices, requests, demands,
claims, and other communications hereunder will be
in writing. Any notice, request, demand, claim, or
other communication hereunder shall be deemed duly
given if (and then two business days after) it is sent by
registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Seller:
Copy to:
If to the Buyer:
Copy to:
Any Party may send any notice, request,
demand, claim, or other communication hereunder to
the intended recipient at the address set forth above
using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex,
ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall
be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any
Party may change the address to which notices,
requests, demands, claims, and other communications
hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(g) Governing Law. This Agreement shall be
governed by and construed in accordance with the
domestic laws of the State of _____________ without
giving effect to any choice or conflict of law provision
or rule (whether of the State of _____________ or any
other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of
_____________.
126
(h) Amendments and Waivers. No
amendment of any provision of this Agreement shall
be valid unless the same shall be in writing and signed
by the Buyer and the Requisite Seller. No waiver by
any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in
any way any rights arising by virtue of any prior or
subsequent such occurrence.
(i) Severability. Any term or provision of this
Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of
the offending term or provision in any other situation
or in any other jurisdiction.
(j) Expenses. Each of the Parties, the Target
will bear his or its own costs and expenses (including
legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated
hereby. The Seller agrees that the Target has borne or
will bear any of the Seller's costs and expenses
(including any of their legal fees and expenses) in
connection with this Agreement or any of the
transactions contemplated hereby.
(k) Construction. The Parties have
participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question
of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the
context requires otherwise. The word "including"
shall mean including without limitation.
127
(l) Incorporation of Exhibits, Annexes, and
Schedules. The Exhibits, Annexes, and Schedules
identified in this Agreement are incorporated herein
by reference and made a part hereof.
IN WITNESS WHEREOF, the Parties hereto
have executed this Agreement on the date first above
written.
BUYER
By:__________________________________________________
Title:_______________________________________________
ZSTAR ENTERPRISES, INC.
By:__________________________________________________
Title:_______________________________________________
128
EXHIBIT 3
CERTIFICATE OF MERGER
OF
[ZSTAR SUBSIDIARY]
AND
ONVANTAGE, INC.
It is hereby certified that:
1. The constituent business corporations participating in
the merger herein certified are:
(i) [Zstar Subsidiary], which is incorporated under the
laws of the State of Delaware; and
(ii) OnVantage, Inc., which is also incorporated under the
laws of the State of Delaware.
2. A Plan and Agreement of Merger has
been approved, adopted, certified, executed and
acknowledged by each of the aforesaid constituent
corporations in accordance with the provisions of
Section 251 of the General Corporation Law of the
State of Delaware, to wit, by [Zstar Subsidiary]
and OnVantage, Inc., and in the same manner as is
provided in Section 251 of the General Corporation
Law of the State of Delaware.
129
3. The name of the surviving corporation in the
merger herein certified is OnVantage, Inc., which
will continue its existence as said surviving
corporation under its present name, upon the effective
date of said merger pursuant to the provisions of
Sections 251 and 259 of the General Corporation Law
of the State of Delaware.
4. The certificate of incorporation of
OnVantage, Inc., as now in force and effect, shall
continue to be the certificate of incorporation of
said surviving corporation until amended and
changed pursuant to the provisions of the General
Corporation Law of the State of Delaware.
5. The executed Plan and Agreement of
Merger between the aforesaid constituent
corporations will be furnished by the aforesaid
surviving corporation, on request and without cost,
to any stockholder of the aforesaid constituent
corporations.
6. The executed Plan and Agreement of
Merger between the aforesaid constituent
corporations is on file at an office of the aforesaid
surviving corporation, the address of which is as
follows:
__________________
__________________
__________________
7. The authorized capital stock of the
surviving corporation, OnVantage, Inc., is
20,190,000 shares of common stock at a par value
of $______ per share
8. The authorized capital stock of the
non-surviving corporation, [Zstar Subsidiary],
Inc., is ________________ shares of common
stock, par value of $_____ per share.
130
9. The aforesaid surviving corporation
does hereby irrevocably appoint the Secretary of
State of the State of Delaware as its agent to accept
service of process in any such suit or other
proceedings; and does hereby specify the following
as the address to which a copy of such process shall
be mailed by the Secretary of State of the State of
Delaware:
OnVantage, Inc.
c/o The Corporation Company
1013 Centre Road
Wilmington, Delaware 19805
10. The Plan and Agreement of Merger
between the aforesaid constituent corporations
provides that the merger herein certified shall be
effective on May ___, 2000.
Dated: May ___, 2000
OnVantage, Inc.
By:
President
[Zstar Subsidiary]
By:
President
EXHIBIT 4
OnVantage, Inc.
2000 Omnibus Equity Incentive Plan
(Adopted by the Board of Directors on_______________, 2000)
131
TABLE OF CONTENTS
Page
1. Establishment and Purpose 5
2. Definitions 5
"Affiliate" 5
"Award" 5
"Board of Directors" 5
"Change in Control" 5
"Code" 6
"Committee" 6
"Common-Law Employee" 6
"Company" 6
"Consultant" 6
"Exchange Act" 6
"Exercise Price" 6
"Fair Market Value" 7
"Incentive Stock Option" 7
"Key Contributor" 7
"Nonstatutory Stock Option" 7
"Option" 7
"Optionee" 7
"Outside Director" 8
"Parent" 8
"Participant" 8
"Plan" 8
"Purchase Price" 8
"Restricted Share" 8
"Restricted Share
Purchase Agreement " 8
"Securities Act" 8
"Service" 8
"Share" 8
"Stock" 9
"Stock Appreciation Right" 9
"Stock Appreciation
Rights Agreement" 9
"Stock Option Agreement" 9
"Stock Purchase Agreement" 9
"Stock Unit" 9
"Stock Unit Agreement" 9
"Subsidiary" 9
"Ten Percent Stockholder" 9
"Total and
Permanent Disability" 10
3. Administration. 10
3.1 Committee Procedures 10
3.2 Committee Responsibilities 10
4. Eligibility. 12
4.1 General Rule 12
4.2 Outside Directors 12
4.3 Limitation on Grants 12
4.4 Ten Percent Stockholders 12
132
5. Stock Subject Plan. 12
5.1 Basic Limitation 12
5.2 Annual Increase in Shares 12
5.3 Additional Shares 13
5.4 Dividend Equivalents 13
6. Restricted Shares. 13
6.1 Restricted Share
Purchase Agreement 13
6.2 Payment for Awards 13
6.3 Vesting 14
6.4 Voting and
Dividend Rights 14
7. Other Terms and Conditions of Awards Other
than Options. 14
7.1 Duration of Offers and Nontransferability of
Rights 14
7.2 Purchase Price 14
7.3 Withholding Taxes 14
7.4 Restrictions on
Transfer of Shares 14
8. Terms and
Conditions of Options. 15
8.1 Stock Option
Agreement 15
8.2 Number of Shares 15
8.3 Exercise Price 15
8.4 Withholding Taxes 15
8.5 Exercisability and Term 15
8.6 Nontransferability 16
8.7 Exercise of Options Upon Termination of
Service 16
8.8 Leaves of Absence 16
8.9 No Rights as a Stockholder 16
8.10 Modification, Extension and Renewal of
Options 17
8.11 Restrictions on Transfer of Shares
17
8.12 Buyout Provisions 17
133
9. Payment For Shares. 17
9.1 General Rule 17
9.2 Surrender of Stock 17
9.3 Services Rendered 17
9.4 Cashless Exercise 18
9.5 Exercise/Pledge 18
9.6 Promissory Note 18
9.7 Other Forms of Payment 18
10. Stock Appreciation Rights 18
10.1 Stock Appreciation
Rights Agreement 18
10.2 Number of Shares 18
10.3 Exercise Price 19
10.4 Exercisability and Term 19
10.5 Exercise of Stock
Appreciation Rights 19
10.6 Modification or
Assumption of Stock
Appreciation Rights 19
11. Stock Units. 20
11.1 Stock Unit Agreement 20
11.2 Payment for Awards 20
11.3 Vesting Conditions 20
11.4 Voting and
Dividend Rights 20
11.5 Form and Time of Settlement of Stock
Units 20
11.6 Death of Recipient 21
11.7 Rights as Creditor 21
12. Protection Against
Dilutin 21
12.1 Adjustments 21
12.2 Dissolution or
Liquidation 22
12.3 Reorganizations 22
12.4 Reservation of Rights 22
13. Deferral of Awards 22
14. Awards Under Other Plans 23
15. Payment of
Director's Fees. 23
15.1 Effective Date 23
15.2 Elections to Receive Nonstatutory Stock
Options, Restricted Shares
or Stock Units 23
15.3 Number and Terms of Nonstatutory Stock
Options, Restricted Shares
or Stock Units 24
134
16. Effect of Change in
Control 24
17. Legal and
Regulatory Requirements 24
18. Withholding Taxes. 24
18.1 General 24
18.2 Share Withholding 24
19. Limitation on
Parachute Payments. 25
19.1 Scope of Limitation 25
19.2 Basic Rule 25
19.3 Reduction of Payments 25
19.4 Overpayments and
Underpayments 26
19.5 Related Corporations 26
20. No Employment Rights 26
21. Duration and Amendments. 26
21.1 Term of the Plan 26
21.2 Right To Amend or
Terminate the Plan 26
21.3 Effect of Amendment
or Termination 26
22. Execution 27
OnVantage, Inc.
2000 Omnibus Equity Incentive Plan
(Adopted by the Board of Directors on_______________, 2000)
1. Establishment and Purpose. The Plan was adopted by the
Board of Directors effective _______________, 2000. The purpose
of the Plan is to promote the long-term success of
the Company and the creation of stockholder
value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical
long-range objectives, (b) encouraging the
attraction and retention of Employees, Outside
Directors and Consultants with exceptional
qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder
interests through increased stock ownership. The
Plan seeks to achieve this purpose by providing
for Awards in the form of Restricted Shares,
Stock Units, Options (which may be Incentive
Stock Options or Nonstatutory Stock Options) or
Stoc k Appreciation Rights.
135
2. Definitions.
"Affiliate" shall mean any entity other than a Subsidiary, if
the Company and/or one of more Subsidiaries
own not less than 50% of such entity.
"Award" shall mean any award of an Option, a Stock
Appreciation Right, a Restricted Share or a Stock Unit under the Plan.
"Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time.
"Change in Control" shall mean the occurrence of either of the
following events:
(i) A change in the composition of the Board of Directors,
as a result of which fewer than one-half of the incumbent directors are
directors who either:
(A) Had been directors of the Company twenty-four
(24) months prior to such change; or
(B) Were elected, or nominated for election, to the
Board of Directors with the affirmative votes of at least a
majority of the directors who had been directors of the
Company twenty-four (24) months prior to such change and who were
still in office at the time of the election or nomination; or
(ii) Any "person" (as such term is used in sections
13(d) and 14(d) of the Exchange Act) who, by the acquisition or
aggregation of securities, is or becomes the
beneficial owner, directly or indirectly, of
securities of the Company representing
20% or more of the combined voting power
of the Company's then outstanding
securities ordinarily (and apart from rights
accruing under special circumstances)
having the right to vote at elections of direc-tors
(the "Base Capital Stock"); except that
any change in the relative beneficial
ownership of the Company's securities by
any person resulting solely from a reduction
in the aggregate number of outstanding
shares of Base Capital Stock, and any
decrease thereafter in such person's owner-ship of
securities, shall be disregarded until
such person increases in any manner,
directly or indirectly, such person's
beneficial ownership of any securities of the
Company. For purposes of this Subsec- tion (ii),
the term "person" shall not include
an employee benefit plan maintained by the Company.
136
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Committee" shall mean the committee designated by the
Board of Directors, which is authorized to
administer the Plan under Section 3 hereof. The
Committee shall have membership composition
which enables the Options or other rights granted
under the Plan to qualify for exemption under
Rule 16b-3 with respect to persons who are
subject to Section 16 of the Exchange Act.
"Common-Law Employee" shall mean an individual paid from
W-2 Payroll of the Company or a Subsidiary. If, during any
period, the Company (or a Subsidiary, as
applicable) has not treated an individual as a
Common-Law Employee and, for that reason, has
not paid such individual in a manner which results
in the issuance of a Form W-2 and withheld taxes
with respect to him or her, then that individual
shall not be an eligible Common-Law Employee
for that period, even if any person, court or
government agency determines, retroactively, that
such individual is or was a Common-Law
Employee during all or any portion of that period.
"Company" shall mean OnVantage, Inc., a Delaware corporation.
"Consultant" shall mean a consultant or advisor who provides
bona fide services to the Company, a Parent, a Subsidiary or an
Affiliate as an independent contractor.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Exercise Price" shall mean, in the case of an Option, the amount
for which one Share may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise
Price," in the case of a Stock Appreciation Right,
shall mean an amount, as specified in the
applicable Stock Appreciation Rights Agreement,
which is subtracted from the Fair Market Value of
one Share in determining the amount payable
upon exercise of such Stock Appreciation Rights.
137
"Fair Market Value" shall mean (i) the closing price of
a Share on the principal exchange on which the Shares are
trading, on the date on which the Fair Market
Value is determined (if Fair Market Value is
determined on a date the principal exchange is
closed, Fair Market Value shall be determined on
the last immediately preceding trading day), or
(ii) if the Shares are not traded on an exchange
but are quoted on the Nasdaq National Market or
a successor quotation system, the closing price on
the date on which the Fair Market Value is
determined, or (iii) if the Shares are not traded on
an exchange or quoted on the Nasdaq National
Market or a successor quotation system, the fair
market value of a Share, as determined by the
Committee in good faith. Such determination
shall be conclusive and binding on all persons.
"Grantee" shall mean the recipient of Stock Grant.
"Incentive Stock Option" shall mean an incentive stock
option described in section 422 of the Code.
"Key Contributor" shall mean (i) any individual who is a
Common-Law Employee, (ii) a member of the
Board of Directors, including, without limitation,
an Outside Director, (iii) a member of the board
of directors of a Subsidiary, or (iv) a Consultant.
Service as a member of the Board of Directors, a
member of the board of directors of a Subsidiary
or a Consultant shall be considered employment
for all purposes of the Plan.
"Nonstatutory Stock Option" shall mean a stock option that
is not an Incentive Stock Option.
138
"Notice of Stock Option Grant" shall mean a
notification delivered to an Optionee setting forth
the nature of the Optionee's Option, the number
of Shares subject to the Option, the Exercise Price
and other terms and conditions of the Option.
"Option" shall mean an Incentive Stock Option or
Nonstatutory Stock Option granted under the Plan
and entitling the holder to purchase Shares.
"Optionee" shall mean an individual or estate who holds an
Option.
"Outside Director" shall mean a member of the Board of Directors
who is not a Common-Law Employee of the Company or of a Subsidiary.
"Parent" shall mean any corporation (other than the
Company) in an unbroken chain of corporations
ending with the Company, if each of the
corporations other than the Company owns stock
possessing 50% or more of the total combined
voting power of all classes of stock in one of the
other corporations in such chain. A corporation
that becomes a Parent on a date after the adoption
of the Plan shall be a Parent commencing as of such date.
"Participant" shall mean an individual or estate who holds
an Award.
"Plan" shall mean this 2000 Omnibus Equity Incentive
Plan of OnVantage, Inc., as amended from time to time.
"Purchase Price" shall mean the consideration for which one
Share may be acquired under the Plan (other than upon
exercise of an Option), as specified by the Committee.
140
"Restricted Share" shall mean a Share awarded under the Plan.
"Restricted Share Purchase Agreement " shall mean the agreement
between the Company and the Grantee of Restricted Shares which
contains the terms, conditions and restrictions pertaining to
such Restricted Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" shall mean service as a Key Contributor.
"Share" shall mean one share of Stock, as adjusted in
accordance with Section 9 (if applicable);
"Shares" shall mean more than one share of Stock.
"Stock" shall mean the Common Stock of the Company.
"Stock Appreciation Right" shall mean a stock appreciation
right granted under the Plan.
"Stock Appreciation Rights Agreement" shall mean the agreement
between the Company and a Grantee which contains the terms,
conditions and restrictions pertaining to his or her Stock
Appreciation Rights.
"Stock Grant" shall mean an Award other than an Option.
"Stock Option Agreement" shall mean the agreement between the
Company and an Optionee consisting of a Notice of Stock
Option Grant and the Stock Option Agreement
Terms and Conditions, which sets forth the
number of Shares subject to the Option, the
Exercise Price and other terms, conditions and
restrictions pertaining to his or her Option.
141
"Stock Purchase Agreement" shall mean the agreement between
the Company and Grantee who acquires Shares under the Plan
which contains the terms, conditions and restrictions pertaining
to the acquisition of such Shares.
"Stock Unit" shall mean a bookkeeping entry representing the
equivalent of one Share, as awarded under the Plan.
"Stock Unit Agreement" shall mean the agreement between the
Company and the Grantee of a Stock Unit which contains the terms,
conditions and restrictions pertaining to such Stock Unit.
"Subsidiary" shall mean any corporation, if the Company and/or
one or more other Subsidiaries own not less than 50% of the total
combined voting power of all classes of outstanding stock of such
corporation. A corporation that becomes a Subsidiary on a date
after the adoption of the Plan shall be considered a Subsidiary
commencing as of such date.
"Ten Percent Stockholder" shall mean a Key Contributor who
owns more than 10% of the total combined voting power of
all classes of outstanding stock of the Company.
In determining stock ownership, a Key Contributor shall be
deemed to own the stock owned, directly or indirectly, by
or for his or her brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly,
by or for a corporation, partnership, estate or trust
shall be deemed to be owned proportionately by
or for its shareholders, partners or beneficiaries.
"Outstanding stock" shall include all stock actually issued and
outstanding immediately after the Award, but shall not include
stock authorized for issuance under outstanding options held by the
Key Contributor or by any other person.
142
"Total and Permanent Disability" shall mean a Key Contributor's
inability to engage in any substantial gainful activity by
reason of any medically determinable physical or
mental impairment which can be expected to
result in death or which has lasted, or can be
expected to last, for a continuous period of not
less than twelve (12) months.
3. Administration.
3.1 Committee Procedures. The Plan shall be administered by
the Committee. The Committee shall consist exclusively of two or more
directors of the Company, who shall be appointed by the Board of
Directors. The Board of Directors shall designate
one of the members of the Committee as chair-man. The Committee
may hold meetings at such times and places as it shall determine.
The acts of a majority of the Committee members present at
meetings at which a quorum exists, or acts reduced to or approved
in writing by all Committee members, shall be valid acts of the
Committee.
3.2 Committee Responsibilities. Subject to the provisions of
the Plan, the Committee shall have full authority and discretion
to take the following actions:
(i) To interpret the Plan and apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and
forms relating to the Plan;
(iii) To authorize any person to execute, on behalf
of the Company, any instrument, document or agreement required
to carry out the purposes of the Plan;
(iv) To determine the Fair Market Value of Shares
and when and to whom Awards are made;
(v) To select Grantees, Optionees and other recipients
of Awards;
143
(vi) To determine the number of Shares to be offered to
each Grantee or to be made subject to each Option;
(vii) To prescribe the terms and conditions of each
Award, including, without limitation, the Purchase Price, the
vesting of the Award, including the acceleration of the vesting
of such Award, and to specify the provisions of the Stock
Purchase Agreement relating to such Award or sale;
(viii) To prescribe the terms and conditions of each
Option, including, without limitation, the Exercise Price, the
exercisability, vesting or duration of the Option, including the
acceleration of exercisability or vesting of the Option, to
determine whether such Option is to be classified as an Incentive
Stock Option or as a Nonstatutory Stock Option, and to specify
the provisions of the Stock Option Agreement relating to such
Option;
(ix) To amend any outstanding Stock Purchase
Agreement or Stock Option Agreement, subject to applicable legal
restrictions and to the consent of the Grantee
or Optionee who entered into such agreement;
(x) To prescribe the consideration for the grant of
each Option or other right under the Plan and to determine
the sufficiency of such consideration;
(xi) To determine the disposition of each Option or
other right under the Plan in the event of an Optionee's or
Grantee's divorce or dissolution of marriage;
144
(xii) To determine whether Options or other rights
under the Plan will be granted in replacement of other grants
under an incentive or other compensation plan of an acquired
business;
(xiii) To correct any defect, supply any omission, or
reconcile any inconsistency in the Plan, any Stock Option
Agreement or any Stock Purchase Agreement; and
(xiv) To take any other actions deemed necessary
or advisable for the administration of the Plan.
Subject to the requirements of applicable law, the
Committee may designate persons other than
members of the Committee to carry out its
responsibilities and may prescribe such conditions
and limitations as it may deem appropriate, except
that the Committee may not delegate its authority
with regard to the selection for participation of or
the granting of Options or other rights under the
Plan to persons subject to Section 16 of the
Exchange Act. All decisions, interpretations and
other actions of the Committee shall be final and
binding on all Grantees, Optionees and other
recipients of Awards, and all persons deriving
their rights from an Grantee, Optionee or other
recipient of an Award. No member of the
Committee shall be liable for any action that in
good faith has been taken or not taken with
respect to the Plan, any Award or Option, or any
right to acquire Shares under the Plan.
4. Eligibility.
4.1 General Rule. Key Contributors shall be eligible for
Awards of Restricted Shares, Stock Units, Nonstatutory Stock Options
or Stock Appreciation Rights; only Common-Law Employees shall be eligible
for Awards of Incentive Stock Options.
145
4.2 Outside Directors. Any other provision of the Plan
notwithstanding, the participation of Outside Directors in the Plan
shall be subject to the following restrictions:
(i) Outside Directors shall only
be eligible for Awards of Restricted Shares,
Stock Units, Nonstatutory Stock Options
and Stock Appreciation Rights.
(ii) The Exercise Price of all
Nonstatutory Stock Options granted to an
Outside Director under this Section 4.2 shall
be equal to one hundred percent (100%) of
the Fair Market Value of Shares subject to
the Option on the date of grant. The
Exercise Price will be payable in one of the
forms described in Sections 9.1, 9.2 or 9.3.
(iii) All Nonstatutory Stock
Options granted to an Outside Director
under this Section 4.2 shall terminate on the
earliest of (A) the tenth anniversary of the
date of grant of such Options or (B) the date
twelve (12) months after the termination of
such Outside Director's Service for any
reason.
4.3 Limitation on Grants. No Key Contributor shall be
granted Options to purchase more than one million (1,000,000)
Shares in any fiscal year of the Company.
4.4 Ten Percent Stockholders. Ten Percent Stockholders
shall not be eligible for an award of Incentive Stock Options unless
such Award satisfies the requirements of Section 422(c)(6) of the Code.
146
5. Stock Subject Plan.
5.1 Basic Limitation. Shares offered under the Plan
shall be authorized but unissued Shares or treasury Shares.
The maximum aggregate number of Options,
Stock Appreciation Rights, Stock Units and
Restricted Shares awarded under the Plan shall
not exceed five million (5,000,000) Shares, plus
the additional Shares described in Sections 5.2
and 5.3. The limitation of this Section 5.1 shall
be subject to adjustment pursuant to Section 12.
5.2 Annual Increase in Shares. As of January 1
of each year, commencing with the year 2001, the aggregate
number of Options, Stock Appreciation Rights, Stock Units and
Restricted Shares that may be awarded under the
Plan shall automatically increase by a number
equal to the lesser of (i) 2,000,000 Shares, (ii)
five percent (5%) of the outstanding shares on
such date or (iii) a lesser amount determined by
the Board of Directors. The aggregate number of
Shares which may be issued under the Plan shall
at all times be subject to adjustment pursuant to
Section 16. The number of Shares which are
subject to Options or other rights outstanding at
any time under the Plan shall not exceed the
number of Shares which then remain available for
issuance under the Plan. The Company, during
the term of the Plan, shall at all times reserve and
keep available sufficient Shares to satisfy the
requirements of the Plan.
5.3 Additional Shares. If Shares issued upon the
exercise of Options are forfeited, such Shares shall again become
available for Awards under the Plan. If Stock
Units, Options or Stock Appreciation Rights are
forfeited or terminate for any reason before being
exercised, then the corresponding Shares shall
again become available for Awards under the
Plan. If Stock Units are settled, then only the
number of Shares (if any) actually issued in
settlement of such Stock Units shall reduce the
number available under Section 5.1 and the
balance shall again become available for Awards
under the Plan. If Stock Appreciation Rights are
exercised, then only the number of Shares (if any)
actually issued in settlement of such Stock
Appreciation Rights shall reduce the number
available under Section 5.1 and the balance shall
again become available for Awards under the
Plan. The foregoing notwithstanding, the
aggregate number of Shares that may be issued
under the Plan upon the exercise of Incentive
Stock Options shall not be increased when Shares
are forfeited.
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5.4 Dividend Equivalents. Any dividend
equivalents paid or credited under the Plan shall
not be applied against the number of Restricted
Shares, Stock Units, Options or Stock Appreciation
Rights available for Awards, whether or not such
dividend equivalents are con verted into Stock Units.
6. Restricted Shares.
6.1 Restricted Share Purchase Agreement.
Each Award of Restricted Shares under the Plan
shall be evidenced by a Restricted Share Purchase
Agreement between the recipient and the
Company. Such Restricted Shares shall be
subject to all applicable terms of the Plan and may
be subject to any other terms that are not
inconsistent with the Plan. The provisions of the
various Restricted Share Purchase Agreements
entered into under the Plan need not be identical.
6.2 Payment for Awards. Subject to the
following sentence, an Award of Restricted Shares may
be made for such consideration as the Committee may
determine, including (without limitation) cash, cash
equivalents, full-recourse promissory notes, past
services and future services. To the extent an
Award consists of newly issued Restricted Shares,
the Award recipient shall furnish consideration
with a value not less than the par value of such
Restricted Shares in the form of cash, cash
equivalents, or past services rendered to the
Company (or a Parent or Subsidiary), as the
Com mittee may determine.
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6.3 Vesting. Each Award of Restricted Shares
may or may not be subject to vesting. Vesting shall occur,
in full or in installments, upon satisfaction of the
conditions specified in the Restricted Share
Purchase Agreement. The Committee may
include among such conditions the requirement
that the performance of the Company or a
business unit of the Company for a specified
period of one or more years equals or exceeds a
target determined in advance by the Committee.
Such performance shall be determined by the
Company's independent auditors. Such target
shall be based on one or more of the criteria set
forth in Appendix A. The Committee shall
determine such target not later than the 90th day of
such period. In no event shall the number of
Restricted Shares which are subject to
performance based vesting conditions exceed
1,000,000, subject to adjustment in accordance
with Section 16. A Restricted Share Purchase
Agreement may provide for accelerated vesting in
the event of the Participant's death, Total and
Permanent Disability or retirement or other
events.
6.4 Voting and Dividend Rights. The holders of
Restricted Shares awarded under the Plan shall have the
same voting, dividend and other rights as the Company's
other stockholders. A Restricted Share Purchase Agreement,
however, may require that the holders of
Restricted Shares invest any cash dividends
received in additional Restricted Shares. Such
additional Restricted Shares shall be subject to the
same conditions and restrictions as the Restricted
Shares with respect to which the dividends were
paid.
7. Other Terms and Conditions of Awards Other
than Options.
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7.1 Duration of Offers and Nontransferability
of Rights. Any right to acquire Shares under the Plan
(other than an Option) shall automatically expire
if not exercised within thirty (30) days after the
grant of such right was communicated to the
Grantee by the Committee. Such right shall not
be transferable and shall be exercisable only by
the Grantee to whom such right was granted.
7.2 Purchase Price. The Purchase Price shall be
payable in one of the forms described in Sections 9.1, 9.2 or 9.3.
7.3 Withholding Taxes. As a condition to
the purchase of Shares, the Grantee shall make such
arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding
tax obligations that may arise in connection with such
purchase.
7.4 Restrictions on Transfer of Shares. Any Shares
awarded or sold under the Plan shall
be subject to such special forfeiture conditions,
rights of repurchase, rights of first refusal and
other transfer restrictions as the Committee may
determine. Such restrictions shall be set forth in
the applicable Stock Purchase Agreement and
shall apply in addition to any general restrictions
that may apply to all holders of Shares.
8. Terms and Conditions of Options.
8.1 Stock Option Agreement. Each grant of an Option
under the Plan shall be evidenced by a Stock Option
Agreement between the Optionee and the Company. Such Option
shall be subject to all applicable terms and
conditions of the Plan and may be subject to any
other terms and conditions which are not
inconsistent with the Plan and which the
Committee deems appropriate for inclusion in a
Stock Option Agreement. The Stock Option
Agreement shall specify whether the Option is an
Incentive Stock Option or a Nonstatutory Stock
Option. The provisions of the various Stock
Option Agreements entered into under the Plan
need not be identical. Options may be granted in
consideration of a reduction in an Optionee's
other compensation. A Stock Option Agreement
may provide that a new Option will be granted
automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise
Price.
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8.2 Number of Shares. Each Stock Option
Agreement shall specify the number of Shares subject to
the Option and shall provide for the adjustment of such
number in accordance with Section 12. Options granted to
an Optionee in a single fiscal year of the
Company shall not be for more than one million
(1,000,000) Shares.
8.3 Exercise Price. Each Stock Option
Agreement shall specify the Exercise Price as
determined by the Committee in accordance with
this Section 8.3. For Nonstatutory Stock Options,
the Exercise Price shall be not less than 85% of Fair
Market Value. The Exercise Price of an Incentive Stock
Option shall not be less than 100% of the Fair Market
Value of a Share on the date of grant (110% for a
Ten Percent Stockholder). The Exercise Price
shall be payable in one of the forms described in
Section 9.
8.4 Withholding Taxes. As a condition to the
exercise of an Option, the Optionee shall make such
arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding
tax obligations that may arise in connection with such exercise.
The Optionee shall also make such arrangements
as the Committee may require for the satisfaction
of any federal, state or local withholding tax
obligations that may arise in connection with the
disposition of Shares upon exercise of an Option.
8.5 Exercisability and Term. Each Stock Option
Agreement shall specify the date when all or any
installment of the Option is to become exercisable
and the term of the Option which shall not exceed ten
(10) years from the date of grant (five (5) years for
Ten Percent Stockholder). A Stock Option Agreement may
provide for accelerated exercisability in the event
of the Optionee's death, disability, or retirement
or other events and may provide for expiration
prior to the end of its term upon the termination of
the Optionee's Service. Options may be awarded
in combination with Stock Appreciation Rights,
and such an Award may provide that the Options
will not be exercisable unless the related Stock
Appreciation Rights are forfeited. The
Committee, in its sole discretion, shall determine
when all or any installment of an Option is to
become exercisable and when an Option is to
expire in accordance with this Section 8.5.
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8.6 Nontransferability. During an Optionee's
lifetime, his or her Option(s) shall be exercisable only
by him or her and shall not be transferable. In the event
of an Optionee's death, his Option(s) shall not be
transferable other than by will or by the laws of
descent and distribution.
8.7 Exercise of Options Upon Termination of
Service. Each Stock Option Agreement shall set forth the
extent to which the Optionee shall have the right
to exercise the Option following termination of
the Optionee's Service and the extent to which
any executor or administrator of the Optionee's
estate or any other person who has acquired the
Option directly from the Optionee by bequest or
inheritance shall have the right to exercise the
Option. Such provisions shall be determined in
the sole discretion of the Committee, need not be
uniform among all Options issued pursuant to the
Plan, and may reflect distinctions based on the
reasons for termination of Service.
8.8 Leaves of Absence. A Key Contributor's
Service shall cease when such Key Contributor ceases
to be actively employed by, or a consultant or adviser
to, the Company (or any Subsidiary) as determined in the
sole discretion of the Board of Directors. For
purposes of Options, Service does not terminate
when a Key Contributor takes a bona fide leave of
absence, that was approved by the Company in
writing, if the terms of the leave of absence
provide for continued service crediting, or when
continued service crediting is required by
applicable law. For purposes of determining
whether an Option is entitled to treatment as an
Incentive Stock Option, a Key Contributor's
Service will be treated as terminating ninety (90)
days after such Key Contributor began the leave
of absence, unless such Key Contributor's right to
return to active work is guaranteed by law or
contract. A Key Contributor's Service terminates
in any event when the approved leave of absence
ends, unless such Key Contributor immediately
returns to active work. The Company shall
determine which leaves of absence count toward
Service, and when Service terminates for all
purposes under the Plan.
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8.9 No Rights as a Stockholder. An Optionee,
or a transferee of an Option, shall have no rights as
a stockholder of the Company with respect to any Shares
subject to the Option until the Optionee has exercised
the Option in accordance with the Stock Option Agreement
and paid the Exercise Price. No adjustments shall be
made for dividends declared or other rights
arising as of a record date if the applicable record
date occurs before the Optionee's exercise of the
Option and payment of the Exercise Price, except
as provided in Section 12.
8.10 Modification, Extension and Renewal of
Options. Within the limitations of the Plan, the
Committee may modify, extend or renew
outstanding options or may accept the cancellation
of outstanding options (to the extent not
previously exercised), whether or not granted
hereunder, in return for the grant of new Options
for the same or a different number of Shares and
at the same or a different Exercise Price. The
foregoing notwithstanding, no modification of an
Option shall impair the Optionee's rights or
increase the Optionee's obligations under such
Option without the consent of the Optionee.
8.11 Restrictions on Transfer of Shares.
Any Shares issued upon exercise of an Option
shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first
refusal and other transfer restrictions as the
Committee may determine. Such restrictions
shall be set forth in the applicable Stock Option
Agreement and shall apply in addition to any
general restrictions that may apply to all holders
of Shares.
153
8.12 Buyout Provisions. The Committee may
at any time (a) offer to buy out for a payment in cash
or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option
previously granted, in either case at such time and based
upon such terms and conditions as the Committee
shall establish.
9. Payment For Shares.
9.1 General Rule. The entire Exercise Price
of Shares issued under the Plan shall be payable in
lawful money of the United States of America at the
time when such Shares are purchased, except as provided in
Sections 9.2 through 9.7 below.
9.2 Surrender of Stock. To the extent that a
Stock Option Agreement so provides, payment of the Exercise
Price may be made by surrendering, or attesting to the
ownership of, Shares which have been owned by
the Optionee or his representative for more than
twelve (12) months. The Shares which have been
owned by the Optionee shall be valued at their
Fair Market Value on the date the new Shares are
acquired under the Plan. The Optionee shall not
surrender, or attest to the ownership of, Shares in
payment of the Exercise Price if such action
would cause the Company to recognize
compensation expense (or additional
compensation expense) with respect to the Option
for financial reporting purposes.
9.3 Services Rendered. At the discretion of
the Committee, an Award of Shares may be made under the
Plan in consideration of services rendered to the
Company or a Subsidiary prior to the Award. If an Award
of Shares is made in consideration of services
rendered, the Committee shall determine (at the
time of the Award) the value of the services
rendered by the Grantee and whether the consideration
satisfies the requirements of Section 6.2.
154
9.4 Cashless Exercise. To the extent that a
Stock Option Agreement so provides, payment may be made
delivery (on a form prescribed by the Committee) of an
irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale
proceeds to the Company in payment of the
aggregate Exercise Price.
9.5 Exercise/Pledge. To the extent that a
Stock Option Agreement so provides, payment may be
made by delivery (on a form prescribed by the Committee)
of an irrevocable direction to a securities broker or
lender to pledge Shares, as security for a loan, and
to deliver all or part of the loan proceeds to the
Company in payment of the aggregate Exercise
Price.
9.6 Promissory Note. To the extent that a
Stock Option Agreement so provides, payment may be
made by delivering (on a form prescribed by the Company)
a full-recourse promissory note; provided, the par value
of the Shares being purchased under the Plan, if
newly issued, shall be paid in cash or cash
equivalents.
9.7 Other Forms of Payment. To the extent that
a Stock Option Agreement so provides, payment may be
made in any other form that is consistent with applicable
laws, regulations and rules.
10. Stock Appreciation Rights.
10.1 Stock Appreciation Rights
Agreement. Each Award of Stock Appreciation Rights
under the Plan shall be evidenced by a Stock
Appreciation Rights Agreement between the
Grantee and the Company. Such Stock
Appreciation Rights Agreement shall be subject
to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent
with the Plan. The provisions of the various
Stock Appreciation Rights Agreements entered
into under the Plan need not be identical. Stock
Appreciation Rights may be awarded in consideration
of a reduction in the Grantee's other compensation.
155
10.2 Number of Shares. Each Stock Appreciation
Rights Agreement shall specify the number of Shares to
which the Stock Appreciation Rights pertain and shall
provide for the adjustment of such number in
accordance with Section 12. Stock Appreciation
Rights granted to any Grantee in a single calendar
year shall in no event pertain to more than one
million (1,000,000) Shares. The limitations set
forth in the preceding sentence shall be subject to
adjustment in accordance with Section 12.
10.3 Exercise Price. Each Stock Appreciation
Rights Agreement shall specify the Exercise Price.
A Stock Appreciation Rights Agreement may specify an
Exercise Price that varies in accordance with a
predetermined formula while the Stock
Appreciation Rights Agreement is outstanding.
10.4 Exercisability and Term. Each Stock
Appreciation Rights Agreement shall specify the
date when all or any installment of the Stock
Appreciation Rights are to become exercisable.
The Stock Appreciation Rights Agreement shall
also specify the term of the Stock Appreciation
Rights. A Stock Appreciation Rights Agreement
may provide for accelerated exercisability the
Grantee's death, disability or retirement or
other events and may provide for
expiration prior to the end of its term upon the
termination of the Grantee's Service. Stock
Appreciation Rights may be awarded in
combination with Options, and such an Award
may provide that the Stock Appreciation Rights
will not be exercisable unless the related Options
are forfeited. Stock Appreciation Rights may be
included in an Incentive Stock Option only at the
time of grant but may be included in a
Nonstatutory Stock Option at the time of grant or
thereafter. Stock Appreciation Rights granted
under the Plan may provide for exercisability only
in the event of a Change in Control.
156
10.5 Exercise of Stock Appreciation
Rights. Upon exercise of Stock Appreciation Rights, the
Grantee (or any person having the right to
exercise the Stock Appreciation Rights after his or
her death) shall receive from the Company
(a) Shares, (b) cash or (c) a combination of Shares
and cash, as the Committee shall determine. The
amount of cash and/or the Fair Market Value of
Shares received upon exercise of Stock
Appreciation Rights shall, in the aggregate, be
equal to the amount by which the Fair Market
Value (on the date of surrender) of the Shares
subject to the Stock Appreciation Rights exceeds
the Exercise Price. If, on the date when Stock
Appreciation Rights expire, the Exercise Price
under such Stock Appreciation Rights is less than
the Fair Market Value of the Shares on such date
and a portion of such Stock Appreciation Rights
has not been exercised or surrendered, then such
Stock Appreciation Rights shall automatically be
deemed to be exercised as of such date with
resp ect to such portion.
10.6 Modification or Assumption of Stock
Appreciation Rights. Within the limitations of the Plan,
the Committee may modify, extend or assume
outstanding Stock Appreciation Rights or may
accept the cancellation of outstanding Stock
Appreciation Rights (whether granted by the
Company or by another issuer) in return for the
grant of new Stock Appreciation Rights for the
same or a different number of shares and at the
same or a different exercise price. The foregoing
notwithstanding, no modification of Stock
Appreciation Rights shall, without the consent of
the Grantee, alter or impair his or her rights or
obligations under such Stock Appreciation Rights.
11. Stock Units.
11.1 Stock Unit Agreement. Each Award of
Stock Units under the Plan shall be evidenced by
a Stock Unit Agreement between the recipient and
the Company. Such Stock Units shall be subject
to all applicable terms of the Plan and may be
subject to any other terms that are not
inconsistent with the Plan. The provisions of the
various Stock Unit Agreements entered into under
the Plan need not be identical. Stock Units may
be awarded in consideration of a reduction in the
recipient's other compensation.
157
11.2 Payment for Awards. To the extent
that an Award is granted in the form of Stock
Units, no cash consideration shall be required of
the Award recipient.
11.3 Vesting Conditions. Each Award of Stock
Units may or may not be subject to vesting. Vesting
shall occur, in full or in installments, upon
satisfaction of the conditions specified in the
Stock Unit Agreement. A Stock Unit Agreement may
provide for acceleratedvesting in the event of
the Participant's death, disability or retirement
or other events.
11.4 Voting and Dividend Rights. The holders
of Stock Units shall have no voting
rights. Prior to settlement or forfeiture, Stock
Unit awarded under the Plan may, at the
Committee's discretion, carry with it a right to
dividend equivalents, which will entitle the holder
to be credited with an amount equal to all cash
dividends paid on one Share while the Stock Unit
is outstanding. Dividend equivalents may be
converted into additional Stock Units. Settlement
of dividend equivalents may be made in the form
of cash, in the form of Shares, or any combination
of cash and Shares, as determined by the
Committee. Prior to distribution, any dividend
equivalents which are not paid shall be subject to
the same conditions and restrictions as the Stock
Unit s to which they attach.
11.5 Form and Time of Settlement of
Stock Units. Settlement of vested Stock Units may be made
in the form of cash, Shares or any combination of
cash and Shares, as determined by the Committee.
The actual number of Stock Units eligible for
settlement may be larger or smaller than the
number included in the original Award, based on
predetermined performance factors. Methods of
converting Stock Units into cash may include
(without limitation) a method based on the
average Fair Market Value of Shares over a series
of trading days. Vested Stock Units may be
settled in a lump sum or in installments. The
distribution may occur or commence when all
vesting conditions applicable to the Stock Units
have been satisfied or have lapsed, or it may be
deferred to any later date. The amount of a
deferred distribution may be increased by an
interest factor or by dividend equivalents. Until
an Award of Stock Units is settled, the number of
such Stock Units shall be subject to adjustment
pursuant to Section 12.
158
11.6 Death of Recipient. Any Award of Stock
Units that becomes payable after the Participant's
death shall be distributed to the Participant's
beneficiary or beneficiaries. Each Participant of
an Award of Stock Units under the Plan shall designate
one or more beneficiaries for this purpose by filing the
prescribed form with the Company. A beneficiary
designation may be changed by filing
the prescribed form with the Company at any time
before the Participant's death. If no beneficiary
was designated or if no designated beneficiary
survives the Participant, then any Award of Stock
Units that becomes payable after the Participant's
death shall be distributed to the Participant's
estate.
11.7 Rights as Creditor. A holder of
Stock Units shall have no rights other than those
of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation
of the Company, subject to the terms and conditions
of the applicable Stock Unit Agreement.
12. Protection Against Dilution.
12.1 Adjustments. In the event of a
subdivision of the outstanding Shares, a
declaration of a dividend payable in
Shares, a declaration of a dividend payable in a
form other than Shares in an amount that has a
material effect on the price of Shares, a
combination or consolidation of the outstanding
Shares (by reclassification or otherwise) into a
lesser number of Shares, a recapitalization, a spin-
off or a similar occurrence, the Committee shall
make such adjustments as it, in its sole discretion,
deems appropriate in one or more of:
(i) The number of Options,
Stock Appreciation Rights, Restricted
Shares and Stock Units available for future
Awards under Section 5;
159
(ii) The limitations set forth in
Sections 8.2 and 10.2;
(iii) The number of NSOs to be
granted to Outside Directors under
Section 4.2;
(iv) The number of Shares
covered by each outstanding Option and
Award of Stock Appreciation Rights;
(v) The Exercise Price under
each outstanding Option and Award of
Stock Appreciation Rights; or
(vi) The number of Stock Units
included in any prior Award which has not
yet been settled.
Except as provided in this Section 12, a
Participant shall have no rights by reason of any
issue by the Company of stock of any class or
securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of
any class, the payment of any stock dividend or
any other increase or decrease in the number of
shares of stock of any class.
12.2 Dissolution or Liquidation. To the
extent not previously exercised or settled, Options,
Stock Appreciation Rights and Stock Units shall
terminate immediately prior to the dissolution or
liquidation of the Company.
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12.3 Reorganizations. If the Company is a
party to a merger or other reorganization, outstanding
Awards shall be subject to the agreement of merger or
reorganization. Such agreement shall provide for
one or more of the following, in all cases without
the consent of the Optionee, Grantee or other
Part icipant being required:
(i) The continuation of the
outstanding Awards by the Company, if the
Company is a surviving corporation;
(ii) The assumption of the
outstanding Awards by the surviving
corporation or its parent or subsidiary;
(iii) The substitution by the
surviving corporation or its parent or
subsidiary of its own awards for the
outstanding Awards;
(iv) Full exercisability and/or
vesting and or accelerated expiration of the
outstanding Awards; or
(v) Settlement of the full value of
the outstanding Awards in cash or cash
equivalents followed by cancellation of such
Awards.
12.4 Reservation of Rights. Except as
provided in this Section 12, an Optionee or
Grantee shall have no rights by reason of
any subdivision or consolidation of
shares of stock of any class, the payment of any
dividend or any other increase or decrease in the
number of shares of stock of any class. Any issue
by the Company of shares of stock of any class, or
securities convertible into shares of stock of any
class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the
number or Exercise Price of Shares subject to an
Option. The grant of an Option pursuant to the
Plan shall not affect in any way the right or power
of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital
or business structure, to issue or sell any shares of
stock of any class, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part
of its business or assets.
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13. Deferral of Awards. The Committee
(in its sole discretion) may permit or require a
Participant to:
(i) Have cash that otherwise
would be paid to such Participant as a result
of the exercise of Stock Appreciation Rights
or the settlement of Stock Units credited to a
deferred compensation account established
for such Participant by the Committee as an
entry on the Company's books;
(ii) Have Shares that otherwise
would be delivered to such Participant as a
result of the exercise of an Option or Stock
Appreciation Rights converted into an equal
number of Stock Units; or
(iii) Have Shares that otherwise
would be delivered to such Participant as a
result of the exercise of an Option or Stock
Appreciation Rights or the settlement of
Stock Units converted into amounts credited
to a deferred compensation account
established for such Participant by the
Committee as an entry on the Company's
books. Such amounts shall be determined
by reference to the Fair Market Value of
such Shares as of the date when they
otherwise would have been delivered to such
Participant.
A deferred compensation account established
under this Section 13 may be credited with
interest or other forms of investment return, as
determined by the Committee. A Participant for
whom such an account is established shall have
no rights other than those of a general creditor of
the Company. Such an account shall represent an
unfunded and unsecured obligation of the
Company and shall be subject to the terms and
conditions of the applicable agreement between
such Participant and the Company. If the deferral
or conversion of Awards is permitted or required,
the Committee (in its sole discretion) may
establish rules, procedures and forms pertaining to
such Awards, including (without limitation) the
settlement of deferred compensation accounts
established under this Section 13.
162
14. Awards Under Other Plans. The
Company may grant awards under other
plans or programs. Such awards may be settled in
the form of Shares issued under this Plan. Such
Shares shall be treated for all purposes under the
Plan like Shares issued in settlement of Stock
Units and shall, when issued, reduce the number
of Shares available under Section 5.
15. Payment of Director's Fees.
15.1 Effective Date. No provision of this
Section 15 shall be effective unless and until the
Board of Directors has determined to implement such provision.
15.2 Elections to Receive Nonstatutory
Stock Options, Restricted Shares or Stock Units.
An Outside Director may elect to receive his or
her annual retainer payments and/or meeting fees
from the Company in the form of cash,
Nonstatutory Stock Options, Restricted Shares or
Stock Units, or a combination thereof, as
determined by the Board of Directors. Such
Nonstatutory Stock Options, Restricted Shares
and Stock Units shall be issued under the Plan.
An election under this Section 15 must be made
before the Outside Director has rendered the
services giving rise to such payments and/or fees,
and shall be filed with the Company on the
prescribed form.
15.3 Number and Terms of Nonstatutory
Stock Options, Restricted Shares or Stock Units.
The number of Nonstatutory Stock Options,
Restricted Shares or Stock Units to be granted to
Outside Directors in lieu of annual retainers and
meeting fees that would otherwise be paid in cash
shall be calculated in a manner determined by the
Board of Directors. The terms of such
Nonstatutory Stock Options, Restricted Shares or
Stock Units shall also be determined by the Board
of Directors.
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16. Effect of Change in Control. The
Committee may determine, at the time of
making an Award or thereafter, that all or part of
such Award shall become vested and/or
exercisable upon a Change in Control. If,
however, the Company and the other party to the
transaction constituting a Change in Control agree
that such transaction is to be treated as a "pooling
of interests" for financial accounting purposes,
and if such transaction in fact is so treated, then
the acceleration of vesting and/or exercisability
shall not occur to the extent that the Company's
independent accountants and such other party's
independent accountants separately determine in
good faith that such acceleration would preclude
the use of "pooling of interests" accounting. In
the case of an Incentive Stock Option, the
acceleration of exercisability shall not occur
without the Optionee's written consent.
17. Legal and Regulatory Requirements.
Shares shall not be issued under the Plan unless
the issuance and delivery of such Shares complies
with (or is exempt from) all applicable requirements
of law, including (without limitation)
the Securities Act, the rules and regulations
promulgated thereunder, state securities laws and
regulations and the regulations of any stock
exchange on which the Company's securities may
then be listed, and the Company has obtained
such approvals or favorable rulings from such
governmental agency as the Company determines
to be necessary or advisable.
18. Withholding Taxes.
18.1 General. To the extent required by applicable
federal, state, local or foreign law, a Participant or his or
her successor shall make arrangements satisfactory
to the Company for the satisfaction of any
withholding tax obligations that arise in
connection with the Plan. The Company shall not
be required to issue any Shares or make any cash
payment under the Plan until such obligations are
satisfied.
164
18.2 Share Withholding. The Committee may
permit a Participant to satisfy all or part of
his or her withholding or income tax obligations
by having the Company withhold all or a portion
of any Shares that otherwise would be issued to
him or her or by surrendering all or a portion
of any Shares that he or she previously acquired.
Such Shares shall be valued at their Fair Market
Value on the date when taxes otherwise would be
withheld in cash.
19. Limitation on Parachute Payments.
19.1 Scope of Limitation. This Section 19
shall apply to any Award unless the Committee, at
the time of making an Award under the Plan or at any
time thereafter, specifies in writing that such Award
shall not be subject to this Section 19. If this
Section 19 applies to an Award, it shall supersede
any contrary provision of the Plan or of any Award
granted under the Plan.
19.2 Basic Rule. If the independent auditors
most recently selected by the Board of Directors (the
"Auditors") determine that any payment, transfer
or acceleration of vesting or exercisability by the
Company under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible
by the Company for federal income tax purposes
because of the provisions concerning "excess
parachute payments" in Section 280G of the
Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to
the Reduced Amount. For purposes of this
Section 19, the "Reduced Amount" shall be the
amount, expressed as a present value, which
maximizes the aggregate present value of the
Payments without causing any Payment to be
nondeductible by the Company because of
Section 280G of the Code.
165
19.3 Reduction of Payments. If the Auditors
determine that any Payment would be nondeductible
by the Company because of Section 280G of the Code,
then the Company shall promptly give the Participant
notice to that effect and a copy of the detailed calculation
thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole
discretion, which and how much of the Payments
shall be eliminated or reduced (as long as after
such election the aggregate present value of the
Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her
election within ten (10) days of receipt of notice.
If no such election is made by the Participant
within such ten (10) day period, then the
Company may elect which and how much of the
Payments shall be eliminated or reduced (as long
as after such election the aggregate present value
of the Payments equals the Reduced Amount) and
shall notify the Participant promptly of such
election. For purposes of this Section 19, the
present value of Payments shall be determined in
accordance with Section 280G(d)(4) of the Code.
All determinations made by the Auditors under
this Section 19 shall be binding upon the
Company and the Participant and shall be made
within sixty (60) days of the date when a Payment
becomes payable or transferable. As promptly as
practicable following such determination and the
elections hereunder, the Company shall pay or
transfer to or for the benefit of the Participant
such amounts as are then due to him or her under
the Plan and shall promptly pay or transfer to or
for the benefit of the Participant in the future such
amounts as become due to him or her under the
Plan.
166
19.4 Overpayments and Underpayments. As a
result of uncertainty in the application of
Section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is
possible that Payments will have been made by
the Company that should not have been made (an
"Overpayment") or that additional Payments that
will not have been made by the Company that
could have been made (an "Underpayment"),
consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the
Auditors, based upon the assertion of a deficiency
by the Internal Revenue Service against the
Company or the Participant that the Auditors
believe has a high probability of success,
determine that an Overpayment has been made,
such Overpayment shall be treated for all
purposes as a loan to the Participant which he or
she shall repay to the Company, together with
interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code; provided,
however, that no amount shall be payable by the
Participant to the Company if and to the extent
that such payment would not reduce the amount
subject to taxation under Section 4999 of the
Code. In the event that the Auditors determine
that an Underpayment has occurred, such
Underpayment shall promptly be paid or
transferred by the Company to or for the benefit
of the Participant, together with interest at the
applicable federal rate provided in
Section 7872(f)(2) of the Code.
19.5 Related Corporations. For purposes of this
Section 19, the term "Company" shall include affiliated
corporations to the extent determined by the Auditors in
accordance with Section 280G(d)(5) of the Code.
20. No Employment Rights. No provision of the
Plan, nor any Award granted under the Plan, shall be
construed to give any person any right to become, to be
treated as, or to remain a Key Contributor. The Company
and its Subsidiaries reserve the right to terminate
any person's Service at any time and for any
reason, with or without notice.
167
21. Duration and Amendments.
21.1 Term of the Plan. The Plan shall terminate
automatically ten (10) years after its adoption and may
be terminated on any earlier date pursuant to Section 21.2 below.
21.2 Right To Amend or Terminate the
Plan. The Board of Directors may amend the Plan at
any time and from time to time. Except as
otherwise set forth in Section 12, rights and
obligations under any Award granted before
amendment of the Plan shall not be materially
impaired by such amendment, except with
consent of the person to whom the Award was
granted. An amendment of the Plan shall be
subject to the approval of the Company's
stockholders only to the extent required by
applicable laws, regulations or rules.
21.3 Effect of Amendment or Termination. No Shares
shall be issued or sold under the Plan after the termination
thereof, except upon exercise of an Award granted prior
to such termination. Except as otherwise set forth in
Section 12, the termination of the Plan, or any amendment
thereof, shall not affect any Share previously
issued or any Award previously made under the
Plan .
22. Execution. To record the adoption of the Plan
by the Board of Directors effective as of _______________,
2000, the Company has caused its authorized
officer to execute the same.
168
ONVANTAGE, INC.
By:
Its:
EXHIBIT 10
LOAN AGREEMENT
THIS AGREEMENT (the "Agreement") is
made and entered into effective as of June 2, 2000, by
and between OnVantage, Inc., a Delaware corporation
with its principal place of business at 333 W. Santa
Clara St. 1000 San Jose, CA 95113 (the "Company")
and Zstar Enterprises, Inc., a Nevada corporation with
its principal place of business at 595 Burrad Street,
Suite 3000, Vancouver, BC V7X 1L4 (the "Lender").
A. Pursuant to a Term Sheet dated May 16,
2000, a copy of which is attached hereto as Exhibit A
(the "Term Sheet"), it is contemplated that the Lender
will acquire the total capital stock of the Company (the
"Proposed Transaction").
B. The Term Sheet provides that as soon as
practicable following execution of the Term Sheet or,
if required, approval by IPO Capital Corp., the Lender
shall issue the Company a loan in the amount of up to
US $3,750,000, consisting of an initial loan of
$750,000 on June 2, 2000 and subsequent loans in
amounts reasonably approved by IPO Capital Corp.
pursuant to an agreed upon budget of the Company.
169
C. As contemplated in the Term Sheet, the
Lender desires to make such loan to the Company on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the
foregoing, the mutual promises set forth herein, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Purchase of Convertible Promissory
Notes. Upon the terms and subject to
the conditions set forth in this
Agreement, the Company agrees to
issue to the Lender, and the Lender
agrees to purchase from the Company,
convertible promissory notes ("Notes")
in the form attached hereto as Exhibit
B, with the initial Note in the principal
amount of Seven Hundred Fifty
Thousand U.S. Dollars (US $750,000).
Such initial Note purchase shall be
made upon execution of this Agreement
by the Lender and the delivery to the
Company of immediately available
funds in the principal amount of the
Note. The principal amount of each
Note to be purchased pursuant to this
Agreement shall be as requested from
time to time by the Company, provided
that the aggregate amount of all Notes
purchased pursuant to this Agreement
shall not exceed the maximum amount
to be loaned as provided above. Each
Note shall bear simple interest from the
date of payment by the Lender of the
principal amount thereof at 10% per
annum. Payments of interests shall be
due on such dates as are specified in the
Notes. All of the Notes shall be due
and payable in full on December 31,
2002 ("Maturity Date"). The Company
shall have the right to prepay the Notes,
in whole or in part, at any time or from
time to time, on three (3) days' prior
written notice to the Lender, without
premium or penalty.
170
2. Grant of Security Interest. In order to
secure the full and timely payment of its
obligations under the Notes, the
Company hereby grants the Lender a
security interest (the "Security
Interest") in all of the assets of the
Company (the "Collateral"). The
Company agrees to execute and file
such financing statements and to take
such other action as may be requested
by the Lender from time to time to
perfect and or continue its Security
Interest in the Collateral. In the event
of any default by the Company under
the Notes, the Lender shall be entitled
to such remedies as are available to it as
a secured creditor under the
Commercial Code of the State of
California, as in effect at such time.
This pledge of Collateral shall continue
until the repayment of all obligations
owing under the Notes, at which time
the Lender shall promptly deliver to the
Company the canceled Notes.
3. Conversion.
(a) Right of Conversion. At the
time of the Closing Date of the
Merger Agreement between the
Company, Zstar Subsidiary
("Merger Sub") and Lender
("Merger Agreement"), the
unpaid principal balance of the
Promissory Notes shall convert
(the "Conversion") into shares
of common stock of the
Company ("Shares"). Upon
such Conversion, all interest
due on the unpaid principal shall
be cancelled and forgiven.
171
(b) Terms of Conversion.
(1) The conversion rate (the
"Conversion Rate") for the
Promissory Note(s)shall equal up
to 16.5% of the total capital stock
of the Maker, which percentage of
capital stock computed as follows:
(i) the total amount loaned under
the outstanding Promissory Notes
(ii) divided by $3,750,000,
(iii) with such result multiplied
by 16.5%. Upon such Conversion,
all interest due on the unpaid
principal shall be cancelled and
forgiven.
(2) Upon Closing of the Merger Agreement,
the Lender shall surrender any Promissory
Notes to the Company, accompanied by written
notice of its intention to exercise the
Conversion, which notice shall set forth the
principal amount of all Promissory Notes to be
converted ("Notice of Conversion"). Within
ten (10) business days of the Company's
receipt of the Notice of Conversion and
Promissory Notes, the Company shall deliver
or cause to be delivered to the Lender, written
confirmation that the Shares have been issued
in the name of the Lender.
(3) Upon the Conversion, there shall be
corresponding one-for-one share adjustment
within the Merger Agreement, such that as
a result of the Conversion, Lender's and the
Company shareholders' percentages of ownership
resulting after both the Conversion and Closing
of the Merger Agreement shall not vary from the
relative ownership positions if the Merger Agreement
were closed without such Conversion.
172
(4) The Lender shall cooperate with the Company to
promptly take any and all additional actions required
pursuant to the terms and conditions of the Lender's
Certificate of Incorporation and Bylaws, and in
accordance with the Nevada Corporation Code, to make
the Lender a stockholder of the Company.
(5) The Lender shall at all times take any and all
additional actions as are necessary to maintain
the required authority to issue the Shares to the
Lender, in the event of the Conversion.
(c) Adjustment for Reorganizations, Mergers,
Etc.
If any capital reorganization or
reclassification of the Common
Stock, or consolidation or
merger of the company with
another corporation, or the sale
of all or substantially all of its
assets to another corporation,
shall be effected in such a way
that holders of Common Stock
shall be entitled to receive
stock, securities or assets with
respect to or in exchange for
Common Stock, adequate
provision shall be made
whereby the holder of the Notes
shall thereafter have the right to
receive upon the basis and upon
the terms and conditions
specified herein and in lieu of
the Common Stock immediately
theretofore receivable upon the
conversion of the Notes, such
shares of stock, securities or
assets as may be issued or
payable with respect to or in
exchange for a number of
outstanding shares of such
Common Stock equal to the
number theretofore receivable
upon the conversion of the
Notes had such reorganization,
reclassification, consolidation,
merger or sale not taken place,
and in any such case
appropriate provision shall be
made with respect to the rights
and interests of such holder to
the end that the provisions
hereof shall thereafter be
applicable, as nearly as may be
practicable, in relation to any
shares of stock, securities or
assets thereafter receivable
upon the conversion of the
Notes.
173
4. Representations and Warranties of the
Company. The Company represents
and Warrants to the Lender as follows:
(a) Organization. The Company is
a corporation duly organized,
validly existing and in good
standing under the laws of the
State of Delaware and has the
requisite corporate power and
authority to own, lease or
operate its properties and to
carry on its business as it is now
being conducted and as it is
proposed to be conducted.
(b) Authorization. The Company
has the corporate power and
authority to execute and deliver
this Agreement and the Notes
and to perform its obligations
hereunder and thereunder,
including the issuance of the
Notes and the Common Stock
issuable thereunder (the
AConversion Securities@). This
Agreement and the Notes have
been duly executed and
delivered by authorized officers
of the Company, are valid and
binding agreements on the part
of the Company and are
enforceable against the
Company in accordance with
their respective terms, except as
the enforceability thereof may
be limited by bankruptcy,
insolvency, moratorium,
reorganization or other similar
laws affecting the enforcement
of creditors rights generally and
to judicial limitations on the
enforcement of the remedy of
specific performance and other
equitable remedies. All
corporate action necessary for
reservation and issuance of the
Conversion Securities has been
taken. The Conversion
Securities, when issued
pursuant to the terms of this
Agreement and the Notes, will
be duly authorized, validly
issued, fully paid and
nonassessable, free and clear of
any and all liens, charges,
claims, encumbrances and
preemptive rights.
174
(c) No Violation. Neither the
execution and delivery of this
Agreement or the Notes by the
Company, nor the performance
by the Company of its
obligations hereunder or
thereunder, nor the
consummation of the
transactions contemplated
hereby or thereby will: (i)
conflict with or result in any
breach of any provision of the
Articles of Incorporation or
Bylaws of the Company; (ii)
result in a default (or give rise
to any right of termination,
cancellation or acceleration)
under any of the terms,
conditions or provisions of any
note, lease, mortgage, license,
agreement or other instrument
or obligation to which the
Company is a party or by which
any of its assets may be bound,
except for such defaults (or
rights of termination,
cancellation or acceleration) as
to which requisite waivers or
consents have been obtained or
which, in the aggregate, would
not result in a material adverse
effect on the Company; (iii)
violate any order, writ,
injunction, decree, statute, rule
or regulation applicable to the
Company or any of its assets,
except for violations which
would not result in a material
adverse effect on the Company;
(iv) require the approval or
consent of any governmental
agency or other person or
entity, which has not or will not
be obtained; or (v) result in the
creation or imposition of any
liens, charges or encumbrances
upon any assets of the
Company.
175
5. Representations and Warranties of the
Lender. The Lender represents and
warrants to the Company as follows:
(a) Investment Representations.
(i) The Notes are being purchased for
investment for such Lender's own account
and not with the view to, or for resale in
connection with, any distribution or public
offering thereof. The Lender understands
that neither the Notes nor the Conversion
Securities have been registered under the
United States Securities Act of 1933, as
amended (the "Securities Act"), or
any state securities laws by reason of
their contemplated issuance in transactions
exempt from the registration requirements of
the Securities Act and applicable state
securities laws and that the reliance of the
Company and others upon these exemptions
is predicated in part upon this
representation by the Lender. The Lender
further understands that neither the Notes nor
the Conversion Securities have been registered
under the securities laws of any other
jurisdiction, including Canada, British Columbia
or the Yukon Territory. The Lender further
understands that the Notes and the Conversion
Securities may not be transferred or resold
without registration under the Securities Act
and any applicable state securities laws, or
pursuant to an exemption from the requirements
of the Securities Act and applicable state
securities laws.
(ii) The Lender's principal place of business is
located at the address set forth above in this
Agreement. The Lender qualifies as an
Aaccredited investor,"as defined in Rule 501 of
Regulation D under the Securities Act. The
Lender acknowledges that the Company has
made available to such Lender at a reasonable
time prior to the execution of this Agreement
the opportunity to ask questions and receive
answers concerning the business, operations and
financial condition of the Company and the
terms and conditions of the sale of securities
contemplated by this Agreement and to
obtain any additional information requested
by such Lender. The Lender is able to bear
the loss of its entire investment in the Notes
and the Conversion Securities and has such
knowledge and experience of financial
and business matters that it is capable of
evaluating the merits and risks of the
investment to be made pursuant to this
Agreement. However, neither the foregoing
nor any other due diligence investigation
conducted by the Lender or on its behalf
shall limit, modify or affect the
representations and warranties of the
Company set forth in this Agreement or the
right of the Lender to rely thereon.
176
(b) Organization. The Lender is a
corporation duly organized,
validly existing and in good
standing under the laws of
Nevada and has the requisite
corporate power and authority
to own, lease or operate its
properties and to carry on its
business as it is now being
conducted and as it is proposed
to be conducted.
(c) Authorization. The Lender has
the corporate power and
authority to execute and deliver
this Agreement and to perform
its obligations hereunder. This
Agreement has been duly
authorized by all necessary
corporate action on behalf of
the Lender, has been duly
executed and delivered by
authorized officers of the
Lender, is a valid and binding
agreement on the part of the
Lender and is enforceable
against the Lender in
accordance with its terms,
except as the enforceability
thereof may be limited by
bankruptcy, insolvency,
moratorium, reorganization or
other similar laws affecting the
enforcement of creditors rights
generally and to judicial
limitations on the enforcement
of the remedy of specific
performance and other equitable
remedies.
177
(d) No Violation. Neither the
execution and delivery of this
Agreement, nor the
performance by the Lender of
its obligations hereunder, nor
the consummation of the
transactions contemplated
hereby will: (i) conflict with or
result in any breach of any
provision of the charter
documents of the Lender; (ii)
result in a default (or give rise
to any right of termination,
cancellation or acceleration)
under any of the terms,
conditions or provisions of any
note, lease, mortgage, license,
agreement or other instrument
or obligation to which the
Lender is a party or by which
any of its assets may be bound,
except for such defaults (or
rights of termination,
cancellation or acceleration) as
to which requisite waivers or
consents have been obtained or
which, in the aggregate, would
not result in a material adverse
effect on the Lender; (iii)
violate any order, writ,
injunction, decree, statute, rule
or regulation applicable to the
Lender or any of its assets,
except for violations which
would not result in a material
adverse effect on the Company;
(iv) require the approval or
consent of any governmental
agency or other person or
entity, including the Canadian
Venture Exchange, which has
not or will not be obtained; or
(v) result in the creation or
imposition of any liens, charges
or encumbrances upon any
assets of the Lender.
178
6. Miscellaneous.
(a) This Agreement and the rights
and obligations of the parties
hereunder shall not be
assignable, in whole or in part,
by the Company or the Lender
without the prior written
consent of the other party. This
Agreement shall inure to the
benefit of and be binding upon
and be enforceable by the
successors and permitted
assigns of the parties hereto.
Neither this Agreement nor any
provision hereof may be
amended, modified, waived or
discharged without the written
consent of the parties hereto.
(b) This Agreement, including the
exhibits attached hereto,
constitutes the entire agreement
of the parties relative to the
subject matter hereof and
supersedes any and all other
agreements and understanding,
whether written or oral, relative
to the matters discussed herein.
(c) All representations and
warranties contained herein
shall survive after the execution
and delivery of this Agreement
for a period of one (1) year
from the date hereof.
179
(d) All notices, requests, consents
and other communications
required or permitted hereunder
shall be in writing and shall be
given in writing by personal
delivery, facsimile, commercial
air delivery service or by
registered or certified mail,
postage prepaid, return receipt
requested, addressed to the
Company at the address set
forth in the introductory
paragraph of this Agreement, or
at such other address as the
respective parties may designate
by like notice from time to time.
Notices so given shall be
effective upon the earlier of: (i)
receipt by the party to which
notice is given (which, in the
instance of a facsimile, shall be
deemed to have occurred at the
time that the machine
transmitting the facsimile
verifies a successful
transmission of the facsimile);
(ii) on the fifth business day
following the date such notice
was deposited in the mail; or (iii)
on the second business day
following the date such notice
was delivered to a commercial
air delivery service.
(e) This Agreement shall be
construed and enforced in
accordance with the laws of the
State of New York.
180
(f) This Agreement may be
executed in two or more
counterparts, each of which
shall be deemed an original, but
all of which together shall
constitute one and the same
instrument. This Agreement
may be executed by facsimile.
IN WITNESS WHEREOF, the Company and
the Lender have executed this Agreement effective as
of the date written above.
ON
VANTAGE, INC.
By:__________________________
Its:__________________________
ZSTAR
ENTERPRISES, INC.
By:__________________________
Its:__________________________
THIS SECURITY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE
SECURITIES OR "BLUE SKY" LAWS, AND MAY
NOT BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED
PURSUANT TO THE PROVISIONS OF SUCH ACT
AND BLUE SKY LAWS OR AN EXEMPTION
THEREFROM IS AVAILABLE AS ESTABLISHED
BY A WRITTEN OPINION OF COUNSEL
ACCEPTABLE TO THE MAKER.
181
OnVANTAGE, INC.
CONVERTIBLE PROMISSORY NOTE
$750,000
New York, New York
May 26, 2000
FOR VALUE RECEIVED, the undersigned,
OnVANTAGE, INC., a Delaware corporation (the
"Maker"), hereby promises to pay to the order of
ZSTAR ENTERPRISES, INC., a Nevada corporation
(the "Payee"), the principal sum of up to SEVEN
HUNDRED FIFTY THOUSAND DOLLARS
($750,000), plus interest at the rate specified below.
The unpaid principal from time to time outstanding
shall bear interest prior to maturity at an annual rate of
interest equal to TEN PERCENT (10%) per annum,
with a minimum interest payment of TEN
THOUSAND DOLLARS ($10,000). All interest
accrued on the outstanding principal balance of this
Promissory Note shall be due and payable as provided
below.
The Maker hereby agrees to pay the entire
amount due hereunder, including principal and interest,
on or before December 31, 2002 ("Maturity Date"), on
which date all unpaid principal and interest due
hereunder shall be paid in full. All payments shall be
applied first to interest on the unpaid balance and the
remainder to principal. Interest hereon shall be
calculated on the basis of a 360-day year prior to the
actual number of days elapsed until all accrued and
unpaid interest is paid in full. All payments of principal
and interest hereunder shall be payable in lawful
currency of the United States.
182
If payment in full of the principal balance and
accrued interest is not actually received by the Payee on
or before the Maturity Date, the Maker agrees to pay
Payee a late charge equal to the above specified interest
rate plus two percent (2%) per annum on that
delinquent amount until paid. All interest due and
payable hereunder which is not paid when due for any
reason shall be cumulated and accrue interest at the rate
hereunder.
This Promissory Note is given in consideration
of a loan by Payee to Maker in the principal amount of
the Promissory Note. This Promissory Note may not be
changed orally, but only by an agreement in writing
signed by the parties against whom enforcement of any
waiver, change, modification or discharge is sought.
The holder of this Promissory Note and all
successors thereof shall have all the rights of a holder
in due course as provided by the Uniform Commercial
Code and the other laws of the state of Nevada.
Prepayment of the principal of this Promissory
Note is permitted, in whole or in part, at anytime,
without premium or penalty of any kind. All partial
prepayments of principal shall reduce the principal
balance hereunder in reverse order of maturity.
Option to Convert Promissory Note into Shares
(a) At the time of the Closing Date of the Merger
Agreement between Payee , Zstar Subsidiary ("Merger
Sub") and Maker ("Merger Agreement"), the unpaid
principal balance of this Promissory Note shall be
converted (the "Conversion") into shares of common
stock of the Maker ("Shares"). The Conversion shall
operate as set forth below and as set forth in the Loan
Agreement executed contemporaneously with this
Promissory Note.
183
(b) The conversion rate for the Conversion shall be the
Conversion Rate set forth in the Loan Agreement
executed contemporaneously with this Promissory
Note.
(c) Upon Closing of the Merger Agreement, the Payee
shall surrender this Promissory Note to the Maker,
accompanied by written notice of its intention to
exercise the Conversion, which notice shall set forth the
principal amount of this Promissory Note to be
converted ("Notice of Conversion"). Within ten (10)
business days of Maker's receipt of the Notice of
Conversion and this Promissory Note, the Maker shall
deliver or cause to be delivered to the Payee, written
confirmation that the Shares have been issued in the
name of the Payee.
(d) Payee shall cooperate with Maker to promptly take
any and all additional actions required pursuant to the
terms and conditions of Payee's Certificate of
Incorporation and Bylaws, and in accordance with the
Nevada Corporation Code, to make the Payee a
stockholder of the Maker.
(e) The Payee shall at all times take any and all
additional actions as are necessary to maintain the
required authority to issue the Shares to the Payee, in
the event of the Conversion.
Security Interest
184
Payee shall have a security interest, as a
first charge, in any and all assets, tangible or
intangible, of the Maker.
Default
Maker hereby waives demand, presentment,
protest, notice or protest and/or dishonor and all other
notices or requirements that might otherwise be
required by law. The Maker promises to pay on
demand all costs of collection, including reasonable
attorney's fees and court costs, paid or incurred by
Payee in enforcing this Promissory Note upon an Event
of Default (as that term is defined below) hereunder.
The occurrence of any of the following shall
constitute an "Event of Default" under this Promissory
Note:
(i) The failure of the Maker to make any
payment when due under this
Promissory Note;
(ii) The institution of legal proceedings by
or against the Maker under any state
insolvency laws, federal bankruptcy
law, or similar debtor relief laws then in
effect.
Upon an Event of Default which has not been
cured within ten (10) business days from the date of
written notice by Payee, Payee may, at Payee's option
and without notice, declare all principal and interest
due under this Promissory Note to be due and payable
immediately. Payee may waive any default before or
after it occurs and may restore this Promissory Note in
full effect without impairing the right to declare it
due for a subsequent default.
185
OnVANTAGE, INC.
By:__________________
Title:_______________
EXTRA-TERRITORIAL STOCK SUBSCRIPTION
AGREEMENT
Zstar Enterprises, Inc.
c/o IPO Capital Corp.
Bentall Tower 3, 3000 - 595 Burrard Street
Vancouver, BC V7X 1L4
Attention: Paul Wiebe, MBA, CFA
Gentlemen:
1. Subscription. The undersigned (the
"Subscriber"), intending to be legally bound, hereby
irrevocably agrees to purchase and hereby subscribes
for __________ Units of Zstar Enterprises, Inc., a
Nevada corporation (the "Company"), at the
purchase price of U.S.$6.00 per Unit (the "Offering
Price"). Each Unit consists of one share of common
stock of the Company ("Shares") and one warrant
convertible into one share of common stock of the
Company upon the fulfillment of certain performance
contingencies at an exercise price of $6.00 per share
of common stock ("Stock Purchase Warrant"). For
further details on the exercise of the Stock Purchase
Warrant, see Section 4 - "Redeemable Common
Stock Purchase Warrant". Hereinafter, one Share and
one Stock Purchase Warrant will be collectively
referred to as the "Unit".
2. Offering. The Company is offering a
maximum of 625,000 Units, at the price of U.S.$6.00
per Unit for a maximum amount of U.S.$3,750,000
exclusively through IPO Capital Corp. (the
"Placement Agent"). The Offering of 625,000 Units
will be comprised of a total of 625,000 Shares of
Common Stock and 625,000 Stock Purchase
Warrants. Assuming the 625,000 Stock Purchase
Warrants are exercised, the total amount raised from
this Offering will be $7,500,000 (the "Offering"). The
proceeds of this Offering, less a commission payable
to the Placement Agent payable in warrants (for
further detail, see Section 7 "Placement Agent's
Fees & Warrants"), and less other cost and expenses
of the Offering, will be used by the Company for debt
and equity investments in technology companies. See
Section 6 "Use of Proceeds". The Offering of the
Shares is being made in reliance upon an exemption
from registration afforded by Regulation S
promulgated under the U.S. Act of 1933 (the "U.S.
Act") and the Shares may not be transferred, sold or
otherwise exchanged unless in compliance with the
provision of Regulation S and/or pursuant to
registration with the U.S. Securities & Exchange
Commission (the "Commission"), or pursuant to an
available exemption under the U.S. Act. The
Offering of the Shares is being made to not more than
20 persons, each of whom must represent that by
reason of such investor's business or financial
experience, such investor can be reasonably assumed
to be a sophisticated investor and have the capacity to
protect his or her own interests in connection with
this investment.
186
All Shares underlying the Unit are to have
demand registration rights and be qualified for resale
to the public through an SB-2 registration statement
(at the expense of the Company) within 150 days of
closing of the Merger Agreement.
3. Capital Structure. The outstanding
capital stock of the Company at the date hereof
consists of 10,550,000 shares of common stock, no
par value ("Common Stock"). If the maximum of
625,000 Units available in this Offering is sold, the
number of Shares of Common Stock then outstanding
will be 11,175,000. The Shares of Common Stock
issued from the sale of the Units will represent
approximately 5.59% of the total Shares of Common
Stock then outstanding. If the Stock Purchase
Warrants are exercised at $6.00 per Share, the total
number of Shares then outstanding will be
11,800,000 Shares of Common Stock. After the
exercise of the Stock Purchase Warrants, the total
number of Shares issued from this Offering will
represent approximately 10.59% of the total Shares
of Common Stock then outstanding.
4. Stock Exchange Agreement. After
this Offering, the Company intends to enter into a
definitive merger agreement ("Merger Agreement")
with OnVantage, through which OnVantage will
either merge with the Company or become its wholly-
owned subsidiary (the "Transaction").
5. Redeemable Common Stock
Purchase Warrants. Each Stock Purchase Warrant
represents the right to purchase one Share of
Common Stock at an exercise price of $6.00 per
Share. The exercise of the Warrants is subject to the
fulfillment of certain performance criteria. In order
for the Stock Purchase Warrants to be exercised,
OnVantage must attain "proof of concept"
("Performance Milestone") on or before October 15,
2000 (the "Second Traunch). The "Performance
Milestone" shall be any of the following: (A) at least
1,000 users of the Company's microportal technology
by a significant national company (e.g., Merrill
Lynch, E-Trade, Charles Schwab, QVC, Wells Fargo,
Answer Financial, or such other comparable entity as
acceptable to the Agent, such acceptance not to be
unreasonably withheld); (B) at least 5,000 users of
the Company's microportal technology by a national
company with a presence in at least 25 states and
acceptable to the Agent, such acceptance not to be
unreasonably withheld; or (C) at least 10,000 users of
the Company's microportal technology by a regional
company.
187
If the Performance Milestone is
achieved, the exercise of the Stock Purchase
Warrants is mandatory at $6.00 per Share. The
Stock Purchase Warrants will be forced to convert
within 15 days of the "Performance Milestone", if the
"Performance Milestone" is achieved ("Exercise
Period"). If the Stock Purchase Warrants are not
exercised within the Exercise Period, the Stock
Purchase Warrants will be redeemed by the
Company, and thereafter all rights of the holder to the
Stock Purchase Warrants and the Shares underlying
the Stock Purchase Warrants will be annulled and
cancelled.
The Shares of Common Stock issuable
on the exercise of the Stock Purchase Warrants will
be, when issued in accordance with the Stock
Purchase Warrants, fully paid and non-assessable.
The holders of the Stock Purchase Warrants have no
rights as stockholders until they exercise their Stock
Purchase Warrants.
The Warrants do not contain
provisions protecting against dilution resulting from
the sale of additional shares of Common Stock for
less than the exercise price of the Warrants or the
current market price of the Company's securities.
For the life of the Warrants, the
holders thereof have the opportunity to profit from a
rise in the market for the Company's Common Stock,
with a resulting dilution in the interest of all other
stockholders. However, the Warrants can only be
exercised if Shares of Common Stock are qualified
for sale or deemed to be exempt from qualification
under applicable state securities laws.
188
6. Use of Proceeds. The net proceeds to be received
by the Company from the sale of the Units, after deducting
the Placement Agent's fee (See Section 7 "Placement Agent's
Fees & Warrants") and other costs and expenses of the Offering,
are anticipated to be used by the Company for debt and equity
investments in OnVantage in the following manner:
Stage Event Amount Source of Funding
First Traunch Closing of $3,750,000 Sale of Units
the Offering
Second Traunch Fulfillment of $ 3,750,000 Exercise of
Performance Warrants
Milestone by
OnVantage
7. Placement Agent's Fee's &
Warrants. The Placement Agent shall receive a
commission in the amount of 10% (in cash or
common shares at the Agent's discretion) of the
gross proceeds raised on Unit sales and Stock
Purchase Warrants exercised. In addition, the
Placement Agent shall receive warrants in an
amount equal to 10% of the equity securities (or
equivalent) sold in the Offering ("Placement
Agent's Warrants"). Each Placement Agent's
Warrant will entitle the Placement Agent to acquire
one common share of the Company at the Offering
Price within one year of closing of the later of the
First or Second Traunch, and 125% of the Offering
Price for the following year. The Placement Agent
will also receive a corporate finance fee of $37,500
($18,750 at each of the First and Second
Traunches), payable in cash or common shares at
the Agent's discretion. Upon closing of the First
and/or Second Traunch, or delivery of an invoice,
the Company shall pay the Agent's total Offering
related out of pocket expenses (to a maximum of
$40,000), which includes, but is not limited to,
legal, travel, due diligence, communications and
tombstone advertising ("Expenses").
189
8. Payment. The Subscriber encloses
herewith a check payable to, or will immediately
make a wire transfer payment to an escrow account
designated by the Placement Agent for the
Company in the full amount of the purchase price
for the Shares being subscribed. Such funds, net of
the Placement Agent's Fees and Expenses, will be
held for the Subscriber's benefit, and will be
returned promptly, without interest, penalty,
expense or deduction if (a) this Subscription
Agreement is not accepted by the Company, or (b)
the Offering is terminated pursuant to its terms or
by the Company. Together with the check for, or
wire transfer of, the full purchase price, the
Subscriber is delivering a completed and executed
omnibus signature page of this Subscription
Agreement.
9. Deposit of Funds. All payments,
net of the Placement Agent's Fees and Expenses,
made as provided in Section 4 hereof shall be
deposited by the Placement Agent as soon as
practicable with an escrow agent (the "Escrow
Agent"), selected by the Placement Agent, in an
escrow account (the "Escrow Account") until the
earliest to occur of (a) the Closing of the Offering,
(b) the termination of the Offering by the Company,
or (c) the rejection of such subscription." The
Escrow Agent shall collect all proceeds, and after
deducting the Placement Agent's fee (see Section 7
"Placement Agent's Fees & Warrants") and other
costs and expenses of the Offering, distribute the
net proceeds to the Company, at or around the date
of the Closing.
10. Acceptance of Subscription. The
Subscriber understands and agrees that the
Company in its sole discretion reserves the right to
accept or reject this or any other subscription for
Shares, in whole or in part, and in any order,
notwithstanding prior receipt by the Subscriber of
notice of acceptance of this subscription. The
Company shall have no obligation hereunder until
the Company shall execute and deliver to the
Subscriber an executed copy of this Subscription
Agreement. If this subscription is rejected in whole
or the Offering is terminated or the Acquisition is
not consummated, all funds received from the
Subscriber, net of the Placement Agent's Fees and
Expenses will be returned without interest, penalty,
expense or deduction, and this Subscription
Agreement shall thereafter be of no force or effect.
If this subscription is rejected in part, and in any
order, the funds for the rejected portion of this
subscription will be returned without interest,
penalty, expense or deduction, and this
Subscription Agreement will continue in full force
and effect to the extent this subscription was
accepted.
190
11. Post-Acquisition Closing
Covenants. If a majority of the Subscribers submit
a written demand to the Company to register the
Units sold in this Offering (the "Demand Notice"),
the Company shall use its best efforts to register
with the Commission the Units on a Form SB-2
Registration Statement, or, to the extent the
Company is eligible, on a Form S-3 Registration
Statement or, any other form of Registration
Statement that may be applicable, no later than six
months from the date of the Demand Notice (the
"Registration Deadline"), at the Company's sole
cost and expense;
12. Transferability. The Shares will
not be registered for public sale under the securities
laws of the United States, but will have registration
rights as set forth in Section 11.
13. Representation and Warranties.
The Subscriber represents, warrants, acknowledges
and agrees as follows:
a. The Subscriber understands and
acknowledges that none of the Shares acquired
pursuant to this Agreement have been registered
under the U.S. Act, and are being sold in reliance
upon an exemption from registration afforded by
Regulation S promulgated under the U.S. Act; and
that the Shares have not been registered with any
state securities commission, or governmental
agency, or authority. The Subscriber further
understands that pursuant to the requirements of
Regulation S, the Shares acquired herein may not
be transferred, sold or otherwise exchanged unless
in compliance with the provisions of Regulation S
and/or pursuant to registration with the
Commission, or pursuant to an available exemption
under the U.S. Act;
191
b. The Subscriber affirms herein that the
Subscriber is a suitable Regulation S investor as
follows:
(i) the Subscriber is not a "U.S. person" as
that term is defined in Regulation S (see
Schedule A attached hereto);
(ii) the Subscriber will not transfer or sell
the Shares purchased herein to any U.S.person;
and
(iii) at the time the buy order for the Shares
was originated, the Subscriber was outside the
United States and does not reside in the U.S.;
c. That the certificates representing the
Shares shall bear, in addition to any legend(s) required
by the securities laws and policies of the jurisdiction
in which the Subscriber resides, the following legend:
THE SHARES OF COMMON STOCK HAVE NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE UNITED STATES SECURITY ACT
OF 1933, AS AMENDED (THE "U.S. ACT"). THE HOLDER HEREOF,
BY PURCHASING SUCH SECURITIES AGREES FOR THE
BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (A) TO THE COMPANY, OR (B)OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH RULE 904
OF REGULATION S UNDER THE U.S. ACT, IF
APPLICABLE, (C)INSIDE THE UNITED STATES
(1) PURSUANT TO THE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE U.S. ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND
IN ACCORDANCE WITH STATE SECURITIES LAWS, OR (2)
IN A TRANSACTION THAT DOES NOT REQUIRE
REGISTRATION UNDER THE U.S. ACT OR ANY
APPLICABLE STATE LAW AND REGULATIONS GOVERNING
THE OFFER AND SALE OF SECURITIES, AND THE HOLDER
HAS PRIOR TO SUCH SALE FURNISHED TO THE COMPANY AN
OPINION OF COUNSEL, OF RECOGNIZED STANDING,REASONABLY
SATISFACTORY TO THE COMPANY. A NEW CERTIFICATE,
BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE
"GOOD DELIVERY" MAY BE OBTAINED FROM THE REGISTRAR UPON
DELIVERY OF THIS CERTIFICATE AND A LEGAL OPINION, IN A
FORM SATISFACTORY TO THE REGISTRAR AND THE COMPANY,
TO THE EFFECT THAT THE SALE OF THE SECURITIES
REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE
904 OF REGULATION S UNDER THE U.S. ACT;
192
d. The Subscriber and the
Subscriber's attorney, accountant, Subscriber,
representative, and/or tax advisor, if any
(collectively, the "Advisors") have received the
Subscription Agreement and all other documents
requested by them and have carefully reviewed all
the documents and understand the information
contained therein, and the Subscriber and
Advisors, if any, prior to the execution of this
Subscription Agreement, have had access to the
information which would be available in a
Registration Statement filed by the Company under
the U.S. Act;
e. Neither the Commission nor
any state securities commission, or governmental
agency has approved the Shares or Common Stock
issuable upon conversion thereof, or passed upon
or endorsed the merits of the offering or confirmed
the accuracy or determined the adequacy of the
Subscription Agreement. The Subscription
Agreement has not been reviewed by any U.S.
Federal, State or Regulatory Authority;
f. All documents, records and
books pertaining to the investment in the Shares
(including, without limitation, the Subscription
Agreement), have been made available for
inspection by the Subscriber and the Advisors, if
any;
g. The Subscriber and the
Advisors, if any, have had a reasonable opportunity
to ask questions of and receive answers from a
person or persons acting on behalf of the Company
concerning the offering of the Shares and the
business, financial condition, results of operations
and prospects of the Company, and all such
questions have been answered to the full
satisfaction of the Subscriber and the Advisors, if
any;
193
h. In evaluating the suitability
of an investment in the Company, the Subscriber
has not relied upon any representation or other
information (oral or written) other than as stated in
the Subscription Agreement;
i. The Subscriber is unaware
of, is in no way relying on, and did not become
aware of the Offering of the Shares through or as a
result of, any form of general solicitation or general
advertising within the United States including,
without limitation, any article, notice,
advertisement or other communication published in
any newspaper, magazine or similar media
broadcast over television or radio, in connection
with the Offering and sale of the Shares and is not
subscribing for Shares and did not become aware of
the Offering of the Shares through or as a result of
any seminar or meeting to which the purchases in
connection with investments in securities generally;
j. The Subscriber, together
with the Advisors, have such knowledge and
experience in financial, tax and business matters
and, in particular, investments in securities, and the
purchase of Securities pursuant to Regulation S
under the Act, in order to enable them to utilize
such information available to them in connection
with the offering of the Shares to evaluate the
merits and all risks of an investment in the Shares
and the Company and to make an informed
investment decision with respect thereto;
k. The Subscriber is not relying
on the Company, the Placement Agent or any of
their respective employees or agents with respect to
the legal, tax, economic and related considerations
as to an investment in the Shares. The Subscriber
has only relied on the advice of, or has consulted
with, his own Advisors;
194
l. The Subscriber is acquiring
the Shares solely for the Subscriber's own account
for investment and not with a view to resale,
assignment or distribution thereof, in whole or in
part. The Subscriber has no agreement or
arrangement, formal or informal, with any person to
sell or transfer all or any part of the Shares and the
Subscriber has no plans to enter into any such
agreement or arrangement;
m. The Subscriber must bear the
substantial economic risks of the investment in the
Shares indefinitely because none of the securities
included in the Shares may be sold, hypothecated or
otherwise disposed of unless subsequently
registered under the U.S. Act and applicable state
securities law or an exemption from such
registration is available. Legends shall be placed on
the Shares to the effect that they have not been
registered under the U.S. Act or applicable state
securities laws and appropriate notations thereof
will be made in the Company's stock books. Stop
transfer instructions will be placed with the transfer
agent of the securities constituting the Shares. The
Company has agreed that the Subscribers to the
Shares will have the registration rights described in
Paragraph 7 of this Subscription Agreement.
Notwithstanding such registration rights, there is no
assurance that there will be any market for resale of
the Shares and the Shares will not be freely
transferable at any time in the immediate future;
n. The Subscriber has adequate
means of providing for his own current financial
needs and foreseeable contingencies and has no
need for liquidity of the investment in the Shares
for an indefinite period of time;
o. The Subscriber is aware that
an investment pursuant to this Subscription
Agreement in the Shares involves a number of very
significant risks and, in particular, acknowledges
that the Company is in the development state and
has not commenced significant operations;
195
p. The Subscriber meets the
requirements of the suitability standards for an
"accredited investor" as set forth on the Accredited
Investor Certification contained herein;
q. The Subscriber represents
that the Subscriber: (i) is a natural person, has
reached the age of 21 and has full power and
authority to execute and deliver this Subscription
Agreement and all other related agreements or
certificates and to carry out the provisions hereof
and thereof; (ii) if a corporation, partnership,
limited liability company or partnership,
association, joint stock company, trust,
unincorporated organization or other entity, such
entity was not formed for the specific purpose of
acquiring the Shares, and that such entity is duly
organized, validly existing and in good standing
under the laws of the state of its organization, the
consummation of the transactions contemplated
hereby is authorized by, and will not result in a
violation of state law or its charter or other
organizational documents, such entity has full
power and authority to execute and deliver this
Subscription Agreement and all other related
agreements or certificates and to carry out the
execution and delivery of this Subscription
Agreement has been duly authorized by all
necessary action, this Subscription Agreement has
been duly executed and delivered on behalf of such
entity and is a legal, valid and binding obligation of
such entity; and (iii) if executing this Subscription
Agreement in a representative or fiduciary capacity,
the Subscriber has full power and authority to
execute and deliver this Subscription Agreement in
such capacity and on behalf of the subscribing
individual, ward, partnership, trust, estate,
corporation, limited liability company or limited
liability partnership, or any other entity for whom
the Subscriber is executing this Subscription
Agreement, and such individual, ward, partnership,
trust, estate, corporation, limited liability company
or partnership, trust, estate, corporation, limited
liability company or partnership, or any other entity
has full right and power to perform pursuant to this
Subscription Agreement, and this Subscription
Agreement constitutes a legal, valid and binding
obligation of such entity. The Subscriber also
represents that the execution and delivery of this
Subscription Agreement will not violate or be in
conflict with any order, judgment, injunction,
agreement or controlling document to which the
Subscriber is a party or by which it is bound;
196
r. The Subscriber and the
Advisors, if any, had the opportunity to obtain any
additional information, to the extent the Company
had such information in its possession or could
acquire it without unreasonable effort or expense,
necessary to verify the accuracy of the information
contained in the all the documents received or
reviewed in connection with the purchase of the
Shares and had the opportunity to have
representatives of the Company provide them with
such additional information regarding the terms and
conditions of this particular investment and the
financial condition, results of operations, business
and prospects of the Company deemed relevant by
the Subscriber or the Advisors, if any, and all such
requested information, to the extent the Company
had such information in its possession or could
acquire it without unreasonable effort or expense,
has been provided to its full satisfaction;
s. The Subscriber represents to
the Company that any information which the
undersigned has heretofore furnished or furnishes
herewith to the Company or the Placement Agent is
complete and accurate and may be relied upon by
the Company in determining the availability of an
exemption from registration under Federal and state
securities laws in connection with the offering of
securities as described in the Subscription
Agreement. The Subscriber further represents and
warrants that it will notify and supply corrective
information to the Company and the Placement
Agent immediately upon the occurrence of any
change therein occurring prior to the Company's
issuance of the Shares;
197
t. The Subscriber has
significant prior investment experience, including
investment in non-listed, non-registered and
Regulation S securities. The Subscriber is
knowledgeable about investment considerations in
development-stage companies. The Subscriber has
a sufficient net worth to sustain a loss of the
Subscriber's entire investment in the Company in
the event such a loss should occur. The
Subscriber's overall commitment to investments
which are not readily marketable is not excessive in
view of its net worth and financial circumstances
and the purchase of the Shares will not cause such
commitment to become excessive. The investment
is a suitable one for the Subscriber.
u. The Subscriber is satisfied
that the Subscriber has received adequate
information with respect to all matters which the
Subscriber or the Subscriber's Advisors, if any,
consider material to the Subscriber's decision to
make this investment.
v. No oral or written
representations have been made, or oral or written
information furnished, to the Subscriber or the
Advisors, if any, in connection with the Offering of
the Shares or as to the Company, which are in any
way inconsistent with the information provided to
the Subscriber;
w. Within five days after receipt
of a request from the Company or the Placement
Agent, the Subscriber will provide such information
and deliver such documents as may reasonably be
necessary to comply with any and all laws and
ordinances to which the Company or the Placement
Agent is subject;
198
x. THE SECURITIES
OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF CERTAIN STATES AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS
OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT
AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES
PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE
ACCURACY OR ADEQUACY OF THE SUBSCRIPTION AGREEMENT. ANY
REPRESENTATION OF THE CONTRARY IS UNLAWFUL.
14. Indemnification. The Subscriber
agrees to indemnify and hold harmless the
Company, the Placement Agent, the escrow agent,
and their respective officers, directors, employees,
attorneys, Agent, representatives, control persons
and affiliates against all losses, liabilities, claims,
damages and expenses whatsoever (including, but
not limited to, any and all expenses incurred in
investigating, preparing or defending against any
litigation commenced or threatened) based upon or
arising out of any actual or alleged false
acknowledgment, representation or warrant, or
misrepresentation or omission to state a material
fact, or breach by the Subscriber or any
representation, warranty, covenant or agreement
made by the Subscriber herein or in any other
document delivered in connection with this
Subscription Agreement
15. Irrevocability; Binding Effect.
The Subscriber hereby acknowledges and agrees
that if this Subscription Agreement is accepted the
subscription hereunder is irrevocable by the
Subscriber, except as required by applicable law,
and that this Subscription Agreement shall survive
the death or disability of the Subscriber and shall be
binding upon and inure to the benefit of the parties
and their heirs, executors, administrators,
successors, legal representatives an permitted
assigns. If the Subscriber is more than one person,
the obligations of the Subscriber hereunder shall be
joint and several and the covenants, agreements,
representations, warranties, and acknowledgments
herein shall be deemed to be made binding upon
each such person and such person's heirs,
executors, administrators, successors, legal
representatives and permitted assigns.
199
16. Modification. This Subscription
Agreement shall not be waived except by an
instrument signed by the party against whom any
such modification or waiver is sought.
17. Notices. Any notice or other
communication required or permitted to be given
hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered
against receipt to the party to whom it is given (a)
if to the Company, at the address set forth above,
or (b) if to the Subscriber, at the address set forth
on the signature page hereof (or, in either case, to
such other address as the party shall have furnished
in writing in accordance with the provisions of this
Section 13). Any notice or other communication
given by certified mail shall be deemed given at the
time of certification thereof, except for a notice
changing a party's address which shall be deemed
given at the time of receipt thereof.
18. Assignability This Subscription
Agreement and the rights, interests and obligations
hereunder are not transferable or assignable by the
Subscriber.
19. Applicable Law: Arbitration.
This Agreement shall governed by and construed in
accordance with the laws of British Columbia,
Canada.
20. Use of Pronouns. All pronouns and
any variations thereof used herein shall be deemed
to refer to the masculine, feminine, neuter, singular
or plural as the identity of the person or persons
referred to may require.
200
21. Confidentiality. The Subscriber
acknowledges and agrees that any information or
data it had acquired from or about the Company,
not otherwise properly in the public domain, was
received in confidence. The Subscriber agrees not
to divulge, communicate or disclose, except as may
be required by law or for the performance of this
Agreement, or to use to the detriment of the
Company or for the benefit of the Company or for
the benefit of any other person or persons, or
misuse in any way, any confidential information of
the Company, including any scientific, technical,
trade or business secrets of the Company and any
scientific, technical, trade or business materials that
are treated by the Company as confidential or
proprietary, including, but not limited to, ideas,
discoveries, inventions, developments and
improvements belonging to the Company and
confidential information obtained by or given to the
Company about or belonging to third parties.
22. Miscellaneous.
a. This Agreement constitutes
the entire agreement between the Subscriber and
the Company with respect to the subject matter
hereof and supersedes all prior oral or written
agreements and understandings, if any, relating to
the subject matter hereof. The terms and
provisions of this Agreement may be waived, or
consent from the departure therefrom granted, only
by a written document executed by the party
entitled to the benefit of such terms or provisions.
b. The Subscriber's covenants,
agreements, representations and warranties made in
this Agreement shall survive the execution and
delivery hereof and delivery of the Shares.
201
c. Each of the parties hereto
shall pay its own fees and expenses (including the
fees of any attorneys, accountants, experts or
others engaged by such party) in connection with
this Agreement and the transactions contemplated
hereby whether or not the transactions
contemplated hereby are consummated.
d. This Agreement may be
executed in one or more counterparts, each of
which shall be deemed an original, but all of which
shall together constitute one and the same
instrument.
e. Each provision of this
Subscription Agreement shall be considered
separable and, if for any reason any provision or
provisions hereof are determined to be invalid or
contrary to applicable law, such invalidity or
illegality shall not impair the operation of or affect
the remaining portions of this Subscription
Agreement.
f. Paragraph titles are for
descriptive purposes only and shall not control or
alter the meaning of this Subscription Agreement as
set forth in the text.
ZSTAR ENTERPRISES, INC.
OMNIBUS SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
_______________ x U.S. $6.00 = __________________
No. of Units Purchase Price Subscription Price
If the Subscriber is an INDIVIDUAL, and if
purchased as JOINT TENANTS, as TENANTS IN
COMMON, or as COMMUNITY PROPERTY:
____________________________
Print Name(s)
____________________________
Signature(s) of Subscriber(s)
___________________________ _________________________
Date Address
202
If the Subscriber is a PARTNERSHIP,
CORPORATION, TRUST, LIMITED LIABILITY
PARTNERSHIP or LIMITED LIABILITY
COMPANY:
____________________________ ___________________________
Name of Partnership,
Corporation, Trust, LLP
or LLC
___________________________ _____________________________
Date Jurisdiction of Organization
By:__________________________ ____________________________
Name: Address
Title:
ACCEPTED AND AGREED TO
this ___ day of ____________, 2000.
ZSTAR ENTERPRISES, INC. IPO CAPITAL CORP.
By: ________________________ By: _______________
Eric White John Brighten
SCHEDULE A
A U.S. person is defined by Regulation S as:
i. Any person resident in the United
States.;
ii. Any partnership or corporation
organized or incorporated under the
laws of the United States;
iii Any estate of which any executor or
administrator is a U.S. person;
iv. Any trust of which any trustee is a
U.S. person;
v. Any agency or branch of a foreign
entity located in the United States;
vi. Any non-discretionary account or
similar account (other than an estate
or trust) held by a dealer or other
fiduciary for the benefit or account of
a U.S. person;
vii. Any discretionary account or similar
account (other than an estate or trust)
held by a dealer or other fiduciary
organized, incorporated, or (if an
individual) resident in the United
States; and
203
A. Organized or incorporated under the
laws of any foreign jurisdiction; and
B. formed by a U.S. person
principally for the purpose of investing in
any securities not registered under the Act,
unless it is organized or incorporated, and
owned, by accredited investors (as defined in
Rule 501(a) under the Act who are not natural
persons, estates or trusts.
EXHIBIT 13
Incorporated by reference to the Company's Annual
Report on Form 10KSB as filed with the Securities
and Exchange Commission on February 29, 2000
EXHIBIT 99
INSTRUCTIONS
FOR
THE SHAREHOLDER CONSENT FORM
204
After carefully evaluating the Definitive
Information Statement and the Annual Report, please
complete and sign the attached Shareholder Consent
Form. Please fax the completed and signed
Shareholder Consent Form to Zstar Enterprises, Inc.
by July 5, 2000 at the following fax numbers: (604)
683-6267 or alternatively (604) 683-8891. If you
require assistance or have any questions about any of
the proposals presented in the Shareholder Consent
Form, please contact Mr. Paul Wiebe at 1-800-818-
1887. Written requests can be made to: Zstar
Enterprises, Inc. c/o IPO Capital Bentall Tower 3,
Suite 3000, Burrard Street, Vancouver, B.C. V7X1L4.
ZSTAR ENTERPRISES, INC.
WRITTEN CONSENT OF THE
SHAREHOLDERS
June 14, 2000
_________________________________________
Pursuant to Sections 320, 385 and 390 of
Chapter 78 of the Nevada Revised Statutes, the
undersigned, being the holder(s) of _____ shares of
capital stock of Zstar Enterprises, Inc. (the
ACorporation@), hereby consent(s) to the following
resolutions:
RESOLVED, that the Merger
Agreement with OnVantage, Inc., a Delaware
corporation ("OnVantage"), dated May 26,
2000 be, and the same hereby is, adopted.
____YES ____NO
RESOLVED, that the Corporation is
authorized to sale Apex Canadian Holidays
Ltd. (AApex@), a British Columbia, Canada
corporation, which is a wholly-owned
subsidiary of the Corporation.
____YES ____NO
205
RESOLVED, that ARTICLE III of
the Articles of Incorporation of the
Corporation be amended to read in its entirety
as follows:
"ARTICLE III. STOCK: The aggregate
number of shares of stock which
the corporation shall have the authority
to issue is: One Hundred Million
(100,000,000) shares of Common Stock with
a par value of $0.001 per share; and Five
Million (5,000,000) shares of Preferred Stock
with a par value of $0.001 per share."
____YES ____NO
RESOLVED, that the Corporation be
authorized to issue five million (5,000,000)
shares of Preferred Stock at a par value of one
dollar ($0.001) per share (the "Preferred
Stock"). The Preferred Stock may, without
action by the stockholders of the Corporation,
be issued by the Board of Directors of the
Corporation from time to time in one or more
series for such consideration and with such
relative rights, privileges and preferences as
the Board of Directors may determine.
Accordingly, the Board of Directors has the
power to fix the dividend rate and establish the
provisions, if any, relating to voting rights,
redemption rate, sinking fund, liquidation
preferences and conversion rights for any
series of Preferred Stock issued in the future.
____YES ____NO
RESOLVED, that the Corporation be authorized to grant
stock options pursuant to the Stock Option Plan.
____YES____NO
206
RESOLVED, that the Corporation be authorized to
redomesticate the Corporation to the State of Delaware.
____YES____NO
RESOLVED, that after the transaction contemplated in the
Stock Exchange Agreement has been effected and completed,
that ARTICLE I of the Articles of Incorporation of the
Corporation be amended to read in its entirety as follows:
"ARTICLE I. NAME: The name of this corporation is
Onvantage, Inc."
____YES_____NO
RESOLVED, the following candidates shall serve as members
of the Board of Directors for the following year: Paul
Wiebe, Ken Raasch, and Tony Thomopoulos.
____YES____NO
RESOLVED, that the President of the Corporation be and he
hereby is authorized to execute and deliver to the Department
of State of the State of Nevada a Certificate of Amendment
and a Certificate of Change in the form provided for by the
Nevada Revised Statutes.
____YES____NO
IN WITNESS WHEREOF, the undersigned has/have caused this Consent
to be executed as of the above date.
Signature
Print Name ___________________________
207
ZSTAR ENTERPRISES, INC.
UNANIMOUS WRITTEN
CONSENT OF THE BOARD OF DIRECTORS
May 26, 2000
____________________________________
Pursuant to Chapter 78, Sections 120, 138,
209, 315, 385(c) and (d), and 390 of the Nevada
Revised Statutes, the undersigned, being all of the
directors of Zstar Enterprises, Inc. (the
ACorporation@), hereby consent to the adoption of
the following resolutions:
WHEREAS, the Board of Directors
of the Corporation has determined that the
Merger Agreement with OnVantage, Inc., a
Delaware corporation ("OnVantage"), is in
the best interest of the Corporation; and
WHEREAS, the Board of Directors
of the Corporation has determined that in
connection with this transaction, it is
advisable to increase the number of shares
which the Corporation shall have the
authority to issue and, for the purpose of
effecting such increase, to amend ARTICLE
III of the Articles of Incorporation of the
Corporation; and
WHEREAS, the Board of Directors
of the Corporation has determined that after
the transaction contemplated in the
aforementioned resolutions has been effected
and completed, that it be in the best interest
of the Corporation to change the name of the
Corporation and, for the purpose of effecting
such name change, to amend ARTICLE I of
the Articles of Incorporation of the
Corporation; and
WHEREAS, the Board of Directors
of the Corporation has determined that it is
in the best interest of the Corporation for the
Corporation to create a class of Preferred
Stock; and
208
WHEREAS, the Board of Directors
of the Corporation has determined that the
sale of Apex Canadian Holidays Ltd.
(AApex@), a British Columbia, Canada
corporation, which is a wholly-owned
subsidiary of the Corporation, is in the best
interest of the Corporation; and
WHEREAS, the Board of Directors
of the Corporation has approved the Private
Placement Offering; and
WHEREAS, the Board of Directors
of the Corporation seeks authority to
reorganize and redomesticate the
Corporation to the State of Delaware; and
WHEREAS, the Board of Directors
of the Corporation has determined that
authorizing the Corporation to grant stock
options pursuant to the Stock Option Plan is
in the best interest of the Corporation;
IT IS THEREFORE,
RESOLVED, that ARTICLE III of
the Articles of Incorporation of the
Corporation be amended to read in its
entirety as follows:
"ARTICLE III. STOCK: The aggregate
number of shares of stock which
the corporation shall have the
authority to issue is: One Hundred
Million (100,000,000) shares
of Common Stock with a par value of
$0.001 per share, and Five Million
(5,000,000) shares of Preferred Stock
with a par value of $0.001 per share."
209
RESOLVED, that the Corporation be
authorized to issue five million (5,000,000)
shares of Preferred Stock at a par value of one
dollar ($0.001) per share (the "Preferred
Stock"). The Preferred Stock may, without
action by the stockholders of the Corporation,
be issued by the Board of Directors of the
Corporation from time to time in one or more
series for such consideration and with such
relative rights, privileges and preferences as
the Board of Directors may determine.
Accordingly, the Board of Directors has the
power to fix the dividend rate and establish
the provisions, if any, relating to voting
rights, redemption rate, sinking fund,
liquidation preferences and conversion rights
for any series of Preferred Stock issued in the
future.
RESOLVED, that the Board of
Directors of the Corporation hereby approves
the Merger Agreement with OnVantage in
which holders of shares of OnVantage
Common Stock will receive twenty million
one hundred ninety thousand (20,190,000)
shares of the Corporation=s Common Stock in
exchange for the total capital Stock of
OnVantage (the "Merger Agreement").
Thereafter, OnVantage will become a wholly-
owned subsidiary of the Corporation.
RESOLVED, that the Board of
Directors of the Corporation will seek the
written consent of the shareholders of the
Corporation to grant the authority to
redomesticate to the State of Delaware.
210
RESOLVED, that the Corporation be
authorized to grant stock options pursuant to
the Stock Option Plan.
RESOLVED, that after the
transaction contemplated in the Merger
Agreement has been effected and completed,
that ARTICLE I of the Articles of
Incorporation of the Corporation be amended
to read in its entirety as follows:
"ARTICLE I. NAME: The name of this
corporation is Onvantage, Inc.."
RESOLVED, that the Board of Directors shall
present the following names as candidates for
the Board of Directors for shareholder
approval: Paul Wiebe, Ken Raasch, and Tony
Thomopoulos:
RESOLVED, that the proper officers
of the Corporation be and hereby are,
authorized to take or cause to be taken any
such action, to execute, deliver and perform
in the name and on behalf of the Corporation
all such agreements, instruments, certificates
and other documents and to cause such
filings and make such expenditures as any
such officer deems necessary or advisable to
effectuate the purposes and intentions of the
foregoing resolutions and which such officer
may approve, such approval to be conclusive
evidence of the approval of the Board of
Directors of the Corporation.
ORDERED, that the aforementioned
resolutions be submitted to a vote of the
shareholders of the Corporation.
211
IN WITNESS WHEREOF, the
undersigned have caused this Consent to be
executed as of the above date.
______________________________
David Paul Wiebe
______________________________
Eric Neil White
