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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
VALUESTAR CORPORATION
(Name of Small Business Issuer in its charter)
Colorado 84-1202005
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1120A Ballena Blvd., Alameda, California, 94501
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (510) 814-7070
Securities to be registered under Section 12 (b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.00025 par value
(Title of Class)
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FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS REGISTRATION STATEMENT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 AND THE COMPANY DESIRES TO TAKE ADVANTAGE OF THE
"SAFE HARBOR" PROVISIONS THEREOF. THEREFORE THE COMPANY IS INCLUDING THIS
STATEMENT FOR THE EXPRESS PURPOSE OF AVAILING ITSELF OF THE PROTECTIONS OF SUCH
SAFE HARBOR WITH RESPECT TO ALL OF SUCH FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS IN THIS REGISTRATION STATEMENT REFLECT THE COMPANY'S
CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES,
INCLUDING THOSE DISCUSSED HEREIN, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. IN THIS REPORT, THE
WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE" AND SIMILAR
EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED TO
CONSIDER THE SPECIFIC RISK FACTORS DESCRIBED BELOW AND NOT TO PLACE UNDUE
RELIANCE ON THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY AS
OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE
THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT MAY
ARISE AFTER THE DATE HEREOF.
Part I
Item 1. Description of Business.
Business Development
ValueStar Corporation ("Issuer" or "Company") was incorporated in the State of
Colorado on January 28, 1987 as Carson Capital Corporation and on September 21,
1992 its name was changed to ValueStar Corporation. The Company was inactive
until entering into an Agreement and Plan of Reorganization dated June 27, 1992
with ValueStar, Inc., a California corporation and its sole shareholder James
Stein (currently President, Chief Executive Officer and a Director) whereby
ValueStar, Inc. became a wholly-owned subsidiary of the Company. Prior to the
acquisition the Company had 10,000,000 common shares, par value $.00001, issued
and outstanding. In connection with the acquisition 9,350,000 outstanding common
shares were canceled, and 1,225,000 common shares were issued to James Stein for
100% of the outstanding shares of ValueStar, Inc. and an additional 187,500
common shares were issued to James Stein for cash with the $75,000 proceeds used
to retire a loan obligation of ValueStar, Inc. which had financed initial
development operations. In connection with the acquisition, in July 1992 the
Company completed a private placement of 437,500 units (one common share and a
one year warrant exercisable at $0.40 per share) at $0.40 per unit for gross
proceeds of $175,000 resulting in 2,500,000 common shares being issued and
outstanding upon completion of the acquisition and the private financing. The
acquisition was accounted for as a recapitalization of ValueStar, Inc. with
ValueStar, Inc. as the acquirer of ValueStar Corporation in a reverse
acquisition. On September 21, 1992 the total authorized shares was reduced from
500,000,000 common shares to 20,000,000 common shares with a par value of
$.00025 per share.
The Company's operations are conducted through its wholly-owned subsidiary
ValueStar, Inc. which was incorporated on September 5, 1991. Initial business
organization and development activities commenced September 22, 1990 and until
September 5, 1991 the business was operated as a sole proprietorship by James
Stein.
The Company's operations have been funded primarily through private placements
of common stock and exercise of warrants. At April 30, 1997 the Company had a
total of 8,126,246 common shares issued and outstanding. On April 16, 1997 the
Company's shareholders approved the amendment of the Company's articles of
incorporation to authorize the issuance of a maximum of 5,000,000 shares of
preferred stock, $.00025 par value per share. No preferred shares are
outstanding.
Business of Issuer
Overview
The Company through its wholly-owned subsidiary, ValueStar, Inc., is a provider
of service and professional business rating information. The rating information
is available free to consumers to assist them in selecting from only the highest
ranked service providers in a local area (including auto, home, health, personal
and professional providers of services). The Company's activities commenced in
the greater San Francisco, California area (Bay area) in 1992 and in July 1996
were expanded to include the greater Sacramento, California area.
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The Company through ValueStar, Inc. licenses the use of its certification
trademark, "ValueStar(R) Certified" to qualifying businesses which through
independent research are rated high in customer satisfaction. The Company
derives its revenue from rating and research fees paid by both passing and
non-passing certification applicants, by initial and renewal licensing fees paid
by passing applicants and through the sale of affiliated information materials
such as brochures and additional services including expanded Internet listings,
voice-text (automated telephone listing information) services and fees for
premium listings in Company publications.
The Company engages in licensee (customer) support activities to create and
enhance consumer and business awareness of the meaning and significance of the
ValueStar Certified certification mark and the value of the Company's rating
process. These activities include public relations efforts, direct advertising
and periodic distribution to households and businesses of the Company's Consumer
ValueStar Report, a free publication explaining the concept of ValueStar
Certified, listing qualifying businesses in a given market area and providing
general consumer information. Comparable information is also available on the
Internet at the Company's site at WWW.VALUESTAR.COM and through the Company's
computerized voice-text program. Consumers are exposed to the certification mark
through the advertising and promotional efforts of licensees who use the
certification mark in brochures, advertisements, commercials, direct selling
situations and promotions to distinguish themselves as being rated high in
customer satisfaction. Since the certification mark is displayed in media,
consumers use the certification information at no charge.
The Company believes its rating information is a valuable tool allowing
consumers to conveniently select from only those companies ranked high in
customer satisfaction.
History of Operations
During late 1990 and 1991, James Stein, President and CEO of the Company,
developed the basic operating concept of ValueStar Certified. In March 1991, Mr.
Stein engaged San Francisco State University (SFSU) to conduct a consumer
feasibility study to determine the potential influence of ValueStar Certified on
consumers and a service business feasibility study to determine the potential
market for ValueStar Certified among providers of consumer services (service
providers) in the Bay area. In October 1991 base-line consumer satisfaction and
additional consumer feasibility research was completed by The Institute of
Social Research at California State - Stanislaus (ISR). This research provided
an average or benchmark customer satisfaction rating for individual service and
professional industries targeted by the Company.
Based on the information from those studies and research and using Mr. Stein's
prior experience in the Yellow Page publishing industry, during late 1991 the
Company developed initial marketing and support materials. The Company also
began a relationship with an auxiliary unit of SFSU, The Public Research
Institute (PRI). PRI is operated by faculty of SFSU and employs students to
conduct research and surveys primarily for governmental organizations. The
Company engaged PRI to perform or supervise surveys of each ValueStar business
applicant's former customers to provide a confidential, unbiased and scientific
survey of customer satisfaction. Although PRI commenced providing individual
business surveys in early 1992, the relationship was formalized into a written
contract in October 1992, with the latest renewal contract effective April 30,
1997.
The Company commenced business rating and licensing activities and public
relations activities to develop consumer and business awareness of the ValueStar
Certified program in the Bay area in early 1992. Management believes that one of
the most critical factors relating to long-term success of the business are
renewal rates of licensees. During the last three fiscal years ending June 30,
1996 more than 75% of licensed businesses have renewed their licenses each year
which management believes indicates strong business acceptance of the ValueStar
Certified program.
In mid-1994 the Company added the Consumer ValueStar Report publication, a
directory of qualified and licensed businesses and consumer information, to the
program. This publication is distributed to consumers and businesses. For
consumers it is designed as an easy reference list of businesses rated high in
customer satisfaction, a quality "yellow pages" listing. For ValueStar
licensees, the distribution of the publication is targeted to provide important
and credible exposure to prospective customers. For the Company, management
believes the publication enhances the business offering to prospective
applicants and provides a periodic deadline to encourage businesses to apply for
rating by a specific date. The January 1997 semi-annual edition was distributed
to 260,000 homes and businesses in the San Francisco Bay and Sacramento areas.
On January 1, 1996 the Company launched its Internet strategy with its own World
Wide Web site WWW.VALUESTAR.COM. The site contains information on the ValueStar
Certified program and a listing of ValueStar Certified licensees. The Company
added a computerized voice-text service in August 1996 allowing consumers to
connect directly to licensees. Consumers can access free lists of qualifying
service businesses through the Consumer ValueStar Report publication, by
accessing WWW.VALUESTAR.COM, or by simply calling 808-STAR for a voice-text
recording of businesses. Information about qualifying businesses and the
ValueStar Certified program is
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available through licensee promotions including yellow page listings, newspaper
and radio advertisements, brochures, fliers and other media.
In July 1996, the Company expanded its services beyond the San Francisco Bay
area to include the greater Sacramento, California area.
Industry Background
The Company's concept of a local standardized rating of service and professional
firms by their own customers was developed on the premise that consumers are
inundated with claims from businesses and have become increasingly skeptical.
For businesses the Company believes it is increasingly difficult and costly for
them to differentiate on quality or customer satisfaction due to the
proliferation of claims, competition and increasing consumer skepticism.
ValueStar believes consumers want to know which businesses are better than
others. ValueStar believes this desire and need for unbiased information has
been a factor in the growth of Consumer Reports magazine (product evaluations
and ratings), J.D. Powers (customer satisfaction ratings on vehicles and
computers) and consumer and market research companies.
ValueStar Certified is part of the certification mark industry which includes
trade association and various accrediting marks. Examples of such marks include
the Good Housekeeping Seal, AAA Approved Auto Repair and various lodging and
restaurant industry ratings and marks. Since ValueStar Certified provides a
resource for consumers to contact to obtain a particular category of business it
shares aspects of referral services and agencies such as 1-800 Dentists, medical
and contractor referrals. And since ValueStar publishes and distributes a
periodic listing of businesses rated high in customer satisfaction it also
shares industry characteristics of service guide publishers and the yellow pages
industry. And finally ValueStar maintains an Internet site of qualifying service
businesses and consumer information sharing aspects of the growing Internet
yellow pages, directories, and city guide information services.
The Company believes the factors affecting the selection of a local service are
different than those involving a widely available product. Typically, compared
to a product purchase, a consumer has more company choices from which to
discern, the quality level of services is less consistent, it is more difficult
to experience or compare a service prior to purchase, services cannot be
returned and therefore the entire decision process is riskier and more
frustrating for consumers. ValueStar Certified is designed to respond to these
factors by providing businesses and consumers with important customer
satisfaction information delivered in various media through a recognizable and
easy-to-use certification mark.
ValueStar and the Internet
The Internet is a rapidly growing global web of computer networks permitting
users to communicate throughout the world. The Internet provides organizations
and individuals with new means to conduct business. Commercial uses of the
Internet include business-to-business and business-to-consumer transactions,
product marketing, advertising, entertainment, electronic publishing, electronic
services and customer support. While industry estimates of the number of
Internet users varies widely, a survey conducted by CommerceNet-Nielsen Media
Research in December 1996 and January 1997 indicates that 50.6 million persons
in the U.S. and Canada use the Internet more than doubling from 1995.
The Company believes the Internet environment is an excellent medium for
delivery of ValueStar Certified rating information. The Company also believes
that "pocketbook" or financial related referential information is a rapidly
growing use of the Internet and is sought after by Internet users. The Company's
listings of quality businesses and consumer information is available to Internet
users free allowing them to reduce the risk and guesswork associated with
selecting local service or professional businesses.
Many Internet content providers rely on an advertising model like broadcast
television or are seeking a formula to charge consumers for use like cable
television. To date, the Company does not believe either model has had broad
based financial success. While providing ValueStar content on the Internet is a
valuable component of the Company's strategy to reach consumers and support its
licensees, the Company is not dependent on the Internet for its basic revenue.
ValueStar offers businesses the opportunity to expand their listings and link
their sites with ValueStar. Further ValueStar's strategy is to create alliances
to link its proprietary information content to other Internet yellow page, city
guides and similar services.
Description of ValueStar Certified Services
All service businesses and professionals located in the territory served by the
Company and for which the Company has established an average or benchmark rating
may apply to be licensed. These include more than 100 industry categories within
five broad groups: Automobile Services (examples including auto body shops, auto
repair, and towing firms), Health and Well Being Services (examples including
ambulance services, physicians and dentists and health clubs), Home Services and
Repairs (examples including alarm companies, carpet cleaners, movers, locksmiths
and roofers), Personal Services (examples including beauty salons, day care
centers and travel agents) and Professional Services (examples including
accountants, attorneys, employment services, insurance and real estate brokers).
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The Company's marketing and sales activities in the Bay and Sacramento areas
focus on a targeted group of service and professional businesses numbering
approximately 70,000 representing the Company's estimate of the high priority
accounts among the approximately 175,000 service and professional businesses in
the area (as computed by the Company from information provided by American
Business Information).
Once a prospective licensee agrees to be rated and pays an initial research fee,
the research and rating process begins. ValueStar conducts a complaint bureau
status check, license verification and insurance verification. A rating is
performed or audited by PRI. To pass the rating, an applicant must exceed the
higher of the benchmark score developed by the Company's base-line research for
a particular industry or the minimum standard set by ValueStar.
All applicant companies receive a Research and Rating Report providing specific
results of the customer survey and how the business rates in customer
satisfaction compared to the average rating in their industry. For an additional
fee, some applicants submit additional questions to be included at the time the
customer satisfaction rating is conducted.
Successful applicants may license the use of the ValueStar Certified mark
(according to agreed-upon guidelines specified by the terms of the license
agreement) in their advertising, collateral and sales materials, stationery,
signage, announcements, bid forms, etc. A licensee also receives a ValueStar
plaque, program manual and labels for their doors and letterhead. Licensees are
also listed in the Company's semi-annual Consumer ValueStar Report publication
and on the Company's Internet site.
Most licensees purchase copies of a Certified Profile Brochure (customized by
ValueStar for each licensee) which explains to their potential customers how
their business qualified for ValueStar Certified. A Company representative
provides a personal orientation to a business owner and employees informing them
of the significance of earning the certification trademark and educating them on
how to use the achievement in promotional programs and customer encounters. The
Company supports licensees in their efforts to use ValueStar Certified to bring
in more customers, convert shoppers to buyers, reduce pricing pressure on
services, improve customer loyalty, increase customer referral rates, speed up
the selling cycle, improve employee morale, enhance marketing and advertising
promotions and improve business reputation.
Each year the Company solicits renewals from licensees. Each year renewal
accounts must pass the audit portion of the rating process and every second year
they must pass the entire research and rating process.
Since the mark is displayed in media and actively used and promoted by licensees
and since the Consumer ValueStar Report is distributed free, consumers have free
access to and use of the certification information. In a study conducted by PRI
in 1993 and updated through 1996, PRI stated that 2 of 3 customers who knew a
business had earned ValueStar Certified were influenced by this factor in
selecting the business. Prior research by ISR in 1991 indicated that 70% of
consumers would pay 10% or more for services from companies that could indicate
they earned ValueStar Certified. Business acceptance of ValueStar Certified is
supported by the more than 75% renewal rate (inception in 1992 through March
1997) of businesses earning ValueStar Certified.
At March 31, 1997, the Company had 648 active licensees.
Sales, Marketing and Customer Support Strategies
The Company's objective is to enhance the market position for its program and
grow the ValueStar Certified mark into a widely recognized and valued symbol of
customer satisfaction in the areas its serves. Increasing consumer awareness of
ValueStar Certified and thereby the selection and use of licensees by consumers
is an important element of the Company's strategy.
The Company's sales and marketing activities are designed to increase new
licensee penetration while maintaining high renewal rates and high ancillary
product and service sales. Accordingly, staffing, territories, training and
compensation plans are structured to provide continuity of sales person contact
with each licensee. The Company also provides ongoing training emphasizing both
new business and renewal development, supports lead generation and provides
sales personnel with computerized sales support and data base systems.
The Company uses direct mail, advertising, telephone sales, videotapes and other
materials designed for businesses and emphasizing the benefits of becoming a
ValueStar licensee. Effective January 1, 1997 substantially all new
solicitations and rating sales were consolidated in a telephone sales
department. Licensing, renewals and ancillary sales are made by field consultant
personnel.
At March 31, 1997 the Company had 17 marketing, sales and customer support
persons.
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The Company has modified its licensing and rating fees from time to time. The
Company from time to time provides discounts, incentives and satisfaction
guarantees to first time applicants and also from time to time extends payment
terms on the annual license fees. The licensing fee for businesses scales upward
with business size and for multiple location businesses. The Company estimates
that each new licensee provides average annual revenue of approximately $1,500
annually from all sources.
The Company believes its renewal rates (averaging over 75% during the last three
fiscal years) indicate licensees' satisfaction with the program. These renewals
provide the Company a continuing source of revenues from renewal fees and sales
of ancillary products and services. Management believes the prospect of
recurring revenues justify the use of new applicant discounts and incentives to
expand the base of new business licensees. Management also believes an expanding
licensee base pressures other providers of services to apply for the rating to
meet the competition.
The Company's public relations and customer support activities are primarily
designed to increase awareness of ValueStar Certified among consumers to benefit
licensees. In August 1996 the Company entered into a one year agreement with
KPIX television in San Francisco to syndicate a consumer directed news segment
under the ValueStar Certified banner three times each week. The Company employs
public relations, cooperative arrangements and paid advertising to increase
awareness to consumers. The Consumer ValueStar Report publication and Internet
and computerized voice-text programs are important elements of the Company's
customer support activities.
The Company's longer term objective is to expand ValueStar Certified to
additional metropolitan areas in North America through direct expansion and
overseas through expansion or licensing.
Competition
Although the Company is not aware of a directly competitive mark or service
targeted for a broad range of service industries, the Company competes for the
limited budgets for spending on advertising and promotions among service and
professional businesses. Competition therefore includes Yellow Page publishers,
newspapers and periodicals, radio and television stations and other forms of
advertising. Other competitors include referral agencies or telephone services,
complaint agencies, service guide publishers, industry specific certification
marks and others. The competition for service business advertising and
promotional funds is intense. There are a large number of competing firms and a
wide variety of product offerings. Most of these firms are substantially larger
and have greater financial resources than the Company.
The Company believes that it provides value to licensees allowing them to
distinguish themselves from their competitors. The Company also believes that
ValueStar Certified provides consumers a convenient and easy-to-use method of
selecting service businesses.
Although the Company believes it is establishing a market awareness and presence
in the San Francisco Bay area, barriers to entry by new competitors are not
significant and any such new competitors, in addition to the direct effects of
competition, may cause marketplace confusion making sales efforts more difficult
and may result in pricing pressure. There can be no assurance that the Company
will be able to continue to compete against existing or new competitors.
Trademarks, Service Marks and Other Proprietary Rights
The Company owns a federally registered certification mark on ValueStar(R) and
the ValueStar Certified symbol. The Company considers the mark and symbol to be
material to the business of the Company. The Company vigorously seeks to protect
and intends to defend its mark against infringement and other unauthorized use.
The Company is unaware of any significant infringement or other unauthorized use
of its mark since inception. There can be no assurance the Company can protect
its mark and symbol. The loss or infringement of ValueStar mark and symbol could
have a material adverse effect on the business and operations of the Company.
The Company copyrights its materials and publications and seeks to maintain
certain aspects of its business operations as trade secrets. The Company has
developed consumer and business databases and software and systems that are
proprietary to the Company.
Government Regulation and Legal Issues
The Company is not currently subject to direct regulation other than federal and
state regulation applicable to businesses generally.
The Company's operations require that its certification mark only be used by
qualifying companies and that its use be discontinued if a business ceases to be
a licensee. The Company intends to vigorously defend its contract rights
including taking legal action as required. However when and as the Company
expands to new areas and the certification becomes more recognized and valuable
it will be increasingly difficult to police unauthorized use of its
certification mark or confusing marks.
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Although the Company is not a direct referral service, it may be subject to
claims by consumers for the actions of licensees. Although the Company does not
believe such a claim would have merit, the costs of defense could be
substantial. The Company does not currently carry specific insurance against
such claims and there is no assurance that the Company's general liability
coverage would cover such claims. To date the Company has not been subject to
any material claims by customers of licensees.
Employees
As of March 31, 1997, the Company employed 21 full-time persons. Two are in
senior management, 17 in marketing, sales and customer support, one in rating
and auditing, and one in accounting and administration. The Company employs
part-time personnel from time to time and uses outside contractors for various
marketing and rating services. None of the Company's employees is represented by
a collective bargaining arrangement and the Company has experienced no work
stoppages. The Company considers its relations with employees to be favorable.
The Company's future success will depend in large measure upon the continued
contributions of its President and CEO, James Stein and the Company's ability to
attract and retain quality sales personnel. The Company experiences competition
for qualified telemarketing and sales personnel who are in demand by many
competitors, many with more resources than the Company. The loss of the services
of Mr. Stein could have a material adverse effect on the Company's business. The
Company has a $500,000 "key man" insurance policy on Mr. Stein.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company's revenues are generated primarily from research and rating fees
paid by new and renewal businesses, license fees from qualified applicants and
renewals and from the sale of information products and services. The Company
from time to time provides discounts, incentives from basic pricing and may
provide satisfaction guarantees to first time applicants and also from time to
time extends payment terms on the annual license fee.
License fees are recognized when material services or conditions relating to the
sale have been performed. Research and rating fee revenue is deferred until the
research report is delivered. The Company provides reserves for any satisfaction
guarantees. Sales of information materials and other services are recognized as
materials are delivered or shipped or services rendered.
Commencing in January 1995, the Company changed the third-party research portion
of its licensee qualifications from qualifying an applicant for a one year
period to a two year period. Accordingly, certain direct customer rating costs
incurred for the rating are deferred with 60% expensed in the month incurred and
the balance of 40% amortized at the twelve month license renewal.
Costs incurred in printing and distributing the Company's Consumer ValueStar
Report publication published in January and July are capitalized and amortized
over six months. Related revenues are deferred and amortized over six months. As
a result of this schedule, generally there are no deferred publication costs at
each fiscal year end of June 30.
Effective July 1, 1994, with the adoption by the Company of Statement of
Position No. 93-7 (SOP 93-7), Reporting on Advertising Costs, certain customer
acquisition costs are deferred and amortized over a twelve month period on a
straight-line method starting in the month incurred. These costs, which relate
directly to targeted new licensee solicitations, primarily include targeted
direct-response advertising programs consisting of telephone sales, printing and
mailing costs. No indirect costs are included in deferred customer acquisition
costs. Costs incurred for other than specific targeted customers, including
general marketing and customer support expenses, are expensed as incurred.
Effective January 1, 1997, the Company modified new licensee solicitation
primarily to telephone sales targeted directly and specifically to direct
revenue-generating responses. No change was made to the amortization period. Any
direct mail, advertising or costs associated with supporting telemarketing or
generating leads and other general marketing expenses, are expensed as incurred.
The net effect of capitalizing and amortizing deferred costs was a reduction in
costs and expenses of $116,310 and $79,092 for the nine months ended March 31,
1997 and 1996, respectively and $73,336 and $59,830 for the fiscal years ended
June 30, 1996 and 1995, respectively.
The Company estimates new licensees have an average life exceeding four years.
Since the Company's annual licensee renewal rate has averaged more than 75%
during the last three fiscal years and renewals provide margin in excess of
renewal costs, the Company believes deferred costs will be realized from future
operations. Deferred costs are periodically evaluated to determine if
adjustments for impairment are necessary.
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Effect of Growth in New Licensees and License Renewals
Since a considerable portion of the Company's operations are engaged towards the
solicitation of new service and professional business applicants in order to
expand the base of licensees, the Company incurs substantial costs towards this
activity. Currently the Company is only deferring direct telephone sales costs
and amortizing them over twelve months.
The Company's renewal licensees contribute higher gross margins than new
applicants due to reduced sales costs. Also a growing and larger base of
licensees reduces the costs (relative to revenues) associated with printing and
distributing the Company's Consumer ValueStar Report, maintaining the
ValueStar.com Internet site, providing voice-text services and other customer
support expenses. The marginal costs of including more licensees in these media
is minimal compared to the base printing, distribution and maintenance costs.
The Company believes as a market territory matures and the Company has a larger
base of licensees then many fixed and indirect costs will decline as a
percentage of revenues. The Company's operations require that it achieve a
critical mass of licensees sufficient to cover general management, overhead and
indirect costs of operations. Management estimates based on the current cost
structure that this critical mass is approximately 900 licensees. There can be
no assurance the Company can achieve this level of licensees and thereafter, if
achieved, operations can be impacted by changes in the cost structure and growth
rates (due to the lower margins associated with first year licensees).
The following table illustrates the changes in licensees and renewal rates for
the nine months ended March 31, 1997 and for the fiscal years ended June 30,
1996 and 1995.
Nine Months Ended Fiscal Year Ended June 30,
March 31, 1997 1996 1995
Licensees - beginning of period 319 158 140
Licensees up for renewal (201) (158) (140)
Renewals 155 123 119
Renewal Percentage 77% 78% 85%
New licensees 379 206 44
Adjustments (1) (4) (10) (5)
Licensees - end of period 648 319 158
(1) Non passing renewals, out-of-period renewals and terminations.
At March 31, 1997 the Company had 315 (275 new and 40 renewal) prospective
licensees in the application and rating phase. Generally there is a 60 day
period between the initial signup of an applicant and the execution of a license
agreement for successful applicants. Based on management's experience, these 315
prospective licensees are expected to represent approximately $350,000 of
revenues that should be recognized in the fourth fiscal quarter (generally
analogous to backlog).
Effective January 1, 1997 the Company changed its new business marketing focus
to telephone sales from a field sales force. Initial response has resulted in a
significant increase in applicants for ratings and reduced unit sales costs.
During the third fiscal quarter ended March 31, 1997, 352 businesses applied to
be rated versus 241 for the comparable quarter of the prior year (when a direct
sales force was the major marketing component).
Results of Operations
Revenues. Revenues consist of license fees from new and renewal business
licensees, rating fees from new and renewal business applicants, sale proceeds
from information materials and premium listings, and other ancillary revenues.
The Company reported total revenues of $410,269 for the fiscal year ended June
30, 1996, a 65% increase over fiscal 1995 revenues of $248,776. Revenues for the
nine months ended March 31, 1997 were $578,175 a 129% increase over revenues of
$252,501 for the comparable period of fiscal 1996. During the fiscal year ended
June 30, 1996 license fees accounted for 74% of revenue (62% for the prior year)
and for the nine months ended March 31, 1997 license fees accounted for 72% of
revenues (68% prior comparable period). The growth in revenues is the result of
improved new sales velocity and the impact of a larger base of renewals.
In January 1995 the Company changed to a two year rating period which over time
reduces costs of sales. During fiscal 1996 and the first half of fiscal 1997 the
Company experimented with various direct mail and direct sales methods.
Effective January 1, 1997 the Company changed from a field sales force to
telephone sales to obtain new rating applicants. The Company believes, based on
its over 75% renewal rate, that investments in new licensees will contribute to
greater recurring revenues in future periods. At March 31, 1997 the Company had
315 applicants in
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various stages of rating, effectively a (anticipated revenue) backlog estimated
at $350,000 to be recognized in the fourth fiscal quarter ending June 30, 1997
from license fees. Primarily as a result of this anticipated revenue, management
believes, but there can be no assurance, that the fourth quarter will be a
record revenue quarter exceeding $500,000 compared to $157,768 for the fourth
quarter of the prior year. This anticipated result is due, in part, to improved
telephone sales and a growing mass of renewing licensees.
Cost of Revenues. Cost of revenues consist primarily of rating costs paid to
third parties for performing customer satisfaction research on business
applicants, in-house staffing and costs related to auditing and rating of
applicants and costs of information products and licensing materials. Certain
direct customer rating costs are deferred with 60% expensed in the month
incurred and the balance of 40% amortized at the twelve month license renewal.
At March 31, 1997, $114,447 was deferred to be applied in future periods not
exceeding twelve months. Cost of revenues represented 45% of sales in fiscal
1996, an increase from the 34% incurred in 1995. During fiscal 1996, the Company
expanded its audit and rating staff to handle increased volume. Also during
fiscal 1996 the Company increased its use of rating discounts to attract new
licensees, thereby reducing revenues from first year licensees. For the nine
months ended March 31, 1997 costs of revenues were 47% of revenues compared to
39% for the comparable prior period. The increase results from early year price
increases for third party rating. Commencing approximately November, 1996 the
Company made internal changes to make ratings more efficient and arranged for
improved third party pricing with the goal of reducing future rating costs.
Management anticipates that cost of revenues should decline as a percentage of
revenues in future periods resulting from such changes and revenue growth.
Selling and Marketing Expenses and Customer Support Expenses. Marketing and
selling costs in fiscal 1996 aggregated $643,334 compared to $130,539 in fiscal
1995. At the end of fiscal 1995 the Company had 3 sales and marketing personnel
which increased to 17 at the end of fiscal 1996. Marketing and sales personnel
costs increased to $365,000 in fiscal 1996, $301,000 more than fiscal 1995. This
included the addition of a sales manager and significant increases in direct
sales personnel.
Included in marketing and selling expenses in fiscal 1996 and 1995 are customer
support expenses consisting primarily of printing and distribution costs of the
Company's Consumer ValueStar Report publication targeted at consumers. Printing
and distribution costs increased from $20,000 in fiscal 1995 to $129,000 in
fiscal 1996 from increased quantities and broader distribution. Other customer
support expenses associated with expanding awareness of ValueStar Certified
increased from $31,000 in fiscal 1995 to $74,000 in fiscal 1996. During fiscal
1996 the Company expended $26,000 developing and supporting its voice-text
services whereas in fiscal 1995 the Company expended $8,000.
For the nine months ended March 31, 1997 the Company expanded its income
statement classification to segregate customer support expenses as a separate
category due to the increased level of expenditures and a significant paid media
effort targeted at consumers to increase awareness of ValueStar's program for
the benefit of licensees. Selling and marketing expenses for the nine months
ended March 31, 1997 were $697,358 compared to $295,496 for the comparable prior
period. The $401,862 increase included a $321,000 increase in personnel costs to
$565,000 due to increased staffing and the addition of one senior marketing
manager. Direct mail costs increased by $83,500 to $100,800 due to significant
increases in business awareness mailings which are expensed as incurred.
Customer support expenses consist of costs associated with supporting licensees
efforts to raise awareness of ValueStar Certified and the ValueStar program.
These expenditures are not required by the Company's license agreements but tend
to enhance consumer awareness to benefit licensees. Customer support expenses
for the nine months ended March 31, 1997 were $494,289 or 85% of revenues
compared to $89,827 for the nine months ended March 31, 1996, an increase of
$404,462. Expenses associated with the publication and distribution of the
Consumer ValueStar Report were $173,600 during the nine months ended March 31,
1997 compared to $68,000 in the prior period, an increase of $105,600 due
primarily to increased units and expanded pages. During the nine months ended
March 31, 1997 the Company expended $189,000 on paid advertising targeted at
supporting licensees by expanding consumer awareness of ValueStar Certified. No
paid advertising was employed in the prior year. In fiscal 1997 the Company
added a full-time public relations manager and expended $107,000 on public
relations, communications and events targeted at supporting licensees. This
compares to $10,000 for the prior nine month period. And during the nine months
ended March 31, 1997 the Company expended $24,000 supporting licensee awareness
through voice-text and Internet listings compared to $5,000 in 1996.
Sales and marketing expenses and customer support expenses are subject to
significant variability based on decisions regarding the timing and size of
distribution of Consumer ValueStar Report and decisions regarding direct mail
activities, paid advertising, public relations and market awareness efforts. The
Company anticipates continuing to make significant expenditures in customer
support as the Company supports a growing licensee base but anticipates a
decreasing percentage of revenues as revenues grow.
9
<PAGE>
General and Administrative Expenses. General and administrative expenses consist
primarily of expenses for finance, office operations, administration and general
management activities, including legal, accounting and other professional fees.
They totaled $330,421 for fiscal 1996 compared to $196,763 for fiscal 1995. The
major increases included a $37,000 increase in personnel costs due to additional
personnel, a $66,000 increase in occupancy related costs primarily due to
expanded space and telephone expenses, and a $30,000 increase in corporate costs
including legal and accounting. As most of the Company's efforts are in sales
and marketing and customer support, the Company does not anticipate as large of
increases in general and administrative costs as in other costs as revenues
increase. For the nine months ended March 31, 1997 general and administrative
costs were $354,707 compared to $209,326 for the comparable prior period. The
major increases include a $40,000 increase in personnel costs to $128,000 due to
additional personnel, a $60,000 increase in occupancy related costs to $125,000
including expanded space and telephone expenses, and a $10,000 increase in
corporate costs to $31,000.
To date development expenses associated with the design, development and testing
of the Company's programs and services have not been material and are included
in sales and marketing or general and administrative expenses (if performed by
executive management). In the future, as the Company develops new programs or
services, it anticipates that it may segregate development expenses as an
expense category.
The Company had a loss of $759,328 in fiscal 1996 compared to a loss of $169,921
in fiscal 1995. The net loss for the nine months ended March 31, 1997 was
$1,242,084 compared to $446,664 for the nine months ended March 31, 1996. The
increased loss resulted primarily from increased selling and marketing and
customer support expenses targeted at growing the Company's program. The Company
anticipates it will continue to experience operating losses until it achieves a
mass base of renewing licensees as it pursues aggressive growth in new
licensees. Achievement of positive operating results will require obtaining a
sufficient base of licensees and renewal licensees to support operating and
corporate costs. There can be no assurance the Company can sustain renewal rates
or achieve a profitable base of operations.
Liquidity and Capital Resources
Since the Company commenced operations it has had significant negative cash flow
from operating activities. The negative cash flow from operating activities was
$722,518 for the fiscal year ended June 30, 1996, and $212,423 for the fiscal
year ended June 30, 1995. At June 30, 1996 the Company had working capital of
$277,681. For the nine months ended March 31, 1997 negative cash flow from
operating activities was $1,163,390 due to the heavy investment in licensee
growth and support. Working capital at March 31, 1997 was a deficit of $167,211.
The Company has financed its operations primarily through the sale of common
equity and shareholder loans subsequently converted to common stock which
combined provided $1,439,200 during fiscal 1995 and 1996. During this same
period $934,941 of cash was used in operating activities, $39,839 for capital
expenditures and $48,600 to reduce shareholder loans. During the two year period
cash increased from $12,888 to $454,809. For the nine months ended March 31,
1997 the Company obtained $790,000 from the sale of common equity and $100,000
from short-term notes renegotiated with a maturity of September 30, 1998. During
this period $1,163,390 of cash was used in operating activities and $17,565 for
capital expenditures.
Other than cash on hand of $163,854 at March 31, 1997 and accounts receivable of
$203,994, the Company has no material unused sources of liquidity at this time
and the Company expects to incur additional but reduced operating losses in
future fiscal quarters as a result of continued operations and planned
investments in licensee growth. The timing and amounts of these expenditures and
the extent of operating losses will depend on many factors, some of which are
beyond the Company's control. At March 31, 1997, based on management's
experience, the 315 prospective licensees in various stages of rating are
expected to represent approximately $350,000 of revenues that should be
recognized in the fourth fiscal quarter. New and renewal sales in April, 1997
should also be recognized in the fourth quarter bringing management's fourth
quarter revenue estimate to over $500,000 with no significant changes in fixed
operating costs.
The Company believes, but there can be no assurance, given the above sources of
liquidity and anticipated revenues and continued new sales rates and licensee
growth at current staffing, that it will require approximately $100,000 of
additional funding for the next twelve months. However should actual results
differ significantly from management's plans, then the Company may require
substantially greater additional operating funds. There can be no assurance that
additional funding will be available or on what terms. Potential sources of such
funds include shareholder and other debt financing or additional equity
offerings. In such an event without additional funding the Company will be
required to curtail or scale back staffing and operations in more reliance on
higher profitable renewals and limit new licensee growth.
The Company intends to expand operations beyond the greater Bay and Sacramento
areas in the future, however any significant expansion will require additional
funds. Potential sources of any such funds may include shareholder and
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<PAGE>
other debt financing or additional offerings of the Company's equity securities.
There can be no assurance that any funds will be available from these or other
potential sources.
Tax Loss Carryforwards
As of June 30, 1996, the Company had approximately $1,800,000 of tax loss
carryforwards. A valuation allowance has been recorded for the net deferred tax
asset of $700,000 arising primarily from tax loss carryforwards because, in the
Company's assessment, it is more likely than not that the deferred tax asset
will not be realized.
New Accounting Pronouncements
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets" and SFAS No. 123, "Accounting for Stock Based
Compensation." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of the carrying amount or
their estimated recoverable amount. The adoption of this statement in the first
quarter of fiscal 1997 by the Company did not have an impact on the financial
statements.
SFAS No. 123 encourages the accounting for stock-based employee compensation
programs to be reported within the financial statements on a fair value based
method. If the fair value based method is not adopted, then the statement
requires pro-forma disclosure of net income and earnings per share as if the
fair value based method had been adopted. While the Company is evaluating the
impact of the pronouncement, it expects to continue to account for stock options
utilizing the "intrinsic value based method" as is allowed by the statement and
therefore does not expect SFAS No. 123 to have a material impact on its
financial position, results of operations and cash flows.
Business Risks
This registration statement contains a number of forward-looking statements
which reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to certain
risks and uncertainties, including those discussed below, that could cause
actual results to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions identify forward-looking statements.
Readers are cautioned to consider the specific risk factors described below and
not to place undue reliance on the forward-looking statements contained herein,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly revise these forward-looking statements, to reflect events or
circumstances that may arise after the date hereof.
Absence of Profitable Operations and Possible Insufficiency of Capital- The
Company has incurred significant operating losses since inception. The Company
incurred an operating loss of $750,078 for the fiscal year ended June 30, 1996
and $1,237,084 for the nine months ended March 31, 1997. The Company has had
limited financial results upon which investors may base an assessment of its
potential. There can be no assurance profitable operations can be achieved or
that additional capital will not be required.
Competition and Technological Change - The possibility exists that a business
rating service and certification mark similar to or competitive with that of the
Company will be developed. It is also possible that future competition will try
to duplicate the Company's concept. The Company could face head-on competition
from vastly larger and better financed companies with the means to launch a
high-impact campaign locally or nationally. Technological changes in the manner
of selecting service businesses and communicating information to consumers could
also have a negative impact on the Company's business. As a provider of consumer
information through the Internet and various media the Company will be required
to adapt to new and changing technologies. There can be no assurance that the
Company's services will remain viable or competitive in face of technological
change.
Dependence on Officers and Directors - The Company is substantially dependent
upon the experience and knowledge of its officers and directors. The loss to the
Company of such persons, particularly Mr. James Stein, could be detrimental to
the Company's development, especially since it may not have the funds to hire
management personnel with the requisite expertise.
Managing a Growing and Changing Business - The Company continues to experience
changes in its operations resulting from expansion of its business and other
factors which has and may place demands on its administrative, operational and
financial resources. The Company's future performance will depend in part on its
ability to manage growth and to adapt its administrative, operational and
financial control systems to the needs of an expanding entity. The failure of
management to anticipate, respond to and manage changing business conditions
could have a material adverse effect on the Company's business and results of
operations.
Government Regulation and Legal Uncertainties - The Company is not currently
subject to direct regulation other than federal and state regulation applicable
to businesses generally. The Company may also be subject to uninsured claims by
consumers for actions of licensees or other claims incident to its business
operations.
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Stock Trading Risks and Uncertainties - See Part II - Item 1 "Market Price of
and Dividends on the Registrant's Common Equity and Other Shareholder Matters."
Item 3. Description of Property.
The Company's corporate and operating offices are located in approximately 2,700
square feet of improved office space located at 1120A Ballena Blvd. in Alameda,
California. This facility accommodates corporate administration, marketing,
sales and customer support. This facility is leased pursuant to a three year
lease which commenced July, 1995 at a monthly rate of approximately $2,700. The
Company believes this facility will be sufficient to meet its needs for the next
twelve months unless the Company elects to expand at a faster rate or into new
market territories.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of April 30, 1997, the stock ownership of
each officer and director of the Company, of all officers and directors of the
Company as a group, and of each person known by the Company to be a beneficial
owner of 5% or more of its Common Stock. Except as otherwise noted, each person
listed below is the sole beneficial owner of the shares and has sole investment
and voting power as to such shares. No person listed below has any option,
warrant or other right to acquire additional securities of the Company, except
as otherwise noted.
Name and Address Amount & Nature
Title of Beneficial of Beneficial Percent
of Class Owner Ownership of Class
- -------- ---------------- --------- --------
Common stock James Stein * 1,544,500(1) 18.4%
par value 1120A Ballena Blvd.
$.00025 Alameda, California 94501
SAME James A. Barnes * 1,104,698(2) 13.5%
9029 Opus Drive
Las Vegas, Nevada 89117
SAME Jerry E. Polis * 556,667(3) 6.8%
925 E. Desert Inn Road
Las Vegas, Nevada 89109
SAME Bryant I. Pickering 544,496(4) 6.7%
9012 Opus Drive
Las Vegas, Nevada 89117
SAME Benjamin A. Pittman * 50,000(5) 0.6%
1120A Ballena Blvd
Alameda, California 94501
SAME Robert M. Brennan 666,666 8.2%
6446 Shearwater Ct
Avila Beach, California
All directors & officers 3,255,865(6) 38.1%
as a group (4 persons, designated by *)
(1) Includes 265,000 common shares issuable upon the exercise of
outstanding stock options. A total of 1,025,000 common shares are
subject to a lockup agreement until the earliest of (a) July 20, 1998
or (b) upon the achievement and certification by a resolution of the
Board of Directors that the Company has been profitable, in accordance
with generally accepted accounting principles, for two consecutive
fiscal quarters. Includes 3,000 common shares held by his wife and
minor children.
(2) Represents 363,510 shares held by Sunrise Capital, Inc. ("SCI"),
565,225 shares held of record by Tiffany Investments ("TI"), 97,629
shares held of record by Tiffany Investments Limited Partnership
("TILP"), 13,334 shares held of record by Sunrise Management, Inc.
Profit Sharing Plan ("SMIPS") and 65,000 shares issuable upon the
exercise of outstanding stock options. Mr. Barnes is President and
owner of SCI , General Partner of TI and TILP and Trustee of SMIPS and
has investment and voting power over these shares.
(3) Represents 356,667 shares held of record by the Jerry E. Polis Family
Trust, 150,000 shares held by record by Davric Corporation, all such
shares of which Mr. Polis exercises voting and investment power. Also
includes 50,000 shares issuable upon the exercise of outstanding stock
options.
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<PAGE>
(4) Includes 71,429 shares held by the Veech Family Trust and 133,333
shares held by Odne Limited Partnership all such shares of which Dr.
Pickering exercises voting and investment power.
(5) Includes 40,000 shares issuable upon the exercise of outstanding stock
options.
(6) Includes 2,835,865 shares issued and outstanding and 420,000 shares
issuable upon exercise of stock options. For purpose of the
computation the number of outstanding shares is increased to include
the shares issuable upon the exercise of stock options.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Identification of Directors and Executive Officers
The present directors and executive officers of the Issuer, their ages,
positions held in the Company and duration as director, are as follows:
Name Age Position and Offices Director Since
James Stein 39 Director, President and CEO 1992
James A. Barnes 42 Director and Treasurer 1995
Benjamin A. Pittman 29 Secretary and Controller n/a
Jerry E. Polis 65 Director 1995
The terms of all directors will expire at the next annual meeting of the
Company's shareholders, or when their successors are elected and qualified.
Directors are elected each year, and all directors serve one-year terms.
Officers serve at the pleasure of the Board of Directors. There are no
arrangements or understandings between the Company and any other person pursuant
to which he was or is to be selected as a director, executive officer or nominee
therefor.
Biographical Information
James Stein - Mr. Stein has been a director and President and CEO of the Company
since 1992 and was a director and executive officer of ValueStar, Inc. since its
inception in September, 1991. Prior to commencing the ValueStar operations as a
sole proprietorship in 1990, Mr. Stein served as President and CEO from 1983 to
1990 of Direct Language, Inc., a San Francisco based publisher of Asian and
Hispanic Yellow Pages and El Mensajero, a Spanish-language weekly newspaper.
James A. Barnes was elected as a director in July 1995 and appointed
Secretary/Treasurer. In March 1997 he resigned as Secretary. Since 1984 he has
been President of Sunrise Capital, Inc., a wholly-owned venture capital and
consulting firm. He previously practiced as a certified public accountant and
management consultant with Ernst & Ernst (1976-1977), Touche Ross & Co.
(1977-1980) and as a principal in J. McDonald & Co. Ltd., Phoenix, Arizona
(1980-1984). He graduated from the University of Nebraska with a B.A. Degree in
Business Administration in 1976. Mr. Barnes devotes only part-time services to
the Company.
Benjamin A. Pittman was appointed Secretary in March 1997 and has been
Controller since February, 1996. From August, 1992 to February, 1996 he was
corporate business manager at Cardinal Business Media, a publishing company.
From October 1987 to July, 1992 he was accounting supervisor with California
International Properties, a property management company. He graduated from
California State University of Hayward with a B.S. Degree in Accounting in 1992.
Jerry E. Polis was elected as a director in July 1995. Since 1963 he has been
self-employed primarily in real estate investments, and since 1964 he has owned
and operated Polis Realty. From 1968 to January, 1997 he was active as 50% owner
of the Taco Bell franchises for the State of Nevada (operated under Las Cal
Corporation). Since 1994 he has been a director of Commercial Bank of Nevada, an
unlisted publicly owned bank located in Las Vegas, Nevada, and in May, 1996 was
appointed Chairman. Mr. Polis graduated from Penn State University with a B.A.
Degree in Commerce in 1953.
No director, executive officer or nominee for the Board has been involved in any
legal proceedings during the past five years which are material to an evaluation
of his or her ability or integrity. There are no material proceedings adverse to
the Company to which any director, executive officer, nominee for the Board or
any affiliate of the Company, or any associate of such persons, or any
shareholders, is a party or has any material interest adverse to the Company.
Mr. Stein and Mr. Barnes serve as the Compensation Committee for the 1996 and
1997 Stock Plans, otherwise the Company does not have any standing audit,
nominating or other compensation committees of the Board of Directors.
Advisory Board
In 1993 the Company established an advisory board to provide guidance to
management on the Company's program for consumers and businesses. The current
advisory board members have served since 1993. They are:
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Commissioner Jessie Knight - is one of the five commissioners of the California
Public Utilities Commission. He is responsible for setting policy and tariffs
for utilities and telecommunications industries in California. His background
includes positions as Vice President of the San Francisco Chamber of Commerce
and Vice President of Marketing at the San Francisco Newspaper Agency (Chronicle
and Examiner newspapers). He was formerly a Marketing Director at Dole Foods Co.
He is experienced in marketing, finance and strategic planning.
L.M. Ashmore - is a Senior Vice President of the consulting firm Omega
Performance. Ms. Ashmore was formerly Director, Corporate Service Quality for
Charles Schwab, Co. and Director of Service Quality for Citibank CA. She has
extensive experience in human resources, ethics, customer satisfaction, service
quality and customer loyalty.
Jack McSorley - has extensive business experience in the broadcast industry. As
a partner in BayCom Partners he has been active in the acquisition, finance and
management of broadcast properties. He is expereienced in marketing, media,
finance and corporate issues.
Advisory board members are compensated in the form of stock options.
Item 6. Executive Compensation.
There is shown below information concerning the compensation of the Company's
chief executive officer (a Named Officer) for the fiscal year ended June 30,
1996. No executive officer's salary and bonus exceeded $100,000. Since the
Company was not a reporting issuer at any time during prior fiscal years,
information for fiscal years prior to the fiscal year ended June 30, 1996 are
excluded.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Name and Fiscal
Principal Position Year Salary
James Stein 1996 $90,000 None
President and CEO
Except for stock options, discussed below, no named person received any form of
non-cash compensation from the Company in the fiscal year ended June 30, 1996 or
currently receives any such compensation.
Option Grants
Shown below is further information on grants of stock options pursuant to the
Company's 1992 Incentive Stock Option Plan (the "ISO Plan"), the 1992
Non-Statutory Stock Option Plan and the 1996 Stock Plan to the Named Officer
reflected in the Summary Compensation Table shown above.
<TABLE>
Option Grants Table for Fiscal Year Ended June 30, 1996
<CAPTION>
Percent of Total
Number of Options Granted Exercise Expiration
Name Options Granted to Employees in Fiscal Year Price Date
<S> <C> <C> <C> <C>
James Stein 15,000 4.2% $0.50 August 6, 2000
</TABLE>
Aggregated Option Exercises and Fiscal Year-End Values
There were no options exercised by the Named Officer during the fiscal year
ended June 30, 1996. The following table provides information on unexercised
options at June 30, 1996:
Fiscal Year-End Option Values
Number of Unexercised Value of Unexercised
Options Held At In-The-Money Options At
June 30, 1996 June 30, 1996 (1)
------------- -----------------
Exercisable Exercisable
Name ----------- -----------
James Stein 265,000 $91,250
(1) At June 30, 1996 there was no public market for the shares of the
Company. The most recent private transaction price of $0.75 per share
was used to compute the value of in-the-money options.
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<PAGE>
The Company does not have any stock appreciation rights plans in effect and has
no long-term incentive plans, as those terms are defined in Securities and
Exchange Commission regulations. During the fiscal year ended June 30, 1996, the
Company did not adjust or amend the exercise price of stock options awarded to
the Named Officer nor other persons, and the Company has no defined benefit or
actuarial plans covering any person.
Compensation of Directors
No direct or indirect remuneration has been paid or is payable by the Company to
the directors in their capacity as directors. It is anticipated that during the
next twelve months that the Company will not pay any direct or indirect
remuneration to any directors of the Company in their capacity as directors
other than in the form of reimbursement of expenses of attending directors' or
committee meetings. However directors have received in the past and may receive
in the future stock options pursuant to the Company' stock option plans.
Employment Contracts
Mr. Stein is employed and compensated through the Company's subsidiary, however
both the Company and its subsidiary entered into employment contracts dated June
27, 1992 and May 1, 1992, respectively with substantially identical terms. The
contracts were for an original term of three years and thereafter automatically
renew for one year terms unless terminated as provided in the agreements. At
June 30, 1996 the contracts had entered into the second one year renewal period.
The terms of the agreements include Mr. Stein serving as President, CEO and
Chairman of the Company and its subsidiary and includes termination,
confidentiality, indemnification and non-competition clauses customary in such
agreements. The amount of compensation is set annually by the Board of Directors
and effective January 1, 1995, Mr. Stein's compensation was increased to $7,500
per month.
Stock Option and Compensation Plans
During 1992 the Company adopted and the shareholders approved the 1992 Incentive
Stock Option Plan as amended for key employees, (the "1992 ISO Plan") and the
1992 Non-Statutory Stock Option Plan as amended for employees, directors and
consultants (the "1992 NSO Plan"). Both plans expire on May 29, 2002. The
Company has reserved a maximum of 250,000 common shares to be issued upon the
exercise of options granted under each plan (a maximum of a total of 500,000
common shares). At April 30, 1997 the Company had 250,000 options outstanding
pursuant to the 1992 ISO Plan exercisable at prices ranging from $0.40 to $0.50
per share expiring beginning 1999 through 2001 and had 250,000 options
outstanding pursuant to the 1992 NSO Plan exercisable at prices ranging from
$0.40 to $0.50 per share expiring beginning 2000 through 2001.
The Board of Directors adopted on January 19, 1996 the 1996 Stock Option Plan
covering an aggregate of 400,000 shares of the Company's common stock. On March
20, 1997 the Board of Directors amended and restated the 1996 Stock Plan (the
"1996 Stock Plan") to reduce the aggregate number of shares to 300,000. On March
20, 1997 the Board of Directors adopted the 1997 Stock Option Plan (the "1997
Stock Plan") covering an aggregate of 200,000 shares of the Company's common
stock. The 1996 Stock Plan and the 1997 Stock Plan were approved by the
shareholders on April 16, 1997 and have substantially the same terms and
provisions except that the 1996 Stock Plan is available for non-qualified option
grants only. As of April 30, 1997 stock options covering an aggregate of 270,000
common shares have been granted pursuant to the 1996 Stock Plan at an exercise
price of $0.50 to $0.75 per share expiring from 1998 to 2002 and stock options
covering an aggregate of 57,000 common shares have been granted pursuant to the
1997 Stock Plan at an exercise price of $0.75 per share expiring in 2002.
On March 14, 1997 the Company adopted the 1997 Employee Stock Compensation Plan
providing for the issuance of up to 4,000 common shares to non-executive
employees. At April 30, 1997 an aggregate of 2,900 common shares had been
granted to employees pursuant to the terms of the plan.
Item 7. Certain Relationships and Related Transactions.
Since the Company became active upon entering into the Agreement and Plan of
Reorganization dated June 27, 1992 with ValueStar, Inc., there have been no
reportable transactions or series of transactions involving more than $60,000
between the Company and any current executive officer, director, promoter, 5%
beneficial owner of the Company's Common Shares or any member of the immediate
family of any of the foregoing in which one or more of the foregoing individuals
or entities has a material interest, except as follows.
In connection with the acquisition of ValueStar, Inc. 9,350,000 outstanding
common shares of the Company were canceled by then controlling shareholders
leaving 650,000 common shares issued and outstanding. A total of 1,225,000
common shares were issued to James Stein for 100% of the outstanding shares of
ValueStar, Inc. and an additional 187,500 common shares were issued to James
Stein for cash with the $75,000 proceeds used to retire a loan obligation of
ValueStar, Inc., such loan being repaid to Mr. Stein's mother-in-law.
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<PAGE>
The 1,225,000 shares issued to Mr. Stein were made subject to the terms of an
Share Escrow Agreement dated June 27, 1992 providing earnout provisions based on
formulas of future gross revenues and pretax profits or otherwise released by
affirmative action of a majority of disinterested shareholders. On July 20, 1995
in compliance with the provisions of the agreement, the shareholders approved
the release of 1,225,000 shares (200,000 of which were already releasable under
the earnout provisions of the agreement) thereby terminating the agreement. In
connection with the termination of the escrow agreement, Mr. Stein entered into
a Lockup Agreement dated July 20, 1995 with respect to 1,025,000 shares
providing for no sale of the shares until the earliest of (a) July 20, 1998 (b)
or upon the achievement and certification by a resolution of the Board of
Directors that the Company has been profitable, in accordance with generally
accepted accounting principles, for two consecutive fiscal quarters.
Certain of the Company's shareholders, including officers and directors, have
from time to time, provided short-term interest bearing advances to the Company.
At March 31, 1997 no such advances were outstanding, however the Company owed
$50,000 on a 12% subordinated note due to the spouse of a director and $50,000
on the same terms to an unrelated party.
Item 8. Description of Securities.
The authorized capital stock of the Company consists of 20,000,000 shares of
common stock, $.00025 par value per share, of which 8,126,246 shares currently
are issued and outstanding and 5,000,000 shares of preferred stock, $.00025 par
value per share, to which the Board of Directors has the power to designate the
rights, terms, preferences, and other terms. There are no preferred shares
currently outstanding.
Common Stock
The holders of Common Stock are entitled to one vote for each share held of
record. A total of 40% of the total voting power is required to constitute a
quorum. The affirmative vote of a majority of the votes cast at a meeting of
shareholders which commences with a lawful quorum is sufficient for approval of
any corporate action upon which shareholders may or must vote. Common Shares do
not carry cumulative voting rights, thus holders of more than 50% of the Common
Stock have the power to elect all directors if they so desire and, as a
practical matter, to control the Company. Holders of Common Stock are not
entitled to preemptive rights, and the Common Stock is not subject to
redemption.
The Company's bylaws provide for a board of no less than three nor more than
seven directors, all of whom are elected for one-year terms at the annual
meeting of shareholders. The present board of directors consists of three
persons. The affirmative vote of a simple majority of the voting common stock is
necessary to remove any director or the entire board of directors. A special
meeting of shareholders may be called by or at the request of the Chairman of
the Board, the President a majority of the Directors or shareholders owning in
the aggregate 10% or more of the common stock. Holders of common stock are
entitled to receive, pro rata, dividends when and as declared by the board of
directors out of funds legally available therefor. Upon liquidation, dissolution
or winding up of the Company, holders of common stock are entitled to share
ratably in the Company's assets legally available for distribution to its
shareholders after payment of liquidation preference and outstanding redemption
rights (if any) on any preferred stock outstanding and are not subject to
further calls or assessments.
The Company has not paid any cash dividends to date, and no cash dividends will
be declared or paid on the Common Shares in the foreseeable future. Payment of
dividends is solely at the discretion of the Company's board of directors.
Undesignated Preferred Stock
The Company's Board of Directors presently has the authority by resolution to
issue up to 5,000,000 shares of preferred stock, par value $.00025 per share,
and without further action by the stockholders, to divide any and all shares of
the Preferred Stock into series and to fix and determine the relative rights and
preferences of the Preferred Stock, such as the designation of series and the
number of shares constituting such series, dividend rights, redemption and
sinking fund provisions, liquidation and dissolution preferences, conversion or
exchange rights and voting rights, if any. With respect to voting rights, if the
Preferred Stock were permitted to vote in the election of directors or on other
matters, each such share would be entitled to one vote, and such shares may vote
with the shares of common stock or may vote as a separate class. Issuances of
Preferred Stock by the Board of Directors could result in such shares having
dividend and/or liquidation preferences senior to the rights of the holders of
common stock and could dilute the voting rights of the holders of common stock.
Outstanding Warrants
In connection with $100,000 principal of promissory notes the Company has
granted the noteholders an aggregate of 10,000 non-detachable stock purchase
warrants exercisable at $0.75 per share through September 30, 1998. In
connection with consulting services the Company has granted stock purchase
warrants exercisable into an aggregate of 150,000 shares of common stock at
$0.75 per share until April 30, 2002.
16
<PAGE>
Part II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
On May 28, 1997 the Company's Common Stock commenced trading on the National
Association of Securities Dealers, Inc. ("NASD") OTC Electronic Bulletin Board.
The high bid has been $1.25 and the low bid $0.625 to the date of this
Registration Statement. These quotations reflect inter-dealer prices, without
retail markup, mark-down or commission and may not represent actual
transactions. Prior to initiation of trading there was and has been no public
trading market for the Company's Common Stock since the Company's inception in
1987. There is only one market-maker to date and there is no assurance that
additional market-makers will trade the Company's shares in the future.
The OTC Electronic Bulletin Board, is a screen-based trading system administered
by the NASD. Securities traded on the Bulletin Board are, for the most part
thinly traded and subject to special regulations (described below) not imposed
on securities listed or traded on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") system or on a national securities exchange.
Like that of securities of other small, growth-oriented companies, the Company's
shares are expected to experience future significant price and volume
volatility, increasing the risk of ownership to investors. Future changes in
market price and volume cannot be predicted as to timing or extent. Any
historical performance that may develop does not guarantee or imply future
performance. Future announcements concerning the Company or its competitors,
quarterly variations in operating results, announcements of technological or
service innovations, the introduction of new products or services, changes in
pricing policies by the Company or competitors, litigation relating to services
or other litigation, changes in performance estimates by analysts or others,
issuances of or registration of additional securities, or other factors could
cause the market price of the Common Stock to fluctuate substantially. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market price of
small companies and have often been unrelated to the operating performance of
particular companies.
The Company's Common Stock is currently defined as "penny stocks" under the
Exchange Act, and rules of the Securities and Exchange Commission thereunder.
The Exchange Act and such penny stock rules generally impose additional sales
practice and disclosure requirements upon broker-dealers who sell the Company's
securities to persons other than certain "accredited investors" (generally,
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 jointly
with spouse) or in transactions not recommended by the broker-dealer. For
transactions covered by the penny stock rules, the broker-dealer must make a
suitability determination for each purchaser and receive the purchaser's written
agreement prior to the sale. In addition, the broker-dealer must make certain
mandated disclosures in penny stock transactions, including the actual sale or
purchase price and actual bid and offer quotations, the compensation to be
received by the broker-dealer and certain associated persons, and deliver
certain disclosures required by the Securities and Exchange Commission.
Consequently, the penny stock rules may affect the ability of broker-dealers to
make a market in or trade the Company's shares and thus may also affect the
ability of purchasers of shares to resell those shares in the public markets.
Sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Common Stock. Assuming no
exercise of outstanding options to purchase 827,000 shares of Common Stock
outstanding (some subject to certain vesting) and assuming no exercise of
warrants to purchase 10,000 shares of Common Stock, there are presently
8,126,246 shares of Common Stock outstanding. Of these shares, approximately
2,722,142 shares are freely tradable without restriction including those shares
eligible for sale in reliance on Rule 144(k) held other than by "affiliates" of
the Company, as that term is defined in Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Act"). Of the remaining 5,404,104
shares, approximately 3,279,676 shares are eligible for resale under Rule 144,
in some instances subject to certain volume limitations, and 1,025,000 shares,
otherwise eligible under Rule 144, are subject to a lock-up agreement (see Part
I - Item 7 "Certain Relationships and Related Transactions").
The Company had 153 holders of record of its Common Stock at April 30, 1997. The
Company has never paid a cash dividend on its Common Stock and does not expect
to pay one in the foreseeable future.
Item 2. Legal Proceedings.
The Company is not involved in any threatened or pending legal proceeding other
than in the ordinary course of business.
17
<PAGE>
Item 3. Changes In and Disagreements With Accountants
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
During the past three years, the Company issued and sold securities not
registered under the Securities Act of 1933, as amended (the "Act"), as
described below.
(1) On June 30, 1994, the Company issued 1,000,000 shares of its Common Stock,
valued at $.35 per share, to four of its shareholders upon cancellation of an
aggregate of $350,000 in cash demand loans made by such shareholders to the
Company. The issuances were exempt by reason of Rule 903 of Regulation S
promulgated under the Act and Section 4(2) of the Act.
(2) On May 16, 1995, the Company issued and sold 171,429 shares of its Common
Stock at a price of between $0.20 and $0.35 per share to three of its
shareholders for an aggregate cash consideration of $45,000. The issuances and
sales were exempt by reason of Section 4(2) of the Act.
(3) On June 30, 1995, the Company issued 193,143 shares of its Common Stock,
valued at $0.35 per share, to three of its shareholders upon cancellation of an
aggregate of $67,600 in cash demand loans made by such shareholders to the
Company, and also issued and sold 285,714 shares of its Common Stock at a price
of $0.35 per share to two of its shareholders for an aggregate cash
consideration of $100,000. The issuances were exempt by reason of Rule 903 of
Regulation S promulgated under the Act and Section 4(2) of the Act.
(4) On August 11, 1995, the Company issued and sold 110,000 shares of its Common
Stock at a price of $0.35 per share to one of its shareholders and two investors
for an aggregate cash consideration of $38,500. The issuances and sales were
exempt by reason of Rule 903 of Regulation S promulgated under the Act and
Section 4(2) of the Act.
(5) On December 11, 1995, the Company issued and sold 200,000 shares of its
Common Stock at a price of $0.35 per share to one director for an aggregate cash
consideration of $70,000. The issuance and sale was exempt by reason of Section
4(2) of the Act.
(6) Between December 1995 and March 1996, the Company offered and sold 1,000,000
shares of Common Stock at a price of $0.50 per share to 18 investors (including
two directors), three of such investors of whom were not accredited investors.
The aggregate cash consideration to the Company was $500,000. The offers and
sales were exempt by reason of Rule 505 of Regulation D promulgated under the
Act.
(7) On March 6, 1996, the Company issued 136,200 shares of its Common Stock,
valued at $0.50 per share, to two of its shareholders and one director upon
cancellation of an aggregate of $68,100 in cash demand loans made by such
shareholders and director to the Company. The issuances were exempt by reason of
Rule 903 of Regulation S promulgated under the Act and Section 4(2) of the Act.
(8) On April 25, 1996, the Company issued and sold 100,000 shares of its Common
Stock at a price of $0.50 per share to two investors for an aggregate cash
consideration of $50,000. The issuances and sales were exempt by reason of Rule
903 of Regulation S promulgated under the Act.
(9) In June 1996, the Company issued and sold 666,666 shares of its Common Stock
at a price of $0.75 per share to one investor for an aggregate cash
consideration of $500,000. The issuance and sale was exempt by reason of Section
4(2) of the Act.
(10) On June 28, 1996, the Company issued 66,666 shares of its Common Stock,
valued at $0.75 per share, to an investor for consulting services rendered to
the Company by such investor. The issuance was exempt by reason of Section 4(2)
of the Act.
(11) Between October 1996 and March 1997, the Company offered and sold 1,000,000
shares of Common Stock at a price of $0.75 per share to 12 investors (including
three directors and four shareholders), three of whom were not accredited
investors. The aggregate cash consideration to the Company was $750,000. The
offers and sales were exempt by reason of Rule 505 of Regulation D promulgated
under the Act.
(12) On March 14, 1997, the Company issued 43,195 shares of its Common Stock,
valued at $0.75 per share, to four of its shareholders and one director upon
cancellation of an aggregate of $32,396 in accrued and unpaid interest on prior
18
<PAGE>
cash demand loans made by such shareholders and director to the Company. The
issuances were exempt by reason of Section 4(2) of the Act.
(13) On March 21, 1997, the Company issued 2,900 shares of its Common Stock,
valued at $0.75 per share, to 29 of its non-executive employees pursuant to the
Company's 1997 Employee Stock Compensation Plan. The shares were awarded to such
employees for services rendered to the Company. The issuances were exempt by
reason of Rule 701 promulgated under Section 3(b) of the Act.
(14) On March 31, 1997, the Company issued to two investors warrants to purchase
an aggregate of 10,000 shares of Common Stock at an exercise price of $0.75 per
share through September 30, 1998 and promissory notes due September 30, 1998 in
the aggregate principal amount of $100,000 in exchange for prior cash demand
loans of $100,000. The issuances were exempt by reason of Section 4(2) under the
Act.
(16) On April 4, 1997, the Company issued and sold 53,333 shares of its Common
Stock at a price of $0.75 per share to a director for an aggregate cash
consideration of $40,000. The issuance and sale was exempt by reason of Section
4(2) of the Act.
(17) On April 30, 1997, the Company issued to five investors warrants to
purchase an aggregate of 150,000 shares of Common Stock at an exercise price of
$0.75 per share through April 30, 2002 in connection with consulting services.
The issuances were exempt by reason of Section 4(2) under the Act.
In all of the transactions described above, (i) the Company obtained a signed
representation from each person to whom the securities were issued, other than
from employees awarded shares under the 1997 Employee Stock Compensation Plan,
that such person was a sophisticated investor, (ii) each certificate
representing the securities issued contains a legend indicating that the
securities represented thereby cannot be sold without registration or an opinion
of counsel that registration is not required, (iii) a stop transfer was entered
on the transfer agents records with respect to the shares, and (iv) the
securities were sold by officers and directors of the Company without the
assistance of any underwriter and without the payment of any sales commissions.
In respect for each transaction for which an exemption from registration is
claimed under Section 4(2) of the Act or Rule 505 of Regulation D promulgated
under the Act, the Company also obtained a signed representation from each
person to whom securities were issued, except as noted, of such person's intent
to acquire the securities for investment and not with a view to distribution
thereof and that such person was an accredited investor within the meaning of
Regulation D. In addition, in all transactions for which an exemption from
registration is claimed under Rule 903 of Regulation S promulgated under the
Act, (i) the Company obtained a signed representation from each person to whom
securities were issued that such person was not a U.S. person within the meaning
of Regulation S and was not acquiring such securities for the account or benefit
of a U.S. person, (ii) each certificate representing the securities so issued
contains a legend indicating that transfer of the securities represented thereby
is prohibited except in accordance with Regulation S, and (iii) the Company
believes that it complied with the other provisions of Regulation S in respect
of such Regulation S transactions.
Item 5. Indemnification of Directors and Officers
As permitted by Colorado law, the Company's Certificate of Incorporation
provides that no director of the Company shall be personally liable to the
Company or any shareholder thereof for monetary damages for breach of his
fiduciary duty as a director, except liability (i) for any breach of a
Director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for acts in violation of Section 7-108-403 of the
Colorado Business Corporation Act, as it now exists or may be amended, or (iv)
for any transaction from which the director derives an improper personal
benefit.
As permitted by Colorado law, the Company's Certificate of Incorporation also
provides that the Company will indemnify its officers, directors, employees and
agents against attorneys' fees and other expenses and liabilities they incur to
defend, settle or satisfy any civil or criminal action brought against them
arising out of their association with or activities on behalf of the Company as
long as, in any such action, they acted in good faith and in his or her official
capacity acted in a manner reasonably believed to be in the best interests of
the Company or in all other cases his or her conduct was not opposed to the
Company's best interests. However no indemnification shall be made if a person
is adjudged to be liable for negligence or misconduct in the performance of his
duty to the Company. The Company may also bear the expenses of such litigation
for any such persons upon their promise to repay such sums if it is ultimately
determined that they are not entitled to indemnification. Such expenditures
could be substantial and may not be recouped, even if the Company is so
entitled. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions,
19
<PAGE>
the Company has been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in that Act and is, therefore, unenforceable.
Part F/S
INDEX TO FINANCIAL STATEMENTS
The following is an index of the consolidated financial statements that follow
immediately after this index to financial statements:
Page
----
Independent Accountants' Report F-2
Consolidated Balance Sheets as of June 30, 1996 and 1995 F-3
Consolidated Statements of Operations for the years F-4
ended June 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity for F-5
the years ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the years F-6
ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements F-7
Consolidated Balance Sheets as of March 31, 1997 and
June 30, 1996 (unaudited) F-15
Consolidated Statements of Operations for the nine
months ended March 31, 1997 and 1996 (unaudited) F-16
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1997 and 1996 (unaudited) F-17
Notes to Interim Consolidated Financial Statements F-18
20
<PAGE>
VALUESTAR CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
F-1
<PAGE>
To the Board of Directors
and Shareholders of
ValueStar Corporation
INDEPENDENT ACCOUNTANTS' REPORT
We have audited the accompanying consolidated balance sheets of
ValueStar Corporation as of June 30, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ValueStar Corporation as of June 30, 1996 and 1995, and the results of its
operations, shareholders' equity and cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred losses from
operations, and has relied on the sale of its common stock, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ MOHLER, NIXON & WILLIAMS
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
August 23, 1996
F-2
<PAGE>
VALUESTAR CORPORATION
Consolidated balance sheets as of June 30,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 454,809 $ 12,977
Accounts receivable, net 93,020 27,154
Employee receivables 6,900 500
Inventories 15,330 9,469
Prepaid expenses and other 3,108 3,543
- --------------------------------------------------------------------------------
Total current assets 573,167 53,643
Deferred costs 133,166 59,830
Property, equipment and intangible assets, net 46,347 12,274
- --------------------------------------------------------------------------------
Total assets $ 752,680 $ 125,747
================================================================================
Liabilities and shareholders' equity
Notes payable to shareholders $ 23,600
Accounts payable $ 157,528 43,401
Other accrued expenses 87,219 53,844
Deferred revenue 50,739 14,980
- --------------------------------------------------------------------------------
Total current liabilities 295,486 135,825
- --------------------------------------------------------------------------------
Total liabilities 295,486 135,825
- --------------------------------------------------------------------------------
Common stock - par value $.00025;
20,000,000 shares authorized;
7,026,818 and 4,747,286 shares
issued and outstanding at
June 30, 1996 and
1995, respectively 1,757 1,186
Paid in capital 2,306,355 1,080,326
Accumulated deficit (1,850,918) (1,091,590)
- --------------------------------------------------------------------------------
Total shareholders' equity (deficit) 457,194 (10,078)
- --------------------------------------------------------------------------------
Total liabilities and shareholders'
equity (deficit) $ 752,680 $ 125,747
================================================================================
See independent accountants' report and accompanying
notes to consolidated financial statements.
F-3
<PAGE>
VALUESTAR CORPORATION
Consolidated statements of operations for the years ended June 30,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Net sales $ 410,269 $ 248,776
Cost of sales 186,592 83,710
- --------------------------------------------------------------------------------
Gross profit 223,677 165,066
Marketing and selling 643,334 130,539
General and administrative 330,421 196,763
- --------------------------------------------------------------------------------
Total operating expenses 973,755 327,302
- --------------------------------------------------------------------------------
Loss from operations (750,078) (162,236)
Interest expense (4,099) (8,790)
Other expense (5,151) (611)
Other income 1,716
- --------------------------------------------------------------------------------
Net loss $ (759,328) $ (169,921)
================================================================================
Net loss per share ($0.14) ($0.04)
================================================================================
Weighted average number of shares 5,432,615 4,131,755
================================================================================
See independent accountants' report and accompanying
notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
VALUESTAR CORPORATION
Consolidated statements of shareholders' equity
for the years ended June 30, 1996 and 1995
<CAPTION>
Common stock
-------------------
Total
Par Paid in Accumulated shareholders'
Shares amount capital deficit equity (deficit)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
June 30, 1994 4,097,000 $ 1,024 $ 867,888 $ (921,669) $ (52,757)
Sale of stock at $0.20
per share 100,000 25 19,975 20,000
Sale of stock at $0.35
per share 357,143 89 124,911 125,000
Conversion of debt to
stock at $0.35 per share 193,143 48 67,552 67,600
Net loss (169,921) (169,921)
- --------------------------------------------------------------------------------------------------------------------
June 30, 1995 4,747,286 1,186 1,080,326 (1,091,590) (10,078)
- --------------------------------------------------------------------------------------------------------------------
Sale of stock at $0.35
per share 310,000 77 108,423 108,500
Sale of stock at $0.50
per share 1,100,000 275 549,725 550,000
Conversion of debt to
stock at $0.50 per share 136,200 34 68,066 68,100
Sale of 666,666 shares of stock at
$0.75 per share, plus 66,666 shares
issued for net offering costs 733,332 185 499,815 500,000
Net loss (759,328) (759,328)
- --------------------------------------------------------------------------------------------------------------------
June 30, 1996 7,026,818 $ 1,757 $ 2,306,355 $(1,850,918) $ 457,194
====================================================================================================================
<FN>
See independent accountants' report and accompanying notes to consolidated
financial statements.
</FN>
</TABLE>
F-5
<PAGE>
VALUESTAR CORPORATION
Consolidated statements of cash flows for the years ended June 30,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(759,328) $(169,921)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 4,577 3,064
Increase (decrease) in bad debt allowance (207) 7,000
Changes in assets and liabilities:
Accounts receivable (65,659) (15,247)
Employee receivable (6,400) 128
Inventories (5,861) (7,857)
Prepaid expenses and other 435 (1,171)
Deferred costs (73,336) (59,830)
Accounts payable 114,127 2,184
Other accrued expenses 33,375 32,623
Deferred revenue 35,759 (3,396)
- --------------------------------------------------------------------------------
Net cash used by operations (722,518) (212,423)
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (38,650) (1,189)
- --------------------------------------------------------------------------------
Net cash used by investing activities (38,650) (1,189)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from sale of capital stock 1,158,500 145,000
Proceeds from debt 68,100 106,500
Repayment of debt (23,600) (25,000)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 1,203,000 226,500
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 441,832 12,888
Cash and cash equivalents at beginning of year 12,977 89
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $454,809 $ 12,977
================================================================================
Supplemental cash flow information:
Debt converted to common stock $ 68,100 $ 67,600
See independent accountants' report and accompanying
notes to consolidated financial statements.
F-6
<PAGE>
VALUESTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
Note 1 - The Company and its significant accounting policies:
ValueStar Corporation (the Company) was incorporated in Colorado in
1987 and is the holding company for its wholly owned subsidiary, ValueStar,
Inc., which was incorporated in California in 1991. ValueStar, Inc. issues a
certification mark ("Consumer ValueStar") to those local service and
professional industries, primarily in the San Francisco Bay Area, that can
demonstrate a certain level of customer satisfaction, proper licensing and
adequate insurance. The Company also publishes a listing of service and
professional firms that are awarded the "Consumer ValueStar."
The Company utilizes the services of a third party to perform surveys
of customer satisfaction under a contract which expires December 31, 1998.
Principles of consolidation -
The consolidated financial statements include the accounts of ValueStar
Corporation and ValueStar, Inc. All significant intercompany transactions and
account balances have been eliminated in consolidation.
Cash equivalents -
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents. Cash and cash
equivalents consist of deposits in a single bank in excess of federally insured
limits.
Allowance for doubtful accounts -
The Company utilizes the reserve method of accounting for the
recognition of potentially uncollectible accounts receivable. The allowance for
doubtful accounts was $6,793 and $7,000 at June 30, 1996 and 1995, respectively.
Inventories -
Inventories, which consist of promotional materials for sale to
customers, are stated at the lower of cost or fair market value on a first-in,
first-out basis.
Property and equipment -
Property and equipment are stated at cost. Depreciation is computed on
the straight-line method based on the estimated useful life of five to seven
years of the respective assets.
Revenue and customer cost recognition -
Revenues:
The Company's revenues are primarily from research and rating fees paid
by new and renewal customers, license fees from qualified applicants and renewal
customers, and sales of
F-7
<PAGE>
marketing materials and related services. The Company, from time to time,
provides discounts, incentives and satisfaction guarantees to first time
applicants, and may extend payment terms on the annual license fee.
Annual "Consumer ValueStar" license fees and customer research and
rating fees are recognized when all related services are provided to the
customer. The Company provides a reserve for customer satisfaction guarantees.
Sales of marketing materials and other services are recognized as materials are
delivered or shipped or services are rendered.
Customer costs:
Effective July 1, 1994, with the adoption by the Company of Statement
of Position No. 93-7 (SOP 93-7), Reporting on Advertising Costs, certain
customer acquisition costs are deferred and amortized over a 12 month period.
These costs, which relate directly to targeted new licensee solicitations,
primarily include targeted direct-response advertising programs consisting of
telemarketing, printing and mailing costs. Costs of the Company's publication,
the Consumer ValueStar Report, are deferred and amortized over a six month
period, which is the estimated useful life of the publication. No indirect costs
are included in deferred customer acquisition costs. Costs incurred for other
than specific targeted customers, including general marketing, are expensed as
incurred. The total amount of advertising costs charged to expense was $243,944
and $61,112 in 1996 and 1995, respectively.
Commencing in January 1995, the Company changed the third-party
research portion of its licensee qualifications from qualifying an applicant for
a one year period to a two year period. Accordingly, certain customer rating
costs are deferred and amortized over a one year period.
Deferred costs are periodically evaluated to determine if adjustments
for impairment are necessary.
Income taxes -
The provision for income taxes is based on income reported in the
consolidated financial statements. Deferred income taxes are provided for
temporary differences between the financial reporting and tax basis of the
Company's assets and liabilities.
Net loss per share -
Net loss per common share is based on the weighted average number of
shares outstanding during the year. Options to purchase stock are not included
in the calculation, as the affect would be anti-dilutive.
Risks and uncertainties -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Continued operations -
The accompanying consolidated financial statements have been prepared
assuming the Company will continue operating as a going concern, which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has incurred
F-8
<PAGE>
operating losses in prior fiscal years and losses are continuing. The Company's
operations have been funded for the most part from the sale of common stock.
The Company's ability to continue as a going concern is dependent upon
obtaining additional capital and ultimately achieving and maintaining profitable
operations. The Company is working aggressively to increase revenues through
expanding the number of new licensees, maintaining high rates of renewals and
selling additional services to its licensees, which it believes will ultimately
lead to profitable operations. The Company is also seeking additional debt or
equity capital from existing shareholders and others. However, the lack of
additional capital could force the Company to reduce the emphasis on new
licensee growth and curtail or scale back operations in more reliance on higher
profitable renewals. Such actions could have an adverse effect on the Company's
business. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Recent accounting pronouncements -
The Financial Accounting Standards Board has recently issued Statement
of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long- Lived Assets and SFAS No. 123, Accounting for Stock Based
Compensation. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of the carrying amount or
their estimated recoverable amount and the adoption of this statement by the
Company is not expected to have an impact on the financial statements. SFAS No.
123 encourages the accounting for stock-based employee compensation programs to
be reported within the financial statements on a fair value based method. If the
fair value based method is not adopted, then the statement requires pro-forma
disclosure of net income and earnings per share as if the fair value based
method had been adopted. The Company currently does not intend to adopt the fair
value accounting method prescribed by SFAS 123, and will be subject only to the
disclosure requirements prescribed by SFAS 123. However, the Company intends to
continue its analysis of SFAS 123 and may elect to adopt its provisions in the
future. Both statements are effective for fiscal years beginning after December
15, 1995.
Note 2 - Property, equipment and intangible assets:
1996 1995
---- ----
Computer equipment $29,072 $ 6,590
Office equipment 4,954 2,549
Furniture and fixtures 15,013 1,250
Leasehold improvements 446 446
Logo design 4,949 4,949
--------- ---------
54,434 15,784
Less accumulated depreciation
and amortization 8,087 3,510
--------- ---------
$46,347 $12,274
======= =======
Depreciation expense for 1996 and 1995 was approximately $4,600 and
$3,100, respectively.
F-9
<PAGE>
Note 3 - Deferred costs:
Deferred costs at June 30 consist of:
1996 1995
---- ----
Rating fees $160,013 $25,519
Publishing 81,903 61,123
Telemarketing 69,277 9,478
Direct mail 48,302 3,429
---------- ---------
359,495 99,549
Less amortization for the year 226,329 39,719
--------- --------
$133,166 $59,830
========= =======
Costs are amortized over periods from six months to one year.
Note 4 - Shareholder debt:
During the years ended June 30, 1996 and 1995, the Company borrowed
$68,100 and $106,500, respectively, from various shareholders. Notes to these
shareholders are due on demand with interest at 12% per annum. Interest on these
notes amounted to $4,099 and $19,507 for 1996 and 1995, respectively. Notes in
the amount of $68,100 and $67,600 were exchanged for common stock as of June 30,
1996 and 1995, respectively, at an exchange rate of $0.50 and $0.35 per share,
respectively. Shareholder notes totaled $23,600 at June 30, 1995. No notes were
outstanding as of June 30, 1996.
Note 5 - Common stock and options:
Common stock -
The Company has one series of par value common stock authorized and
outstanding. The par value is $.00025 and 20,000,000 shares are authorized.
Under an escrow agreement dated June 27, 1992, resulting from the
acquisition of ValueStar, Inc. by the Company, the release of 1,225,000 shares
of common stock held by James Stein, an officer and director, was contingent on
attaining certain operating results. During the year ended June 30, 1995, the
Board of Directors determined that 200,000 shares could be released from escrow.
In addition, at the July 20, 1995 Annual Meeting of the Company, the
shareholders approved the release of the remaining 1,025,000 shares held in
escrow subject to a lock-up agreement. Under the terms of the lock-up agreement,
Mr. Stein may not sell the released shares until the first to occur of (a) three
years from the release of the shares from escrow, or (b) when audited or
unaudited financial statements of the Company, prepared in accordance with
generally accepted accounting principles, demonstrate that the Company has
realized net profits for two consecutive fiscal quarters.
During fiscal 1996, the Company completed stock offerings of 310,000
common shares at $0.35 per share, 1,100,000 common shares at $0.50 per share,
and 666,666 common shares at $0.75 per share plus 66,666 common shares issued
for net offering costs. A total of 136,200 common shares were issued in exchange
for shareholder notes of $68,100 (see Note 4).
F-10
<PAGE>
Stock options -
The 1992 Incentive Stock Option Plan (ISO Plan) expires in 2002 and
allows for the issuance of options to employees to purchase up to 250,000 shares
of common stock. The 1992 Non-Statutory Stock Option Plan (NSO Plan) also
expires in 2002 and allows the issuance of options to employees to purchase up
to 250,000 shares of common stock. The 1996 Stock Option Plan expires in 2006
and allows for the issuance of options to selected employees, directors and
consultants to purchase up to 400,000 shares of common stock. An option granted
under the 1996 Stock Option Plan may be an incentive stock option (ISO), which
may be granted only to employees, or a nonqualified stock option (NQO) as
determined by the Plan Committee.
The option price under each of the plans will not be less than the fair
market value at the date of grant as determined by the Board of Directors. In
the case of a significant shareholder, the option price of shares under the 1992
ISO Plan and the 1996 Stock Option Plan will not be less than 110% of the fair
market value of the share on the date of grant. Options are granted under the
plans for periods not to exceed ten years and become exercisable based on
vesting terms determined by the Board of Directors or Plan Committee at the date
of grant.
<TABLE>
Information with respect to stock option transactions for the years ended June 30, 1996 and 1995 is as
follows:
<CAPTION>
Number
Available of Options Price per
for Grant Outstanding Exercisable Share
--------- ----------- ----------- -----
<S> <C> <C> <C> <C>
1992 ISO Plan:
Balance June 30, 1994 250,000
Granted (200,000) 200,000 $ .40
-------- -------
Balance June 30, 1995 50,000 200,000
Granted (50,000) 50,000 .50
--------- --------
Balance June 30, 1996 - 250,000 230,000
========= ======= =======
1992 NSO Plan:
Balance June 30, 1994 250,000
Granted (200,000) 200,000 .40-.50
-------- -------
Balance June 30, 1995 50,000 200,000
Granted (50,000) 50,000 .50
--------- --------
Balance June 30, 1996 - 250,000 250,000
========= ======= =======
1996 Stock Option Plan:
January 19, 1996 (inception) 400,000
ISO's granted (170,000) 170,000 .50
NQO's granted (170,000) 170,000 .50
-------- -------
Balance June 30, 1996 60,000 340,000 178,833
========= ======= =======
</TABLE>
Options under all plans must be exercised within a five year period
from the date of grant. No shares were exercised under the plans as of June 30,
1996.
F-11
<PAGE>
Note 6 - Income taxes:
There was no provision for income taxes for the years ended June 30,
1996 and 1995.
Temporary differences and carryforwards which result in significant
deferred tax assets as of June 30, 1996 and 1995 approximated $700,000 and
$400,000, respectively.
Under Statement of Financial Accounting Standards No. 109, a valuation
allowance must be established for a deferred tax asset if a tax benefit may not
be realized from the asset. The Company has established a valuation allowance
for the full amount of its deferred tax assets as recognition of these assets is
uncertain due to the Company's recurring losses.
The Company has approximately $1,800,000 of federal net operating loss
carryforwards at June 30, 1996 available to offset future taxable income which
expire in the years 2006 through 2010. The Company has California net operating
loss carryforwards of approximately $900,000 at June 30, 1996 which expire in
the years 1997 through 2002. For federal and California tax purposes, the
Company's net operating loss carryforward may be subject to certain limitations
on annual utilization due to changes in ownership.
Note 7 - Commitments:
The Company entered into a facility lease agreement for a period of
three years which commenced on August 1, 1995 and requires monthly payments
through July 3, 1998 of approximately $1,800. Total rent expense was
approximately $22,500 in 1996 and $22,000 in 1995.
Note 8 - Subsequent event:
In July 1996, the Company opened a new sales territory encompassing
Sacramento and San Joaquin Counties in California.
F-12
<PAGE>
VALUESTAR CORPORATION
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1997
F-13
<PAGE>
VALUESTAR CORPORATION
Interim Consolidated Financial Statement Index
Consolidated Balance Sheets as of March 31, 1997 and
June 30, 1996 (Unaudited) 3
Consolidated Statements of Operations for the nine months ended
March 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1997 and 1996 (Unaudited) 5
Notes to Interim Consolidated Financial Statements 6
F-14
<PAGE>
VALUESTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
1997 1996
ASSETS
Current Assets
Cash and cash equivalents $163,854 $454,809
Accounts receivable, net 203,994 93,020
Employee receivables 5,500 6,900
Inventories 39,037 15,330
Prepaid and other 6,132 3,108
-------- --------
418,517 573,167
Deferred costs - net 249,476 133,166
Property equipment and intangibles-net 57,916 46,347
-------- --------
$725,909 $752,680
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 416,639 $ 157,528
Accrued expenses 134,649 87,219
Deferred revenue 34,440 50,739
----------- -----------
585,728 295,486
Long-term notes 100,000 --
----------- -----------
Total liabilities 685,728 295,486
Stockholders' Equity
Preferred stock, $.00025 par value,
5,000,000 authorized; no shares issued
and outstanding
Common stock, $.00025 par value,
20,000,000 shares authorized,
8,072,913 and 7,026,818 shares issued and
outstanding respectively 2,018 1,757
Paid in capital 3,091,165 2,306,355
Common stock subscribed 40,000 --
Deficit (3,093,002) (1,850,918)
----------- -----------
Total Stockholders' Equity 40,181 457,194
----------- -----------
$ 725,909 $ 752,680
=========== ===========
See accompanying notes to interim consolidated financial statements.
F-15
<PAGE>
VALUESTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended
March 31,
1997 1996
Revenues $ 578,175 $ 252,501
Costs and expenses:
Cost of revenues 268,905 98,203
Customer support expenses 494,289 89,827
Selling and marketing expenses 697,358 295,496
General and administrative expenses 354,707 209,326
----------- -----------
Total costs and expenses 1,815,259 692,852
----------- -----------
Loss from operations (1,237,084) (440,351)
Interest expense (5,000) (2,926)
Other income (expense) -- (3,387)
----------- -----------
Net loss $(1,242,084) $ (446,664)
=========== ===========
Net loss per share $ (0.18) $ (0.09)
=========== ===========
Weighted average number of shares 7,067,438 5,128,909
=========== ===========
See accompanying notes to interim consolidated financial statements.
F-16
<PAGE>
VALUESTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1997 1996
Cash Flows from Operating Activities
<S> <C> <C>
Net income (loss) $(1,242,084) $ (446,664)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 6,496 1,787
Amortization of deferred costs 282,080 105,004
Common stock issued for services 2,175 --
Changes in assets and liabilities:
Accounts receivable (110,974) (75,270)
Employee receivable 1,400 --
Inventories (23,707) (2,199)
Prepaid expenses and other (3,024) (8,528)
Deferred costs (398,390) (184,096)
Accounts payable 259,111 12,596
Accrued expenses 79,826 3,823
Deferred revenue (16,299) 23,484
----------- -----------
Net Cash Flows Used by Operations (1,163,390) (570,063)
Cash Flows from Investing Activities
Capital expenditures (17,565) (23,772)
----------- -----------
Net Cash Used by Investing Activities (17,565) (23,772)
Cash Flows from Financing Activities
Sale of common stock 750,000 598,000
Common stock subscribed 40,000 --
Proceeds from debt 100,000 95,000
Debt repayment -- (20,000)
----------- -----------
Net Cash Provided by Financing Activities 890,000 673,000
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents (290,955) 79,165
Cash and Cash Equivalents at Beginning of Period 454,809 12,977
----------- -----------
Cash and Cash Equivalents at End of Period $ 163,854 $ 92,142
=========== ===========
Supplemental Cash Flow Information:
Non-cash financing activities:
Debt converted to common stock $ -- $ 78,600
Accrued expenses exchanged for common stock 32,396 --
Value assigned to warrants issued with long-term debt 500 --
Cash paid for interest 5,000 2,926
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-17
<PAGE>
VALUESTAR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. OPERATIONS
ValueStar Corporation (the "Company"), through its wholly-owned subsidiary
ValueStar, Inc., issues a certification mark ("ValueStar(R) Certified") to those
local service and professional businesses, in the San Francisco Bay and
Sacramento, California areas, that rate high in customer satisfaction and
maintain proper licensing and insurance. The Company communicates information
about highly rated service and professional firms that have earned "ValueStar
Certified" through various media including its Internet site
(www.valuestar.com), a periodic publication (Consumer ValueStar Reports) and a
voice-text service (808-STAR).
The Company's revenues are primarily from research and rating fees paid by new
and renewal customers, license fees from qualified applicants and renewal
customers, and sales of information services products. The Company, from time to
time, provides discounts, incentives and satisfaction guarantees to first time
applicants, and may extend payment terms on the annual license fee. Annual
license fees and related cost of sales consisting of customer research and
rating fees are recognized when all related services are provided to the
customer. The Company provides a reserve for customer satisfaction guarantees.
Sales of information services are recognized as materials are delivered or
shipped or services are rendered.
2. STATEMENT PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They do not include all information and footnotes required by
generally accepted accounting principles. The interim financial statements and
notes thereto should be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended June 30, 1996.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
results for interim periods. Operating results for the nine month periods are
not necessarily indicative of the results that may be expected for the year.
Certain reclassifications have been made in the prior year to conform to the
current period presentation.
3. INVENTORIES
Inventory is recorded at cost using the first-in first-out method of accounting.
Inventories consist of brochures and related materials for resale.
4. DEFERRED COSTS
Commencing in January 1995, the Company changed the third-party research portion
of its licensee qualifications from qualifying an applicant for a one year
period to a two year period. Accordingly, certain direct customer rating costs
incurred for the rating are deferred with 60% expensed in the month incurred and
the balance of 40% amortized at the twelve month renewal.
Costs incurred in printing and distributing the Company's Consumer ValueStar
Report publication published in January and July are capitalized and amortized
over six months. Related revenues are deferred and amortized over six months.
F-18
<PAGE>
VALUESTAR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. DEFERRED COSTS (Continued)
Effective July 1, 1994, with the adoption by the Company of Statement of
Position No. 93-7 (SOP 93-7), Reporting on Advertising Costs, certain customer
acquisition costs are deferred and amortized over a twelve month period on a
straight-line method starting in the month incurred. These costs, which relate
directly to targeted new licensee solicitations, primarily include targeted
direct-response advertising programs consisting of telephone sales, printing and
mailing costs. No indirect costs are included in deferred customer acquisition
costs. Costs incurred for other than specific targeted customers, including
general marketing expenses, are expensed as incurred.
Effective January 1, 1997, the Company modified new licensee solicitation
primarily to telephone sales targeted directly and specifically to direct
revenue-generating responses. No change was made to the amortization period. Any
direct mail, advertising, costs associated with supporting telephone sales or
generating leads and other general marketing expenses, are expensed as incurred.
Deferred costs (net) consisted of the following at:
March 31, June 30,
1997 1996
--------- --------
Rating fees $114,447 $39,616
Publishing 52,086 54,602
Telephone sales 82,943 38,948
-------- --------
$249,476 $133,166
======== ========
The net effect of capitalizing and amortizing deferred costs was a reduction in
costs and expenses of $116,310 and $79,092 for the nine months ended March 31,
1997 and 1996, respectively.
The Company estimates new licensees have an average life exceeding four years.
Deferred costs are periodically evaluated to determine if adjustments for
impairment are necessary.
5. LONG-TERM NOTES
The Company is obligated on two 12% notes in the amount of $50,000 each for an
aggregate of $100,000 one of which is payable to the spouse of a director. These
notes are due on September 30, 1998. The Company has granted each note holder a
warrant to purchase 5,000 common shares (an aggregate of 10,000 shares) at an
exercise price of $0.75 per share until September 30, 1998.
6. STOCKHOLDERS' EQUITY
<TABLE>
The following table summarizes equity transactions during the nine months ended
March 31, 1997:
<CAPTION>
Shares Dollars
--------- ----------
<S> <C> <C> <C>
Balance July 1, 1996 7,026,818 $2,308,112
Sale of common stock for cash @ $.75 per share 1,000,000 750,000
Conversion of accrued expenses to stock @ $.75 per share 43,195 32,396
Value assigned to warrants issued with long-term debt - 500
Common stock subscribed but unissued at March 31, 1997(1) - 40,000
Issuance of stock to employees @ $.75 per share 2,900 2,175
--------- ----------
Balance March 31, 1997 8,072,913 $3,133,183
========= ==========
<FN>
(1) On April 7, the Company issued 53,333 common shares to a director
at $.75 per share for the subscription for which cash was received
prior to March 31, 1997.
</FN>
</TABLE>
F-19
<PAGE>
VALUESTAR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. STOCKHOLDERS' EQUITY (Continued)
At March 31, 1997 the Company had options outstanding pursuant to its 1992 ISO
Plan covering 250,000 common shares with exercise prices of $0.40 to $0.50 per
share expiring in 2000 and 2001. The Company also had options outstanding
pursuant to its 1992 NSO Plan covering 250,000 common shares with exercise
prices of $0.40 to $0.50 per share expiring between 1999 and 2001. The Company
has options outstanding pursuant to its 1996 Stock Option Plan, as amended and
restated, covering 255,000 common shares with an exercise price of $0.50 per
share expiring in 2001 and 2002 and options outstanding pursuant to its 1997
Stock Option Plan covering 52,000 common shares with an exercise price of $0.75
per share expiring in 2002.
On March 14, 1997 the Company adopted the 1997 Employee Stock Compensation Plan
providing for the issuance of up to 4,000 common shares to non-executive
employees. At March 31, 1997 an aggregate of 2,900 common shares had been
granted pursuant to this plan.
The Company's President and CEO has entered into a Lockup Agreement dated July
20, 1995 with respect to 1,025,000 common shares providing for no sale of the
shares until the earliest of (a) July 20, 1998 (b) or upon the achievement and
certification by a resolution of the Board of Directors that the Company has
been profitable, in accordance with generally accepted accounting principles,
for two consecutive fiscal quarters.
7. INCOME TAXES
At March 31, 1997 a valuation allowance has been provided to offset the net
deferred tax assets as management has determined that it is more likely than not
that the deferred tax asset will not be realized. The Company has for federal
income tax purposes net operating loss carryforwards of approximately $1,800,000
which expire through 2002 of which certain amounts are subject to limitations
under the Internal Revenue Code, as amended.
8. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets" and SFAS No. 123, "Accounting for Stock Based
Compensation." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of the carrying amount or
their estimated recoverable amount. The adoption of this statement in the first
quarter of fiscal 1997 by the Company did not have an impact on the financial
statements.
SFAS No. 123 encourages the accounting for stock-based employee compensation
programs to be reported within the financial statements on a fair value based
method. If the fair value based method is not adopted, then the statement
requires pro-forma disclosure of net income and earnings per share as if the
fair value based method had been adopted. While the Company is evaluating the
impact of the pronouncement, it expects to continue to account for stock options
utilizing the "intrinsic value based method" as is allowed by the statement and
therefore does not expect SFAS No. 123 to have a material impact on its
financial position, results of operations and cash flows.
9. SUBSEQUENT EVENTS
On April 16, 1997 the Company's shareholders approved the 1996 Stock Option
Plan, as amended and restated to provide for options on up to 300,000 common
shares, and a new 1997 Stock Option Plan providing for options on up to 200,000
common shares. The shareholders also authorized an amendment to the Company's
articles of incorporation to authorize a maximum of 5,000,000 shares of
undesignated preferred stock, par value $.00025 per share.
F-20
<PAGE>
VALUESTAR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. SUBSEQUENT EVENTS (Continued
On April 30, 1997 in connection with consulting services the Company issued
Stock Purchase Warrants exercisable into an aggregate of 150,000 shares of
common stock at $0.75 per share until April 30, 2002.
F-21
<PAGE>
Part III
Item 1. Index to Exhibits
2. Charter and Bylaws
2.1 Articles of Incorporation of the Carson Capital Corporation
(Colorado) as filed on January 28, 1987
2.1.1 Amendment to Articles of Incorporation as filed on September 21,
1992
2.1.2 Amendment to Articles of Incorporation as filed on April 24, 1997
2.2 Bylaws of the Company
3. Instruments Defining the Rights of Security Holders
3.1 Form of Certificate evidencing Common Stock of the Company
3.2 Lockup Agreement between the Company and James Stein dated July
20, 1995
3.3 Form of 12% Promissory Note with Non-Detachable Stock Purchase
Warrant Due September 30, 1998 (aggregate of $100,000 principal
and 10,000 Warrants exercisable at $0.75 per share)
3.4 Form of Stock Purchase Warrant dated April 30, 1997 granted to
five persons exercisable into an aggregate of 150,000 common
shares at $0.75 per share until April 30, 2002 (Individual
warrants differ as to holder and number of shares)
5. Voting Trust Agreement
None
6. Material Contracts
6.1 Research and Rating Agreement between the Public Research
Institute of San Francisco State University and ValueStar, Inc.
effective April 30, 1997
6.2 1992 Incentive Stock Option Plan, As Amended
6.2.1 Standard form of Incentive Stock Option Plan Agreement
6.3 1992 Non-Statutory Stock Option Plan, As Amended
6.3.1 Standard form of Non-Statutory Stock Option Plan Agreement
6.4 Employment Agreement between the Company and James Stein dated
June 27, 1992
6.4.1 Employment Agreement between ValueStar, Inc. and James Stein
dated May 1, 1992
6.5 Employment Agreement between ValueStar, Inc. and Benjamin A.
Pittman dated January 29, 1996
6.6 Property Lease Agreement between Ballena Isle Marina and
ValueStar, Inc. dated July 14, 1995
6.7 1996 Stock Option Plan, as amended and restated
6.7.1 Standard form of 1996 Stock Plan Agreement
6.8 1997 Stock Option Plan
6.8.1 Standard form of 1997 Stock Plan Agreement
6.9 1997 Employee Stock Compensation Plan
42
<PAGE>
7. Material Foreign Patents
None
27.1 Financial Data Schedules
Item 2. Description of Exhibits
The documents required to be filed and as listed on the immediately preceding
Index to Exhibits follow immediately after the signatures below.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
VALUESTAR CORPORATION
By: /s/ JAMES STEIN
James Stein, President and
Chief Executive Officer
Date: May 29, 1997
43
EXHIBIT 2.1
ARTICLES OF INCORPORATION OF
CARSON CAPITAL CORPORATION
The undersigned natural person, being more than eighteen (18) years of age,
hereby establishes a corporation pursuant to the Statutes of Colorado, and
adopts the following Articles of Incorporation:
FIRST: The name of the corporation is CARSON CAPITAL CORPORATION.
SECOND: The corporation shall have perpetual existance.
THIRD: (a) Authorized Shares. The aggregate number of shares which the
corporation shall have the authority to issue is Five Hundred Twenty Million
(520,000) shares. Five Hundred Million (500,000) shares shall be designated
"Common Stock", and shall have a par value of $.00001. Twenty Million
(20,000,000) shares shall be designated "Preferred Stock", and shall be without
par value, and shall be issued for such consideration, expressed in dollars, as
the Board of Directors may, from time to time, determine.
(b) Consideration for Shares. All shares of Common Stock and Preferred Stock
shall be issued by the corporation for cash, property, property, or services
actually performed, for no less than the par value of $.00001 per share for
Common Stock, and no less than the consideration per share authorized by the
Board of Directors for Preferred Stock. All shares shall be fully paid, and
non-assessable.
(c) Issuance of Preferred Stock. The Board of Directors of the Corporation is
authorized to divide the Preferred Stock into as many series, as the Board of
Directors from time to time may determine, and to issue the preferred stock in
such series. The Board of Directors shall determine the number of shares
comprising each series, which number may, unless otherwise provided by the Board
of Directors in creating such series, be increased or decreased from time to
time by action of the Board of Directors. Each series shall be so designated, as
to distinguish the shares thereof, from the shares of all other series. The
Board of Directors shall have the authority to fix and determine the following
relative rights and preferences of the shares of any such series of Preferred
Stock:
(i) the rate of dividend, if any;
(ii) whether shares can be redeemed, and if so, the redemption price
and the terms and conditions of the redemption;
(iii) the amount payable upon shares in the event of voluntary, or
involuntary liquidation;
(iv) sinking fund provision, if any, for redemption or purchase of
shares;
(v) the terms and conditions, if any, under which snares may be
converted to common stock; and,
(vi) the voting powers, if any.
(d) Dividends. Dividends in cash, property or shares of the corporation may be
paid upon the Common and Preferred Stock, as and when declared by the Board of
Directors, out of funds of the corporation to the extent, and in the manner
permitted by law.
(e) Voting Rights & Cumulative Voting. Each outstanding share of Common Stock
shall be entitled to one vote, and each fractional share of Common Stock shall
be entitled to a corresponding fractional vote on each matter submitted to a
vote of shareholders. The voting rights of Preferred Stock, if any, shall be
established by the Board of Directors at the time such stock is issued in
series. Cumulative voting shall not be allowed in the election of directors of
the corporation.
1
<PAGE>
(f) Denial of Preemptive Rights. No holder of any shares of the corporation,
whether now or hereafter authorized, shall have any preemptive or preferential
right to acquire any shares or securities of the corporation, including shares
or securities held in the treasury of the corporation.
(g) Distribution in Liquidation. Upon any liquidation, dissolution, or winding
up of the corporation, and after paying or adequately providing for the payment
of all its obligations, including any preferences granted to Preferred Stock,
the remainder of the assets of the corporation shall be distributed either in
cash, or in kind, pro-rata to the holders of the Common Stock and, if not
previously provided for, to the holders of the Preferred Stock, without regard
to par value.
(h) Partial Liquidation. The Board of Directors may, from time to time,
distribute to the shareholders in partial liquidation, out of stated capital, or
capital surplus of the corporation, a portion of its' assets in cash or
property, subject to the limitations contained in the statutes of Colorado.
FOURTH: One director shall constitute the initial Board, until two additional
directors are appointed by him upon the First Meeting of the Incorporator(s),
his name and address being as follows:
Reed A. Hatkoff
3011 S. Chester Ct.
Denver, Colorado 80231
FIFTH: The address of the registered office of the corporation shall be 3011 S.
Chester Ct., Denver, Colorado 80231. The name of its' initial registered agent
at such address is Reed A. Hatkoff. The corporation may conduct all or part of
its' business, in any other part of Colorado, the United States, or any other
place in the world it so desires. It may hold, purchase, mortgage, lease, and
convey real and personal property in any of such places.
SIXTH: The corporation shall be entitled to treat the registered holder of any
shares of the corporation as the owner thereof for all purposes, including the
rights deriving from such shares, and not be bound to recognize any equitable or
other claim to, or interest in, such shares or rights deriving from such shares,
unless and until such purchaser, assignee, transferee or other person becomes
the registered holder of such shares, whether or not the corporation shall have
either actual or constructive notice of the interests of such purchaser,
assignee, transferee or other person. The purchaser, assignee, or transferee of
any of the shares of the corporation shall not be entitled to 1) receive notice
of the meetings of the shareholders (2) to be paid dividends or other sums
payable to the shareholders; 3) or to own, enjoy and excercise any other
property or rights deriving from such shares against the corporation, until the
purchaser, assignee, or transferee has become a registered holder of such
shares.
SEVENTH: The following provisions are inserted for the management of the new
business, and for the conduct of the affairs of the corporation, and the same
are in furtherance of and not in limitation or exclusion of the powers conferred
by law.
(a) Right of Directors to Contract with Corporation. No contract or other
transaction between the corporation and one or more of its' directors, or any
other corporation, firm, association, or entity in which one or more of its'
directors, are directors or officers, or are financially interested, shall be
either void or voidable solely because of such relationship or interest, or
solely because such directors are present at the meeting of the Board of
Directors, or a committee thereof, which authorizes, approves, or ratifies such
contract or transaction, or solely because their votes are counted for such
purpose, if;
(i) The fact of such relationship or interest is disclosed, or known to
the Board of Directors or committee, which authorizes, approves, or
ratifies the contract or transaction by a vote or consent sufficient
for the purpose without counting the votes or consents of such
interested directors; or,
(ii) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote, and they authorize, approve, or
ratify such contract or transaction by vote or written consent; or,
(iii) The contract or transaction is fair and reasonable to the
corporation.
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Common or interested directors may be counted in determining the presence of a
quorum at the meeting of the Board of Directors or a committee thereof, which
authorizes, approves, or ratifies such contract or transaction.
(b) Corporate Opportunity. The officers, directors, and other members of
management of this corporation, shall be subject to the doctrine of "corporate
opportunities" only insofar as it applies to as it applies to business
opportunities in which this corporation has expressed an interest as determined
from time to time as determined by this corporation's Board of Directors as
evidenced by resolutions appearing in the corporation's minutes. Once such areas
of interest are delineated, all such business opportunities within such areas of
interest, which come to the attention of the officers, directors, and other
members of management of this corporation, shall be disclosed promptly to this
corporation and made available to it. The Board of Directors may reject any
business opportunity presented to it, and thereafter, any officer, director, or
other member of management may avail himself of such opportunity. Until such
time as this corporation, through its' Board of Directors, has designated an
area of interest, the officers, directors, and other members of management of
this corporation shall be free to engage in such areas of interest on their own,
and this doctrine shall not limit the rights of any officer, director, director,
or other member of management of this corporation to continue a business
existing prior to that time, that such area of interest is designated by the
corporation. This provision shall not be construed to release any employee of
this corporation (other than an officer, director, or member of management),
from any duties which he may have to this corporation.
(c) Indemnification of Directors & Others
(i) The corporation shall indemnify any person who was, or is a party,
or is threatened to be made a party to any impending, prospective,
imminent, pending, or completed action, suit, or proceeding, whether,
civil, criminal, administrative, or investigative (other than an action
by, or in the right of the corporation), by reason of the fact that he
was, or is a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as an officer,
director, employee, or agent of another corporation, partnership,
joint-venture, trust, or other enterprise, against expenses (including
attorneys' fees), judgements, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action,
suit, or proceeding if he acted in good faith, and, in case of conduct
in his official capacity with the corporation, in a manner he
reasonably believed to be in the best interests of the corporation, or,
in all other cases that his conduct was at least not opposed to the
corporations' best interests. In the case of any criminal proceedings,
he must have no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit, or proceeding by judgement, order,
settlement, conviction, or upon a plea of nolo contendre or its'
equivalent, shall not of itself, determine that the individual did not
meet the standard of conduct set forth in this paragraph.
(ii) The corporation shall indemnify any person who was, or is a party,
or is threatened to be made a party to any impending, prospective,
imminent, pending, or completed action or suit, or in the right of the
corporation to procure a judgement in its' favor, by reason of the fact
that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation, as
an officer, director, employee, or agent of another corporation,
partnership, joint-venture, trust, or enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense, or settlement of such action or suit if he
acted in good faith, and, in the case of conduct in his official
capacity with the corporation, in a manner he reasonably believed to be
in the best interests of the corporation, and, in all other cases, that
his conduct was at least not opposed to the corporations' best
interest; but no indemnification shall be made in respect of any claim,
issue or matter, as to which such person has been adjudged to be liable
for negligence or misconduct in the performance of his duty to the
corporation , or where such person was adjudged liable on the basis
that personal benefit was improperly received by him, unless, and only
to the extent that the court in which such action or suit was brought,
determines upon application, that, despite the adjudication of
liability, but in the view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such
expenses which such court deems proper.
(iii) To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits in defense of any action,
suit, or proceeding referred to in this section, or in defense of any
claim,
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issue, or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(iv) Any indemnification under (i) or (ii) of this section (unless
ordered by a court), shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper
in the circumstances because he has met the applicable standard of
conduct as set forth in paragraphs (i) or (ii) of this Article. Such
determination shall be made by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such
action, suit, or proceeding, or, if such a quorum is not obtainable, or
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or by the shareholders.
(v) Expenses (including attorneys' fees) incurred in defending a civil
or criminal action, suit, or proceeding, may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding,
as authorized by the Board of Directors as provided in paragraph (iv)
of this section, upon receipt of a written affirmation by the director,
officer, employee, or agent, of his good faith belief that he has met
the standard of conduct described in paragraphs (i) and (ii) of this
section, and an undertaking by, or on behalf of the director, officer,
employee, or agent to repay such amount unless it is ultimately
determined that he is entitled to be indemnified by the corporation as
authorized in this section.
(vi) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those indemnified may be
entitled under the Articles of Incorporation, any by-law, agreement,
vote of the shareholders, or disinterested directors, or otherwise, and
any proceedure provided for by any of the foregoing, both as to action
in his official capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee, or
agent, and shall inure to the benefit of heirs, executors, and
administrators of such a person.
(vii) The corporation may purchase and maintain insurance on behalf of
any person who is, or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation,
partnership, joint-venture, trust, or other enterprise, against any
liability asserted against him, and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under the provisions of this section.
(d) Shareholder Voting.
(i) One-third of the shares entitled to vote represented in person or
by proxy, shall constitute a quorum at any meeting of the shareholders.
(ii) When, with respect to any action to be taken by the shareholders
of this corporation, the laws of the State of Colorado require the vote
or concurrence of the holders of two-thirds of the issued and
outstanding shares entitled to vote thereon, or of any class or series,
such action may be taken by the vote, or concurrence of a majority of
such shares, or class or series thereof.
(e) Adoption and Amendment of Bylaws. The initial bylaws of the corporation
shall be adopted by its' Board of Directors. The power to alter, amend, or
repeal the bylaws, or adopt new bylaws, shall be vested in the Board of
Directors, but the holders of Common Stock may also alter, amend, or repeal the
bylaws or adopt new bylaws. The bylaws may contain any provisions for the
regulation and management of the affairs of the corporation not inconsistant
with law, or these Articles of Incorporation.
EIGHTH: The name and address of the incorporator is:
Reed A. Hatkoff
3011 S. Chester Ct.
Denver, Colorado 80231
Dated this 25th of January, 1987; /s/ REED A. HARKOFF
Reed A. Hatkoff
4
EXHIBIT 2.1.1
CERTIFICATE OF AMENDMENT
to
ARTICLES OF INCORPORATION
of
CARSON CAPITAL CORPORATION
(A Colorado Corporation)
Carson Capital Corporation, a corporation organized and existing under and by
virtue of the Colorado Corporation Code, DOES HEREBY CERTIFY THAT:
A. The name of this corporation is CARSON CAPITAL CORPORATION.
B. The Board of Directors of Carson Capital Corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, duly
adopted resolutions setting forth a proposed amendment to the Articles of
Incorporation of the corporation, declaring such amendment to be advisable and
directing that the proposal be placed before the shareholders of the corporation
for consideration thereof. The amendments to the Articles of Incorporation are
set forth below, consisting of amendment of Articles FIRST, THIRD and paragraph
(d) of Article SEVENTH and the addition of new Article NINTH, namely:
"FIRST: The name of this corporation is VALUESTAR CORPORATION.
THIRD: The aggregate number of shares which the Corporation shall have the
authority to issue is TWENTY MILLION (20,000,000) shares, all of which shall be
designated "Common Stock" or "Common Shares" and shall have a par value of
$.00025 per share. No preferred shares are authorized. Shares shall be issued
for such consideration, expressed in United States dollars, as the Board of
Directors may from time to time determine. The designations, voting powers,
preferences, optional or other special rights and qualifications, limitations or
restrictions of the Common Shares are set forth in this Article THIRD:
(a) Issuance. The Common Stock may be issued from time to time in one
or more classes or series in any manner permitted by law, as determined by the
Board of Directors and stated in the resolution or resolutions providing for
issuance thereof. Each class or series shall be appropriately designated, prior
to issuance of any shares thereof, by some distinguishing letter, number or
title. All shares of each class or series of Common Stock shall be alike in
every particular and shall be of equal rank and have the same power, preferences
and rights, and shall be subject to the same qualifications, limitations and
restrictions, if any.
(b) Voting Powers. The Common Stock may have such voting powers (full,
limited, contingent or no voting powers), such designations, preferences and
relative, participating, optional or other special rights, and be subject to
such qualifications, limitations and restrictions, as the Board of Directors
shall determine by resolution or resolutions. Unless otherwise resolved by the
Board of Directors, each Common Stock share shall be of the same class, without
any designation, preference or relative, participating, optional or other
special rights, and subject to no qualification, limitation or restriction, and
each share of Common Stock shall have one vote in respect of all matters voted
upon by the shareholders. Cumulative voting shall not be allowed in the election
of directors or as to any other matter presented for shareholder approval.
(c) Dividends. The holders of Common Stock shall receive, to the extent
permitted by law, such dividends as may be declared from time to time by the
Board of Directors.
(d) Convertibility. Common Shares or other shares of any class or
series may be made convertible into or exchangeable for, at the option of the
Corporation or the holder or upon the occurrence of a specified event, shares of
any other class or classes or any other series of the same or any other class or
classes of shares of the Corporation, at such price or prices or at such rate or
rates of exchange and with such adjustments as shall be set forth in the
resolution or resolutions providing for the issuance of such convertible or
exchangeable shares adopted by the Board of Directors. Notes, debentures and
other debt instruments likewise may be made convertible into or exchangeable for
Common Shares, either at the time of issuance or thereafter.
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(e) Redeemability. Common Shares may be made redeemable at the option
of the Corporation, of another person, or upon the occurrence of a designated
event, if and to the extent now or subsequently allowed by the Colorado
Corporation Code, as such law may subsequently be amended, and the terms and
conditions of redemption, including the date or dates upon or after which they
shall be redeemable, the amount per share payable in case of redemption and any
variance in the amount or amounts payable, among other terms, conditions and
limitations which may be imposed, may be fixed and established by the Board of
Directors in the resolution or resolutions authorizing the issuance of
redeemable Common Shares. Any such redemption may be made without the vote or
approval of shareholders.
(f) Capital. The portion of the consideration received by the
Corporation upon issuance of any of its shares that shall constitute "capital"
within the meaning of the Colorado Corporation Code shall be (1) in the case of
par value shares, the par value thereof, and (2) in the case of shares without
par value, the stated value of such shares as determined by the Board of
Directors at the time of issuance; provided, that if no stated value is
determined at the time that no-par-value shares are issued, the entire
consideration to be received for the shares shall constitute capital. Any and
all shares of Common Stock issued by the Corporation for which not less than the
portion of the consideration to be received determined to be "capital" has been
paid to the Corporation, provided the Corporation has received a promissory note
or other binding legal obligation of the purchaser to pay the balance thereof,
shall be deemed fully paid and nonassessable shares.
(i) Amendment of Shareholder Rights. So long as no shares of any class
or series established by resolution of the Board of Directors have been issued,
the voting rights, designations, preferences and relative, optional,
participating or other rights of these shares may be amended by resolution of
the Board of Directors.
(j) Status of Certain Shares. Shares of Common Stock which have
redeemed, converted, exchanged, purchased, retired or surrendered to the
Corporation, or which have been reacquired in any other manner, shall have the
status of authorized and unissued shares and may be reissued by the Board of
Directors as shares of the same or any other series, unless otherwise provided
herein or in the resolution authorizing and establishing the shares.
SEVENTH: (d) The following provisions are hereby adopted for the purpose of
regulating certain matters relating to the voting of shareholders of the
Corporation:
(i) Definitions. Whenever the term "total voting power" appears in
these Articles, it shall mean all shares of the Corporation entitled to vote at
a meeting or on a question presented for shareholder approval, and of every
class or series of shares entitled to vote by class or series. Whenever the term
"votes cast" appears in these Articles, it shall mean the total number of voting
shares out of the total voting power which were unequivocally voted in favor of
or against a director standing for election or a matter presented for
shareholder approval at a legal meeting which commenced with a quorum.
(ii) Quorum. Forty percentum (40%) of the total voting power, or where
a separate vote by class or series is required, a 40% of the voting shares of
each such class or series, represented in person or by proxy, shall constitute a
quorum at any meeting of the Corporation's shareholders.
(iii) Vote Required. Any election of directors and any other action to
be taken by the Corporation's shareholders shall require only a majority of the
votes cast, except where these Articles or the Corporation's Bylaws then in
effect requires a higher proportion of the votes cast or requires a proportion
of the total voting power. Abstentions from voting shall not be considered in
the tallying of votes. Nothing contained in this Article SEVENTH shall affect
the voting rights of holders of any class or series of shares entitled to vote
as a class or by series. The Bylaws may provide for the vote necessary at any
adjournment of a duly called meeting for which a quorum was not obtained.
(iv) Action Without Meeting. Any action by the shareholders may be
taken by written consent, in lieu of a meeting and without prior notice or vote,
by the holders of the total voting power. The manner of obtaining any such
written consent shall be governed by the Corporation's Bylaws.
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(v) Shareholder Ratification. Any contract, transaction or act of the
Corporation or of the Directors which shall be ratified by appropriate vote of
the shareholders present at any annual meeting, or at any special meeting called
for such purpose, shall so far as is permitted by law be as valid and binding as
though ratified by every shareholder of the Corporation.
NINTH: As authorized by Section 7-3-101 of the Colorado Corporation Code, no
director of the Corporation shall be personally liable to the Corporation or any
shareholder thereof for monetary damages for breach of his fiduciary duty as a
director, except for liability (i) for any breach of a Director's duty of
loyalty to the Corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for acts in violation of Section 7-5-114 of the Colorado Corporation
Code, as it now exists or may hereafter be amended, or (iv) for any transaction
from which the director derives an improper personal benefit. This Article NINTH
shall apply to a person who has ceased to be a director of the Corporation with
respect to any breach of fiduciary duty which occurred when such person was
serving as a director. This Article NINTH shall not be construed to limit or
modify in any way any director's right to indemnification or other right
whatsoever under these Articles, the Corporation's Bylaws or the Colorado
Corporation Code.
If the Colorado Corporation Code hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of the Corporation's directors, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the Colorado Corporation Code as so amended. Any repeal or
modification of this Article NINTH by the shareholders shall be prospective only
and shall not adversely affect any limitation on the personal liability of any
director existing at the time of such repeal or modification. The affirmative
vote of at least a majority of the total voting power shall be required to amend
or repeal, or adopt any provision inconsistent with, this Article NINTH."
C. This amendment was duly adopted on August 26, 1992 in accordance with the
provisions of Section 7-2-109 of the Colorado Corporation Code, and the number
of shares voted for adoption was sufficient for approval.
D. This amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
E. This amendment does not effect any change in the amount of stated capital.
IN WITNESS WHEREOF, Carson Capital Corporation has caused this Certificate of
Amendment to be signed by James Stein, its President, and attested by Joseph M.
Rebboh, its Secretary, this 1st day of September, 1992.
CARSON CAPITAL CORPORATION
By /s/ JAMES STEIN
James Stein, President
ATTEST:
By /s/ JOSEPH M. REBBOH
Joseph M. Rebboh, Secretary
3
EXHIBIT 2.1.2
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
of
VALUESTAR CORPORATION
(A Colorado Corporation)
VALUESTAR CORPORATION, a corporation organized on January 28, 1987
as Carson Capital Corporation and existing under and by virtue of the
Colorado Business Corporation Act, DOES HEREBY CERTIFY THAT:
A. The name of this corporation is VALUESTAR CORPORATION.
B. The Board of Directors of the Corporation by the unanimous
written consent of its members, filed with the minutes of the Board, duly
adopted resolutions setting forth a proposed amendment to the Articles of
Incorporation of the corporation, declaring such amendment to be advisable
and directing that the proposal be placed before the shareholders of the
corporation for consideration thereof and that the approval of the
shareholders be solicited at an annual meeting of shareholders. The
amendments to the Articles of Incorporation are set forth below, consisting
of amendment of Article THIRD in its entirety, namely:
"THIRD. The aggregate number of shares of capital stock of all
classes which the Corporation shall have authority to issue is TWENTY-FIVE
MILLION (25,000,000), of which TWENTY MILLION (20,000,000) shares having a
par value of $.00025 per share shall be of a class designated "Common Stock"
(or "Common Shares"), and FIVE MILLION (5,000,000) shares having a par value
of $.00025 per share shall be of a class designated "Preferred Stock" (or
"Preferred Shares"). All shares of the Corporation shall be issued for such
consideration or considerations as the Board of Directors may from time to
time determine. The designations, voting powers, preferences, optional or
other special rights and qualifications, limitations, or restrictions of the
above classes of stock shall be as follows:
I. PREFERRED STOCK
(a) Issuance in Class and Series. Shares of Preferred Stock may be
issued in one or more classes or series at such time or times as the Board
of Directors may determine. All shares of any one series shall be of equal
rank and identical in all respects.
(b) Authority of Board for Issuance. Authority is hereby expressly
granted to the Board of Directors to fix from time to time, by resolution or
resolutions providing for the issuance of any class or series of Preferred
Stock, the designation of such classes and series and the powers,
preferences and rights of the shares of such classes and series, and the
qualifications, limitations or restrictions thereof, including the
following:
1. The distinctive designation and number of shares
comprising such class or series, which number may (except where
otherwise provided by the Board of Directors in creating such class
or series) be increased or decreased (but not below the number of
shares then outstanding) from time to time by action of the Board of
Directors;
2. The rate of dividend, if any, on the shares of that class
or series, whether dividends shall be cumulative and, if so, from
which date or dates, the relative rights of priority, if any, of
payment of dividends on shares of that class or series over shares
of any other class or series;
3. Whether the shares of that class or series shall be
redeemable at the option of the Corporation, at the option of the
holder of shares of that class or series, at the option of another
person, or upon the occurrence of a designated event and, if so, the
terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under
different conditions and different redemption dates;
4. Whether that class or series shall have a sinking fund
for the redemption or purchase of shares of that class or series
and, if so, the terms and amounts payable into such sinking fund;
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5. The rights to which the holders of the shares of that
class or series shall be entitled in the event of voluntary or
involuntary liquidation, dissolution, distribution of assets or
winding-up of the Corporation, relative rights of priority; if any,
of payment of shares of that class or series;
6. Whether the shares of that class or series shall be
convertible into or exchangeable for shares of stock of any class or
any other series of Preferred Stock at the option of the Corporation
or of the holder, or upon the occurrence of a specified event and,
if so, the terms and conditions of such conversion or exchange,
including the method of adjusting the rates of conversion or
exchange in the event of a stock split, stock dividend, combination
of shares or similar event;
7. Whether the issuance of any additional shares of such
class or series, or of any shares of any other class or series,
shall be subject to restrictions as to issuance, or as to the
powers, preferences or rights of any such other class or series;
8. Any other preferences, privileges and powers, and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions of such class or series,
as the Board of Directors may deem advisable and as shall not be
inconsistent with the provisions of the Corporation's Charter, as
from time to time amended, and to the full extent now or hereinafter
permitted by the laws of Colorado.
(c) Dividends. Payment of dividends shall be as follows:
1. The holders of Preferred Stock of each class or series,
in preference to the holders of Common Stock, shall be entitled to
receive, as and when declared by the Board of Directors out of funds
legally available therefor, all dividends, at the rate for such
class or series fixed in accordance with the provisions of this
Article THIRD and no more;
2. Dividends may be paid upon, or declared or set aside for,
any class or series of Preferred Stock in preference to the holders
of any other class or series of Preferred Stock in the manner
determined by the resolutions of the Board of Directors authorizing
and creating such class or series;
3. So long as any shares of Preferred Stock shall be
outstanding, in no event shall any dividend, whether in cash or in
property, be paid or declared nor shall any distribution be made, on
the Common Stock, nor shall any shares of Common Stock be purchased,
redeemed or otherwise acquired for value by the Corporation, unless
all dividends on all cumulative classes and series Preferred Stock
with respect to all past dividend periods, and unless all dividends
on all classes and series of Preferred Stock for the then current
dividend period shall have been paid or declared, and provided for,
and unless the Corporation shall not be in default with respect to
any of its obligations with respect to any sinking fund for any
class or series of Preferred Stock. The foregoing provisions of this
subparagraph (3) shall not, however, apply to any dividend payable
in Common Stock;
4. No dividend shall be deemed to have accrued on any share
of Preferred Stock of any class or series with respect to any period
prior to the date of the original issue of such share or the
dividend payment date immediately preceding or following such date
of original issue, as may be provided in the resolutions of the
Board of Directors creating such class or series. Preferred Stock
shall not be entitled to participate in any dividends declared and
paid on Common Stock, whether payable in cash, stock or otherwise.
Accruals of dividends shall not pay interest.
(d) Dissolution or Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution of assets or winding-up of the
Corporation, the holders of the shares of each class and series of Preferred
Stock then outstanding shall be entitled to receive out of the net assets of
the Corporation, but only in accordance with the preferences, if any,
provided for such class or series, before any distribution or payment shall
be made to the holders of Common Stock, the amount per share fixed by the
resolution or resolutions of the Board of Directors to be received by the
holder of each such share on such voluntary or involuntary liquidation,
dissolution, distribution of assets or winding-up, as the case may be. If
such payment shall have been made in full to the holders of all outstanding
Preferred Stock of all classes and series, or duly provided for, the
remaining assets of the Corporation shall be available for distribution
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among the holders of Common Stock as provided in this Article THIRD. If upon
any such liquidation, dissolution, distribution of assets or winding-up, the
net assets of the Corporation available for distribution among the holders
of any one or more classes or series of Preferred Stock which (i) are
entitled to a preference over the holders of Common Stock upon such
liquidation, dissolution, distribution of assets or winding-up, and (ii)
rank equally in connection therewith, shall be insufficient to make payment
for the preferential amount to which the holders of such shares shall be
entitled, then such assets shall be distributed among the holders of each
such series of Preferred Stock ratably according to the respective amounts
to which they would be entitled in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to such shares
were paid in full.
Neither the consolidation nor merger of the Corporation, nor the
exchange, sale, lease or conveyance (whether for cash, securities or other
property) of all, substantially all or any part of its assets, shall be
deemed a liquidation, dissolution, distribution of assets or winding-up of
the Corporation within the meaning of this provision.
(e) Voting Rights. Except to the extent otherwise required by law or
provided in the resolution of the Board of Directors adopted pursuant to
authority granted in this Article THIRD, the shares of Preferred Stock shall
have no voting power with respect to any matter whatsoever. The Board of
Directors may determine whether the shares of any class or series shall have
limited, contingent, full or no voting rights, in addition to the voting
rights provided by law and, if so, the terms of such voting rights. Whenever
holders of Preferred Stock are entitled to vote on a matter, each holder of
record of Preferred Stock shall be entitled to one vote for each share
standing in his name on the books of the Corporation and entitled to vote.
II. COMMON STOCK
(a) Issuance. The Common Stock may be issued from time to time in
one or more classes or series in any manner permitted by law, as determined
by the Board of Directors and stated in the resolution or resolutions
providing for issuance thereof. Each class or series shall be appropriately
designated, prior to issuance of any shares thereof, by some distinguishing
letter, number or title. All shares of each class or series of Common Stock
shall be alike in every particular and shall be of equal rank and have the
same power, preferences and rights, and shall be subject to the same
qualifications, limitations and restrictions, if any.
(b) Voting Powers. The Common Stock may have such voting powers
(full, limited, contingent or no voting powers), such designations,
preferences and relative, participating, optional or other special rights,
and be subject to such qualifications, limitations and restrictions, as the
Board of Directors shall determine by resolution or resolutions. Unless
otherwise resolved by the Board of Directors at the time of issuing Common
Shares, (i) each Common Stock share shall be of the same class, without any
designation, preference or relative, participating, optional or other
special rights, and subject to no qualification, limitation or restriction,
and (ii) Common Shares shall have unlimited voting rights, including but not
limited to the right to vote in elections for directors, and each holder of
record of Common Shares entitled to vote shall have one vote for each share
of stock standing in his name on the books of the Corporation and entitled
to vote. Cumulative voting shall not be allowed in the election of directors
or as to any other matter presented for shareholder approval.
(c) Dividends. After the requirements with respect to preferential
dividends, if any, on Preferred Stock, and after the Corporation shall have
complied with all requirements, if any, with respect to the setting aside of
sums in a sinking fund for the purchase or redemption of shares of any class
or series of Preferred Stock, then and not otherwise, the holders of Common
Stock shall receive, to the extent permitted by law, such dividends as may
be declared from time to time by the Board of Directors.
(d) Dissolution or Liquidation. After distribution in full of the
preferential amount, if any, to be distributed to the holders of Preferred
Stock, in the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding-up of the Corporation, the
holders of Common Stock shall be entitled to receive all the remaining
assets of the Corporation of whatever kind available for distribution to
shareholders ratably in proportion to the number of shares of Common Stock
respectively held by them.
(e) Convertibility. Common Shares or other shares of any class or
series may be made convertible into or exchangeable for, at the option of
the Corporation or the holder or upon the occurrence of a specified event,
shares of any other class or classes or any other series of the same or any
other class or classes of shares of the Corporation, at such
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price or prices or at such rate or rates of exchange and with such
adjustments as shall be set forth in the resolution or resolutions providing
for the issuance of such convertible or exchangeable shares adopted by the
Board of Directors.
(f) Redeemability. Common Shares may be made redeemable at the
option of the Corporation, of the holder thereof, of another person, or upon
the occurrence of a designated event, if and to the extent now or
subsequently allowed by the General Corporation Law of Delaware, as such law
may subsequently be amended, and the terms and conditions of redemption,
including the date or dates upon or after which they shall be redeemable,
the amount per share payable in case of redemption and any variance in the
amount or amounts payable, among other terms, conditions and limitations
which may be imposed, may be fixed and established by the Board of Directors
in the resolution or resolutions authorizing the issuance of redeemable
Common Shares.
III. GENERAL MATTERS
(a) Capital. The portion of the consideration received by the
Corporation upon issuance of any of its shares that shall constitute
"capital" within the meaning of the Colorado Corporation Code shall be (1)
in the case of par-value shares, the par value thereof, and (2) in the case
of shares without par value, the stated value of such shares as determined
by the Board of Directors at the time of issuance; provided, that if no
stated value is determined at the time that shares without par value are
issued, the entire consideration to be received for the shares shall
constitute capital.
(b) Fully Paid and Nonassessable. Any and all shares of Common or
Preferred Stock or other shares issued by the Corporation for which not less
than the portion of the consideration to be received determined to be
"capital" has been paid to the Corporation, provided the Corporation has
received a promissory note or other binding legal obligation of the
purchaser to pay the balance thereof, shall be deemed fully paid and
nonassessable shares.
(c) Status of Certain Shares. Shares of Preferred or Common Stock or
other shares which have redeemed, converted, exchanged, purchased, retired
or surrendered to the Corporation, or which have been reacquired in any
other manner, shall have the status of authorized and unissued shares and
may be reissued by the Board of Directors as shares of the same or any other
series, unless otherwise provided herein or in the resolution authorizing
and establishing the shares.
(d) Denial of Preemptive Rights. No holder of any shares of the
Corporation shall be entitled as a matter of right to subscribe for or
purchase any part of any new or additional issue of stock of any class or of
securities convertible into or exchangeable for stock of any class, whether
now or hereafter authorized or whether issued for money, for a consideration
other than money, or by way of dividend."
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END OF TEXT OF AMENDMENT
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C. Pursuant to resolution of the Corporation's Board of Directors,
the Secretary of the corporation obtained the shareholders' approval of the
proposed amendment and restatement at an annual meeting of the shareholders
on April 16, 1997 and the number of votes cast for the amendment by each
voting group entitled to vote separately on the amendment was sufficient for
approval by that voting group, all in accordance with the provisions of
Section 7-110-103 of the Colorado Business Corporation Act and the existing
Certificate of Incorporation and bylaws of the Corporation, as amended and
corrected to date.
D. This amendment does not provide for an exchange, reclassification
or cancellation of issued shares.
IN WITNESS WHEREOF, VALUESTAR CORPORATION has caused this
Certificate of Amendment to be signed by the duly authorized officers below
on April 16, 1997.
VALUESTAR CORPORATION
By /s/ JAMES STEIN
James Stein, President
ATTEST:
By /s/ BENJAMIN A. PITTMAN
Benjamin A. Pittman, Secretary
5
EXHIBIT 2.2
BYLAWS
of
VALUESTAR CORPORATION
(A Colorado Corporation)
ARTICLE I
General
1.01 Applicability. These Bylaws provide rules for conducting the business of
this corporation (the "Company"). Every shareholder and person who subsequently
becomes a shareholder, the Board of Directors, Committees and Officers of the
Company shall comply with these Bylaws, as amended from time to time. All bylaws
and resolutions heretofore adopted by the Board of Directors are hereby
repealed, to the extent in conflict with the provisions of these Bylaws.
1.02 Offices. The principal office of the Company shall be selected by the Board
of Directors from time to time and may be within or without the State of
Colorado. The Company may have such other offices, within or without the State
of Colorado, as the Board of Directors may, from time to time, determine. The
registered office of the Company required by the Colorado Corporation Code to be
maintained in Colorado may be, but need not be, identical with the principal
office if in Colorado, and the address of the registered office may be changed
from time to time by the Board of Directors.
1.03 Definition of Terms. All undefined terms used in these Bylaws shall have
the meanings given to them in the Company's Articles of Incorporation, as they
may be amended or restated (the "Articles").
ARTICLE II
Stock and the Transfer Thereof
2.01 Stock Certificates. The shares of the Company's capital stock shall be
represented by consecutively numbered certificates signed by the President or a
Vice President and the Secretary or Assistant Secretary of the Company, and
sealed with the seal of the Company, or a facsimile thereof. If certificates are
signed by a transfer agent and registrar other than the Company or an employee
thereof, the signatures of the officers of the Company may be facsimile. In case
any officer who has signed (by real or facsimile signature) a certificate shall
have ceased to hold such office before the certificate is issued, it may be
issued by the Company with the same effect as if he continued to hold such
office on the date of issue. Each certificate representing shares shall state
upon the face thereof: (i) that the Company is organized under the laws of the
State of Colorado; (ii) the name of the person to whom issued; (iii) the number,
class and series (if any) of shares which such certificate represents; and (iv)
the par value, if any, of the shares represented by such certificate, or a
statement that the shares have no par value.
If any class or series of shares is subject to special powers, designations,
preferences or relative, participating or other special rights, then such
(together with all qualifications, limitations or restrictions of such
preferences or rights) shall be set forth in full or summarized on the
certificate representing such class or series. Moreover, each certificate shall
state that the Company will furnish, without charge, to the registered holder of
the shares represented by such certificate who so requests a statement setting
forth such information in full.
Each certificate also shall set forth restrictions upon transfer, if any, or a
reference thereto, as shall be adopted by the Board of Directors or by the
shareholders, or as may be contained in this Article II. Any shares issued
without registration under the Securities Act of 1933, as amended, shall bear a
legend restricting transfer unless such shares are registered under such act or
an exemption from registration is available for a proposed transfer.
2.02 Consideration for Shares. Shares of the Company shall be issued, and
treasury shares held by the Company may be disposed, for such consideration or
considerations as shall be fixed from time to time by the Board of Directors. No
shares shall be issued for less than the par value thereof. The consideration
for the issuance of shares may be paid, in whole or in part, in money, in other
property, tangible or intangible, or in labor or services actually received by
or performed for the Company or for its benefit in its formation or
reorganization, or as otherwise permitted by law.
2.03 Lost Certificates. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Company alleged to have been lost or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, and the Board of Directors when authorizing such issue of a
new certificate or certificates may in its discretion, and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates or his legal representative to advertise the same in
such manner as it shall require, and/or furnish to the Company a bond in such
sum as it may direct, as indemnity against any claim that may be made against
the Company. Except as hereinabove in this section provided, no new certificate
or
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certificates evidencing shares of stock shall be issued unless and until the old
certificate or certificates, in lieu of which the new certificate or
certificates are issued, shall be surrendered for cancellation.
2.04 Registered Holder as Owner. The Company shall be entitled to treat the
registered holder of any shares of the Company as the owner of such shares, and
shall not be bound to recognize any equitable or other claim to, or interest in,
such shares or rights deriving from such shares, unless and until such
purchaser, assignee, transferee or other person becomes the registered holder of
such shares, whether or not the Company shall have either actual or constructive
notice of the interests of such purchaser, assignee, or transferee or other
person. The purchaser, assignee, or transferee of any of the shares of the
Company shall not be entitled: to receive notice of the meetings of the
shareholders; to vote at such meetings; to examine a list of the shareholders;
to be paid dividends or other sums payable to shareholders; or to own, enjoy and
exercise any other property or rights deriving from such shares against the
Company, until such purchaser, assignee, or transferee has become the registered
holder of such shares.
2.05 Reversions. Cash, property or share dividends, shares issuable to
shareholders in connection with a reclassification of stock, and the redemption
price of redeemed shares, which are not claimed by the shareholders entitled
thereto within TWO years after the dividend or redemption price became payable
or the shares became issuable, despite reasonable efforts by the Company to pay
the dividend or redemption price or deliver the certificate(s) for the shares to
such shareholders within such time shall, at the expiration of such time, revert
in full ownership to the Company, and the Company's obligation to pay any such
dividend or redemption price or issue such shares, as the case may be, shall
thereupon cease; provided, that the Board of Directors may at any time and for
any reason satisfactory to it, but need not, authorize (i) payment of the amount
of cash or property dividend or (ii) issuance of any shares, ownership of which
has reverted to the Company pursuant to this Section of Article II, to the
person or entity who or which would be entitled thereto had such reversion not
occurred.
2.06 Returned Certificates. All certificates for shares changed or returned to
the Company for transfer shall be marked by the Secretary or Assistant Secretary
"CANCELLED", with the date of cancellation, and the transaction shall be
immediately recorded in the certificate book opposite the memorandum of their
issue The returned certificate may be inserted in the certificate book.
2.07 Transfer of Shares. Upon surrender to the Company or to a transfer agent of
the Company of a certificate of stock endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, and such documentary stamps
as may be required by law, it shall be the duty of the Company to issue a new
certificate, upon payment by the transferee of such nominal charge therefor as
the Company or its transfer agent may impose. Each such transfer of stock shall
be entered on the stock book of the Company. Respecting any securities issued in
reliance upon Rule 903 of Regulation S of the Securities and Exchange Commission
at any time when the Company is not a "reporting issuer" as defined in
Regulation S, no transfer of such securities shall be registered unless made in
accordance with the provisions of Regulation S. At any time when the Company has
appointed a transfer agent for its shares, this paragraph shall apply. A
transfer of shares evidenced by a certificate bearing a standard form of legend
which restricts transfer of the shares (except in the event of registration or
the availability of an exemption under the Securities Act of 1933) shall not
require the Company's consent if the shares to be sold are proposed to be sold
in compliance with either Rule 144, Rule 701 or Rule 904 of Regulation S of the
Securities and Exchange Commission and the transfer is accompanied by an opinion
of counsel (which need not be the Company's counsel) which states that the
proposed transfer will comply with the applicable rule or regulation being
relied upon for transfer. In view of potential liability to the Company and its
officers and directors for interfering without firm and clear legal grounds in
the making of, or delaying, any sale of the Company's shares pursuant to Rules
144, 701 or 904, it is declared to be the Company's policy not to interfere
with, object to or hinder, in any way, any transfer proposed to be made pursuant
to either of Rules 144, 701 or 904, if accompanied by an opinion of counsel
which states that the proposed sale will, in the manner proposed to be made,
comply with the applicable rule or regulation being relied upon for sale The
Company shall be deemed automatically to have consented to any transfer which
complies with the immediately preceding sentence.
2.08 Transfer Agents. The Board may, in its discretion, appoint one or more
transfer agents or registrars for making payment upon any class of stock, bond,
debenture or security of the Company. They shall have such right and duties and
shall be paid such compensation as may be agreed.
ARTICLE Ill
Shareholders and Meetings Thereof
3.01 Annual Meeting. The annual meeting of the shareholders shall be held
between SEPTEMBER 15th and DECEMBER 15th, at such date and time and at such
place, within or without the State of Colorado, as is designated from time to
time by the Board of Directors and stated in the notice of the meeting. At each
annual meeting the shareholders shall
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elect a Board of Directors in accordance with the Articles and shall transact
such other business as may properly be brought before the meeting.
3.02 Special Meetings. Unless otherwise proscribed by law, the Articles or these
Bylaws, special meetings of the shareholders may be called by the Chairman of
the Board, the President, or a majority of the Board of Directors. The President
shall call a special meeting upon the Secretary's receipt of written demand
therefor by the holders of not less than ten percent (10%) of the total voting
power. Requests for special meetings shall state the purpose or purposes of the
proposed meeting.
3.03 Notice of Meetings. Except as otherwise provided by law, the Articles or
these Bylaws, written notice of any annual or special meeting of the
shareholders shall state the place, date, and time thereof and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be given to each shareholder of record entitled to vote at such meeting not
fewer than 10 nor more than 60 days prior to the meeting by any means permitted
in Section 9.01 hereof. No business other than that specified in the notice of a
special meeting shall be transacted at any such special meeting.
3.04 Record Date. In order that the Company may determine shareholders of record
who are entitled (i) to notice of or to vote at any shareholders meeting or
adjournment thereof, (ii) to express written consent to corporate action in lieu
of a meeting, (iii) to receive payment of any dividend or other distribution, or
(iv) to allotment of any rights or to exercise any rights in respect of any
change, conversion or exchange of stock, or in order that the Company may make a
determination of shareholders of record for any other lawful purpose, the Board
of Directors may fix in advance a date as the record date for any such
determination. Such date shall not be more than 60 days, and in case of a
meeting of shareholders, not less than 10 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken,
and in no event may the record date precede the date upon which the Directors
adopt a resolution fixing the record date.
If no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is given
(as defined in Section 9.01 hereof) or the date on which the resolution of the
Board of Directors declaring such dividend is adopted, as the case may be, shall
be the record date for such determination of the shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section such determination shall apply to any
adjournment thereof, unless the Board of Directors fixes a new record date for
the adjournment. The record date for determining shareholders entitled to
consent to corporate actions without a meeting shall be fixed as provided in
Section 3.12 hereof.
3.05 Voting List. At least 10 days but nor more than 60 days before any meeting
of shareholders, the officer or transfer agent in charge of the Company's stock
transfer books shall prepare a complete alphabetical list of the shareholders
entitled to vote at such meeting, which list shows the address of each
shareholder and the number of shares registered in his or her name. The list so
prepared shall be maintained at the corporate offices of the Company and shall
be open to inspection by any shareholder, for any purpose germane to the
meeting, at any time during usual business hours during a period of no fewer
than 10 days prior to the meeting. The list shall also be produced and kept open
at shareholders meeting and, except as otherwise provided by law, may be
inspected by any shareholder or proxy of a shareholder who is present in person
at the meeting. The original stock transfer books shall be prima facie evidence
as to who are the shareholders entitled to examine the list of shareholders and
to vote at any meeting of shareholders.
3.06 Quorum; Adjournments. (a) The holders of forty percent (40%) of the total
voting power at any shareholders meeting present in person or by proxy shall be
necessary to and shall constitute a quorum for the transaction of business at
all shareholders meetings, except as otherwise provided by law or by the
Articles.
(b) If a quorum is not present in person or by proxy at any shareholders
meeting, a majority of the voting shares present or represented shall have the
power to adjourn the meeting from time to time to the same or another place
within 30 days thereof and no further notice of such adjourned meeting need be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken.
(c) Even if a quorum is present in person or by proxy at any shareholders
meeting, a majority of the voting shares present or represented shall have the
power to adjourn the meeting from time to time, for good cause, without notice
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken, until a new date which is not more
than 30 days after the date of the original meeting.
(d) Any business which might have been transacted at a shareholders meeting as
originally called may be transacted at any meeting held after as provided in
this Section 3.06 at which reconvened meeting a quorum is present in person or
by proxy. Anything in paragraph (b) of this Section to the contrary
notwithstanding, if an adjournment is for more than 30 days, or if
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after an adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote thereat.
(e) The shareholders present at a duly called meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
3.07 Proxies. At all meetings of shareholders, a shareholder may vote by proxy,
executed in writing by the shareholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the Secretary of the Company before or at
the time of the meeting. No proxy shall be valid after eleven (11) months from
the date of its execution, unless otherwise provided in the proxy.
3.08 Voting of Shares. At any shareholders meeting every shareholder having the
right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law, by the Articles or in the Board resolution
authorizing the issuance of shares, each shareholder of record shall be entitled
to one vote (on each matter submitted to a vote) for each share of capital stock
registered in his, her or its name on the Company's books. Except as otherwise
provided by law or by the Articles, all matters submitted to the shareholders
for approval shall be determined by a majority of the votes cast (not counting
abstentions) at a legal meeting commenced with a quorum.
3.09 Voting of Shares by Certain Holders. Neither treasury shares, nor shares of
its own stock held by the Company in a fiduciary capacity, nor shares held by
another corporation if the majority of the shares entitled to vote for the
election of directors of such other corporation is held by the Company, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time.
Shares standing in the name of another corporation, domestic or foreign, may be
voted by such officer, agent, or proxy as the bylaws of such corporation may
prescribe, or, in the absence of such provision, as the board of directors of
such corporation may determine.
Shares held by an administrator, executor, personal representative, guardian, or
conservator may be voted by him, either in person or by proxy, without a
transfer of such shares into his name. Shares standing in the name of a trustee
may be voted by him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority so to do be contained in
an appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
3.10 Chairman. The Chairman of the Board of Directors of the Company, or in his
absence, the President, shall act as chairman at all meetings of shareholders.
3.11 Manner of Shareholder Voting. Voting at any shareholders' meeting shall be
oral or by show of hands; provided, that voting shall be by written ballot if
such demand is made by any shareholder present in person or by proxy and
entitled to vote.
3.12 Action by Shareholders Without A Meeting. Any action required or permitted
to be taken at a meeting of the shareholders may be taken without a meeting if
one or more consents in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof. No written consent will be effective unless written consents
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof are delivered to the Company within sixty (60) days of the date
of the earliest such consent. Such consent shall have the same force and effect
as a vote of the shareholders, and may be stated as such in any document filed
with the Secretary of State of Colorado under the Colorado Corporation Code. The
record date for determining shareholders entitled to consent to corporate
actions in writing without a meeting shall be the date upon which the first
shareholder signs the consent. Any such consent shall be effective upon the date
it is signed by the last shareholder, unless the consent specifies a different
effective date.
3.13 Presiding Officers; Order of Business. (a) Shareholders meetings shall be
presided over by the Chairman of the Board; or if the Chairman (and Vice
Chairman) is not present, by the President; or if the President is not present,
by a Vice President; or if a Vice President is not present, by such person
chosen by the Board of Directors; or if none, by a chairperson to be chosen at
the meeting by shareholders present in person or by proxy who own a majority of
the voting
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power present. The Secretary of a shareholders meeting shall be the
Secretary of the Company; or if the Secretary is not present, an Assistant
Secretary, or if an Assistant Secretary is not present, such person as may be
chosen by the Board of Directors; or if none, by such person who is chosen by
the chairperson at the meeting.
(b) The following order of business, unless otherwise ordered at the
shareholders meeting by the chairperson thereof, shall be observed as far as
practicable and consistent with the purposes of the meeting:
1. Calling of the shareholders' meeting to order.
2. Presentation of proof of mailing of the notice of the meeting and,
if a special meeting, the call thereof.
3. Presentation of proxies.
4. Determination and announcement that a quorum is present.
5. Reading and approval (or waiver thereof) of the minutes of the
previous meeting of shareholders.
6. Reports, if any, of officers.
7. Election of directors, if the meeting is an annual meeting or a
meeting called for such purpose.
8. Consideration of the specific purpose or purposes for which the
meeting has been called, other than election
of directors.
9. Transaction of such other business as may properly come before the
meeting.
10. Adjournment.
3.14 Annual Report. The President of the Company shall prepare an annual report
which will set forth a statement of affairs of the Company as of the end of its
last fiscal year, including a balance sheet. an income statement and a statement
of changes in financial position, which need not be audited, and present them at
the annual meeting of shareholders. Failure to prepare or present an annual
report shall not affect the validity of any shareholder meeting. No such report
need be prepared or presented for any fiscal year in which the Company was
inactive, beyond a statement reflecting the inactive status. This Section shall
not apply as to any fiscal year if the Company (i) was at the year end subject
to the reporting requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, and subsequently furnishes to the shareholders an annual report or
report on Form 10-K under such Act covering such fiscal year, or (ii) furnishes
to shareholders an Information Statement which conforms to the requirements of
Rule 15c2-11 of the Securities and Exchange Commission.
ARTICLE IV
Directors, Powers and Meetings
4.01 General Powers. All corporate powers shall be exercised, and the business
and affairs of the Company shall be managed, by or under the authority of its
Board of Directors, except as otherwise provided in the Colorado Corporation
Code or the Articles.
4.02 Number, Tenure and Qualifications. The number of Directors of the Company
shall be no less than three (3) nor more than seven (7), as fixed by resolution
of the Board of Directors. In default of any such resolution, the Company shall
have THREE Directors. However, at any time when the Company has fewer than three
shareholders, there need only be as many Directors as there are shareholders.
Directors shall be elected at each annual meeting of shareholders. Each Director
shall hold office until the next annual meeting of shareholders and thereafter
until his successor shall have been elected and qualified. Directors need not be
residents of Colorado or shareholders of the Company. Directors shall be elected
by plurality vote. No decrease in the number of Directors shall shorten the term
of any incumbent Director.
4.03 Vacancies; Resignation. (a) Any vacancy occurring in the Board of
Directors, except resulting from an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining Directors, though
less than a quorum, or by a sole remaining Director. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors shall be filled by the affirmative vote of a majority of the entire
board or by a majority of the total voting power at any annual meeting or at a
special meeting of shareholders called for that purpose, or by means of written
shareholder consents taken in lieu of a meeting. Every director chosen to fill a
vacancy as provided in this Section shall hold office until the next annual
meeting of shareholders or until his successor has been elected and qualified.
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(b) Any Director may resign at any time by giving written notice to the Board,
the Chairman of the Board, the President or the Secretary of the Company. Unless
otherwise specified in such written notice, a resignation shall take effect upon
delivery to the Board or the designated officer. A resignation need not be
accepted in order for it to be effective.
4.04 Removal of Directors. Any Director may be removed only by the shareholders
in the manner provided in the Company's Articles and, if no such provision
appears therein, then as provided by law. Such action may be taken at any
special meeting called for that purpose or by means of written shareholder
consents. In case any vacancy so created shall not be filled by the shareholders
at such meeting or in the written consent effecting removal, such vacancy may be
filled by a majority of the Board of Directors.
4.05 Place of Meetings. The Board of Directors may hold both regular and special
meetings either within or without the State of Colorado, at such place as the
Board of Directors from time to time deems advisable.
4.06 Regular Meetings. A regular meeting of the Board of Directors shall be held
without other notice than these Bylaws immediately after and at the same place
as the annual meeting of shareholders. The Board of Directors may provide by
resolution the time and place for the holding of additional regular meetings
without other notice than such resolution; provided, that any Director not
present when any such resolution is passed is given notice of the resolution.
4.07 Special Meetings. A special meeting of the Board of Directors shall be held
without other notice than these Bylaws immediately after and at the same place
as every special meeting of shareholders. Special meetings of the Board of
Directors also may be called by or at the request of the Chairman of the Board,
the President, or any two Directors upon two days' notice to each director if
such notice is delivered personally or sent by telegram, or upon five days'
notice if sent by mail.
4.08 Telephonic Meetings. One or more members of the Board of Directors or any
committee designated by the Board may participate in a meeting of the Board of
Directors or committee by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear one another at the same time. Such participation shall constitute presence
in person at the meeting. All participants in any meeting of Directors, by
virtue of their participation and without further action on their part, shall be
deemed to have consented to the recording of such meeting by electronic device
or otherwise, and to the making of a written transcript thereof, in order that
minutes thereof shall be available for the Company's records.
4.09 Notice. Except as otherwise provided above, notice of the time, date and
place, of every special meeting of Directors or any committee thereof shall be
given. Any Director may waive notice of any meeting. The attendance of a
Director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
4.10 Quorum; Adjournments. A majority of the number of directors then in office,
present in person or by means of conference telephone or similar equipment,
shall constitute a quorum for the transaction of business at every Board
meeting, and the act of the majority of the Directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors, except as
may otherwise specifically be provided by law, the Articles or these Bylaws. If
a quorum is not present at any Board meeting, the directors present may adjourn
the meeting, from time to time, without notice other than announcement of the
meeting, until a quorum is present.
4.11 Compensation. Directors shall be entitled to such compensation for their
services as directors as from time to time may be fixed by the Board and shall
be entitled to reimbursement of all reasonable expenses incurred by them in
attending Board meetings. A director may waive compensation for any Board
meeting. No director who receives compensation as a director shall be barred
from serving the Company in any other capacity or from receiving compensation
and reimbursement of reasonable expenses for any or all such other services.
4.12 Presumption of Assent. A Director of the Company who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the Secretary of the
meeting before the adjournment thereof, or shall forward such dissent by
registered or certified mail, first class, postage prepaid, to the Secretary of
the Company, provided such mailing is postmarked within ten calendar days after
the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
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4.13 Action by Directors Without Meeting. Any action required to be taken at a
meeting of the Directors of the Company or of a committee of Directors or any
action which may be taken at such a meeting, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the Directors entitled to vote with respect to the subject matter thereof. A
consent shall be sufficient for this Section if it is executed in counterparts,
in which event all of such counterparts, when taken together, shall constitute
one and the same consent.
4.14 Bank Accounts, etc. Anything herein to the contrary notwithstanding, the
Board of Directors may, except as may otherwise be required by law, authorize
any officer or officers, agent or agents, in the name of and on behalf of the
Company, to sign checks, drafts, or other orders for the payment of money or
notes or other evidences of indebtedness, to endorse for deposit, deposit to the
credit of the Company at any bank or trust company or banking institution in
which the Company may maintain an account or to cash checks, notes, drafts, or
other bankable securities or instruments, and such authority may be general or
confined to specific instances, as the Board of Directors may elect.
4.15 Inspection of Records. Every Director shall have the absolute right at any
reasonable time to inspect all books, records, documents of every kind, and the
physical properties, of the Company and of its subsidiaries. Such inspection may
be made personally or by an agent and includes the right to make copies and
extracts.
4.16 Executive Committee. (a) The Board of Directors may, by resolution adopted
by a majority of the whole Board, appoint two or more of its members to
constitute an Executive Committee. One of such directors shall be designated as
Chairman of the Executive Committee. Each member of the Executive Committee
shall continue as a member thereof until the expiration of his term as a
director, or until his earlier resignation from the Executive Committee, in
either case unless sooner removed as a director or member of the Executive
Committee by any means authorized by the Articles or herein.
(b) The Executive Committee shall have and may exercise, to the extent provided
in such resolution and except as prohibited by law, all of the rights, power and
authority of the Board of Directors.
(c) The Executive Committee shall fix its own rules of procedure and shall meet
at such times and at such place or places as may be provided by its rules. The
Chairman of the Executive Committee, or in the absence of the Chairman, a member
of the Executive Committee chosen by a majority of the members present, shall
preside at all meetings of the Executive Committee, and another member thereof
chosen by the Executive Committee shall act as Secretary. A majority of the
Executive Committee shall constitute a quorum for the transaction of business,
and the affirmative vote of a majority of the members thereof shall be required
for any action of the Executive Committee. The Executive Committee shall keep
minutes of its meetings and deliver such minutes to the Board of Directors.
4.17 Other Committees. The Board of Directors may, by resolution duly adopted by
a majority of directors at a meeting at which a quorum is present, appoint an
audit committee, compensation committee, and such other committee or committees
as it shall deem advisable and with such limited authority as the Board of
Directors shall from time to time determine.
4.18 Other Provisions Regarding Committees. (a) The Board of Directors shall
have the power at any time to fill vacancies in, change the membership of, or
discharge any committee. The members of any committee present at any meeting of
a committee, whether or not they constitute a quorum, may appoint a director to
act in the place of an absent member.
(b) Members of any committee shall be entitled to such compensation for their
services as such as from time to time may be fixed by the Board of Directors and
in any event shall be entitled to reimbursement of all reasonable expenses
incurred in attending committee meetings. Any member of a committee may waive
compensation for any meeting. No member of a committee who receives compensation
as a member of one or more committees shall be barred from serving the Company
in any other capacity or from receiving compensation and reimbursement of
reasonable expenses for any or all such other services.
(c) Unless otherwise prohibited by law, the provisions above concerning action
by written consent of directors and meetings of directors by telephonic or
similar means shall apply to all committees from time to time created by the
Board of Directors.
ARTICLE V
Officers and Agents
5.01 Positions. The Company's officers generally shall be chosen by the Board of
Directors and shall consist of a Chairman of the Board, a President, one or more
Vice Presidents if desired, a Secretary and a Treasurer. The Board of Directors
may appoint one or more other officers, assistant officers and agents as it from
time to time deems necessary or
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appropriate, who shall be chosen in such manner and hold their offices for such
terms and have such authority and duties as from time to time may be determined
by the Board of Directors. The Board may delegate to the Chairman of the Board
the authority to appoint any officer or agent of the Company and to fill a
vacancy other than the Chairman of the Board or President. Any two or more
offices may be held by the same person, except that no person may simultaneously
hold the offices of President and Secretary and of President and Vice President.
In all cases where the duties of any officer, agent or employee are not
prescribed by these bylaws or by the Board of Directors, such officer, agent or
employee shall follow the orders and instructions of the President.
5.02 Term of Office; Removal. Each officer of the Company shall hold office at
the pleasure of the Board and any officer may be removed, with or without cause,
at any time by the affirmative vote of a majority of the directors then in
office; provided, that any officer appointed by the Chairman of the Board
pursuant to authority delegated by the Board may be removed, with or without
cause, at any time by the Chairman whenever the Chairman in his or her absolute
discretion shall consider that the Company's best interests shall be served by
such removal. Removal of an officer by the Board (or the Chairman, as the case
may be) shall not prejudice the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not in itself
create contract rights.
5.03 Vacancies. A vacancy in any office, however occurring, may be filled by the
Board or the Executive Committee, for the unexpired portion of the term by
majority vote of its members, or by the Chairman of the Board in the case of a
vacancy occurring in an office to which the Chairman has been delegated
authority to make appointments.
5.04 Compensation. The salaries of all officers of the Company shall be fixed
from time to time by the Board, and no officer shall be prevented from receiving
a salary by reason of the fact that he also receives compensation from the
Company in any other capacity.
5.05 Chairman of the Board. The Chairman of the Board ("Chairman"), if such
officer shall be chosen by the Board of Directors, shall preside at all meetings
of the Board of Directors and meetings of shareholders at which he is present
and shall exercise general supervision and direction over the implementation of
Board policy affecting the affairs of the Company. Any act which may be
performed by the Chief Executive Officer or President may be performed by the
Chairman.
5.06 Chief Executive Officer; Chief Operating Officer. The Chairman of the Board
shall, unless the Board determines otherwise, serve as the Chief Executive
Officer ("CEO") of the Company. If the Chairman is not designated the CEO, then
the President shall serve as CEO. The Board may, from time to time, designate
from among the executive officers of the Company an officer to serve as Chief
Operating Officer ("COO") of the Company. If the Chairman serves as the CEO,
then the President shall serve as COO. If the President is designated CEO, then
the Executive Vice President (or if there is none, then the next most senior
Vice President) shall serve as COO. A person designated to serve in the capacity
of CEO or COO shall serve at the pleasure of the Board.
A person designated Chief Executive Officer (CEO) shall have primary
responsibility for and active charge of the management and supervision of the
Company's business and affairs. The CEO may execute in the name of the Company
authorized corporate obligations and other instruments, shall perform such other
duties as may be prescribed by the Board (or Chairman, as the case may be) from
time to time and, in the absence or inability of the President, shall exercise
all of the duties and powers of the President. In the event that the President
is not the CEO, then the CEO shall supervise the performance of the President
and shall be responsible for the execution of the policies and directives of the
Board. The CEO shall report directly to the Board. The CEO shall perform such
other duties as may be assigned by the Board (or Chairman, as the case may be).
The CEO may perform any act which might be performed by the President.
A person designated Chief Operating Officer (COO) shall be responsible for the
day-to-day management of the Company's operations, subject to the authority of
the CEO. The COO shall report directly to the CEO of the Company and shall
consult with the CEO on all matters of corporate policy and material business
activities of the Company. The COO shall perform such other duties as may be
assigned by the Board or the CEO.
5.07 President. The President shall have general active management of the
business of the Company, subject to the authority of the Chief Executive Officer
if the President is not designated as such, and general supervision of its
officers, agents and employees. In the absence of the Chairman and Chief
Executive Officer, he shall preside at all meetings of the shareholders and of
the Board. In the absence of a designated Chief Executive Officer he shall see
that all policies and directives of the Board are carried into effect.
He shall, unless otherwise directed by the Board of Directors, attend in person
or by substitute appointed by him, or shall execute in behalf of the Company
written instruments appointing a proxy or proxies to represent the Company, at
all meetings of the stockholders of any other company in which the Company shall
hold any stock. He may, on behalf of the
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Company, in person or by substitute or by proxy, execute written waivers of
notice and consents with respect to any such meetings. At all such meetings and
otherwise, the President, in person or by substitute or proxy as aforesaid, may
vote the stock so held by the Company and may execute written consent and other
instruments and power incident to the ownership of said stock, subject however
to the instructions, if any, of the Chairman or the Board of Directors. The
President shall have custody of the Treasurer's bond, if any.
5.08 Executive Vice President. The Executive Vice President shall assist the
President in the discharge of supervisory, managerial and executive duties and
functions. In the absence of the President or in the event of his death, or
inability or refusal to act, the Executive Vice President shall perform the
duties of the President and when so acting shall have the duties and powers of
the President. He shall perform such other duties as from time to time may be
assigned to him by the President, Chairman or Board of directors.
5.08 Vice Presidents. The Vice Presidents, if any, shall assist the President
and Executive Vice President and shall perform such duties as may be prescribed
by the Board, the Chairman or the President. Vice Presidents in the order of
their seniority shall, in the absence or disability of the Chairman and
President, exercise all of the duties and powers of such officers. The Executive
Vice President, if any, shall be the most senior of Vice Presidents, and the
Senior Vice President, if any, shall be the next most senior of Vice Presidents.
In regard to other Vice Presidents, they shall have the respective ranks
designated by the Board of Directors, or if none has been so designated, as
designated by the Chairman, or if none has been so designated by the Chairman,
they shall rank in the order of their respective elections to such office. The
execution of any instrument on the Company's behalf by a Vice President shall be
conclusive evidence, as to third parties, of his authority to act in the stead
of the President and Executive Vice President.
5.09 Secretary. The Secretary shall: (i) keep the minutes of the proceedings of
the shareholders and the Board of Directors and record all votes and proceedings
thereof in a book kept for that purpose; (ii) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(iii) be custodian of the corporate records and of the seal of the Company and
affix the seal to all documents when authorized by the Board of Directors; (iv)
keep at its registered office or principal place of business within or outside
Colorado a record containing the names and addresses of all shareholders and the
number and class of shares held by each, unless such a record shall be kept at
the office of the Company's transfer agent or registrar; (v) sign with the
President, or a Vice President, certificates for shares of the Company, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (vi) have general charge of the stock transfer books of the Company,
unless the Company has a transfer agent; and (vii) in general, perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the President or the Board of Directors. The
Board of Directors may give general authority to officers other than the
Secretary or any Assistant Secretary to affix the Company's seal and to attest
the fixing thereof by his or her signature.
5.10 Assistant Secretary. The Assistant Secretary, if any (or if there is more
than one, the Assistant Secretaries in the order designated, or in the absence
of any designation, in the order of their appointment), in the absence or
disability of the Secretary, shall perform the duties and exercise the powers of
the Secretary. The Assistant Secretary(ies) shall perform such other duties and
have such other powers as from time to time may be prescribed by the Board, the
Chairman or the Chief Executive Officer. The Chairman may appoint one or more
Assistant Secretary(ies) to office.
5.11 Treasurer. The Treasurer shall, unless the Board otherwise resolves, be the
principal financial officer and principal accounting officer of the Company and
shall have the care and custody of all funds, securities, evidence of
indebtedness and other valuable effects of the Company, shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Company and shall deposit all money and other valuable effects of the Company in
the name and to the credit of the Company in such depositories as from time to
time may be designated by the Board. The Treasurer shall disburse the funds of
the Company in such manner as may be ordered by the Board from time to time and
shall render to the Chairman of the Board, the President and the Board, at
regular Board meetings or whenever any of them may so require, an account of all
transactions and of the Company's financial condition.
5.12 Assistant Treasurer. The Assistant Treasurer, if any (or if there is more
than one, the Assistant Treasurers in the order designated, or in the absence of
any designation, in the order of their appointment), in the absence or
disability of the Treasurer, shall perform the duties and exercise the powers of
the Treasurer. The Assistant Treasurer(s) shall perform such other duties and
have such other powers as from time to time may be prescribed by the Board, the
Chairman or the Chief Executive Officer. The Chairman may appoint one or more
Assistant Treasurer(s) to office.
5.13 Resignations. Any officer may resign at any time by giving written notice
to the Board or to the Chairman. Such resignation shall take effect at the time
specified therein and, unless specified therein, no acceptance of the
resignation shall be required for the resignation to be effective.
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5.14 Delegation of Duties. In the event of the absence or disability of any
officer of the Company, or for any other reason the Board shall deem sufficient,
the Board may temporarily designate the powers and duties, or particular powers
and duties, of such officer to any other officer, or to any director. The
persons holding the offices of Assistant Secretary or Assistant Treasurer shall
not be deemed "executive officers" of the Company by virtue thereof.
5.13 Fidelity Bonds. The Board of Directors shall have the power, to the extent
permitted by law, to require any officer, agent or employee of the Company to
give bond for the faithful discharge of his duties in such form and with such
surety or sureties as the Board deems advisable.
ARTICLE VI
Indemnification
Each Director, officer, employee and agent of this Company, and each person who
shall serve at its request as a director, officer (or in a position functionally
equivalent to that of officer or director), agent or employee of another entity
shall be indemnified by the Company to the extent and in the manner provided in
the Company's Articles, as they may be amended, and in the absence of any such
provision therein, in accordance with the Colorado Corporation Code.
ARTICLE VII
Miscellaneous
7.01 Declaration of Dividends. The Board of Directors at any regular of special
meeting may declare dividends payable, whenever in the exercise of its
discretion it may deem such declaration advisable and such is permitted by law.
Such dividends may be paid in cash, property, or shares of the Company.
7.02 Benefit Programs. The Board of Directors shall have the power to install
and authorize any pension, profit sharing, stock option, insurance, welfare,
educational bonus, health and accident or other benefit program which the Board
deems to be in the interest of the Company, at the expense of the Company, and
to amend or revoke any plan so adopted.
7.03 Corporate Seal. The corporate seal of the Company shall be circular in form
and shall contain the name of the Company, the year incorporated and the words
"Sea, Colorado."
7.04 Captions. The captions herein are inserted only as a matter of convenience
and for reference, and in no way define, limit, or describe the scope of these
by-laws, or the intent of any provision hereof
7.05 Fiscal Year. The Board of Directors shall have the power to fix, and from
time to time change, the fiscal year of the Company. Any such adoption of or
change in a fiscal year shall not constitute nor require any amendment to these
Bylaws.
ARTICLE VIII
Amendments to Bylaws
8.01 Manner of Amendment. These Bylaws may be amended or repealed in the manner
provided for in the Articles, or if none is there provided: by majority vote of
the Board of Directors, taken at any meeting or by written consent of all
Directors, subject to the shareholders' right to change or repeal any Bylaws so
made or adopt new Bylaws by vote of at least a majority of the total voting
power. Bylaws amendments may be proposed by any shareholder or Director. Any
action duly taken by the Board or the shareholders which conflicts or is
inconsistent with these Bylaws (as they may be amended) shall constitute an
amendment of the Bylaws, if the action was taken by such number of directors or
shares voting as would be sufficient for amendment of the Bylaws.
ARTICLE IX
Notices
9.01 Giving of Notice. Except as otherwise provided by the Colorado Corporation
Code, these Bylaws, the Company's Articles, or resolution of the Board of
Directors, every meeting notice or other notice, demand, bill, statement or
other communication (collectively, "Notice") to or from the Company from or to a
Director, Officer or shareholder shall be duly given if it is written or printed
and is (a) sent by first class or express mail, postage prepaid, (b) sent by any
commercial overnight air courier service, such as DHL, Federal Express, Emery,
Airborne, UPS or any similar company, (c) sent by
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telegraph, cablegram, telex, teleprinter, telecopier, facsimile ("fax") or other
facsimile transmission, (d) delivered by any commercial messenger service which
regularly retains its receipts, or (e) personally delivered, provided a receipt
is obtained reflecting the date of delivery. Notice shall not be duly given
unless all delivery or postage charges are prepaid. Notice shall be given to an
addressee's most recent address as it appears on the Company's records or to
such other address as has been provided in writing to the Secretary. A Notice
shall be deemed "given" when dispatched for delivery or personally delivered, or
if mailed, on the date postmarked, or if given by any means specified in clause
(c) above, when transmitted. This Section shall not have the effect of
shortening any notice period provided for in these Bylaws.
9.02 Waiver of Notice. Any Notice required by the Colorado Corporation Code, the
Articles or these Bylaws may be waived in writing at any time by the person
entitled to the Notice, and such waiver shall be equivalent to the giving of
Notice. Notice of any shareholder meeting shall be waived by attendance, in
person or by proxy, at the meeting, unless lack of notice or defective notice is
objected to at the beginning of the meeting, or, if the objection is to a matter
not provided for in a notice of a special meeting, by objection to such matter
when it is presented for consideration.
APPROVED AND ADOPTED by the Board of Directors of this corporation as amended as
of August 7, 1995.
SECRETARY'S CERTIFICATION
I, the undersigned Secretary of this corporation, hereby certify that the
foregoing Bylaws were duly adopted by its Board of Directors as last amended on
the date above indicated and that the foregoing text of the Bylaws is currently
in full force and effect and has not been revoked or suspended, nor subsequently
amended except as may be noted in brackets to indicate date(s) of amendment, and
that all amendments to such Bylaws are duly reflected in the foregoing text.
August 7, 1995 VALUESTAR CORPORATION
/s/ JAMES A. BARNES
James A. Barnes, Secretary
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EXHIBIT 3.1
[ S P E C I M E N ]
================================================================================
VALUESTAR CORPORATION
NUMBER _____ SHARES_____________
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
COMMON STOCK
This Certifies that ___________________________________________ is the owner of
______________________ FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$0.00025 PAR VALUE, OF VALUESTAR CORPORATION (hereinafter called the
"Corporation"), transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation, as amended, and the Bylaws of the Corporation, as
amended (copies of which are on file at the office of the Transfer Agent), to
all of which the holder of this Certificate by acceptance hereof assents. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar. Witness the facsimile seal of the Corporation nad the
facsimile signatures of its duly authorized officers.
Date: _________
____________________ ____________________
SECRETARY PRESIDENT
(SEAL)
Countersigned:
================================================================================
EXHIBIT 3.2
Lock-Up Agreement
July 20, 1995
Whereas, on June 27, 1992 ValueStar Corporation (the "Company") and James Stein
("Stein") entered into an escrow and earnout arrangement, the Share Escrow
Agreement, pursuant to which Stein's 1,225,000 common shares obtained on the
merger of the Company and ValueStar, Inc. were placed in escrow.
And, Whereas, prior to July 20, 1995 a total of 200,000 shares had been approved
by the Board of Directors for release from escrow and on July 20, 1995 the
shareholders approved the release of the balance of 1,025,000 common shares from
the Share Escrow Agreement, subject to this lock-up agreement.
Now, Therefore, for valid consideration Stein agrees to the terms of this
lock-up agreement providing that the 1,025,000 common shares ("Lock-Up Shares")
shall not be sold, hypothecated or otherwise transferred by him until the first
to occur of:
(i) three years from the release of the shares from the Share Escow
Agreement (July 20, 1998)
(ii) when audited or unaudited financial statements of the Company,
prepared in accordance with generally accepted accounting principles,
demonstrate on their face that the Company has realized net profits for
two fiscal quarters in a row.
However, a majority of disinterested shareholders may approve (by meeting or
written consent) any resales of all or a portion of the Lock-Up Shares prior to
meeting the date or conditions above.
Stein agrees the Company may provide its transfer agent a copy of this agreement
and may also instruct the transfer company to restrict transfer of the shares
and/or legend the Lock-Up Shares accordingly.
This agreement is effective this 20th day of July, 1995.
VALUESTAR CORPORATION
/s/ JAMES A. BARNES
By: James A. Barnes, Secretary/Treasurer
JAMES STEIN
/s/ JAMES STEIN
James Stein
EXHIBIT 3.3
(Individual Notes Differ as to Name of Noteholder)
THIS NOTE, WARRANT AND THE SHARES ISSUABLE UPON WARRANT EXERCISE HAVE NOT BEEN
REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S.
SECURITIES ACT OF 1933 ("ACT"), AND THEY MAY NOT BE TRANSFERRED, SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT.
VALUESTAR CORPORATION
12% PROMISSORY NOTE
WITH
NON-DETACHABLE STOCK PURCHASE WARRANT
Due September 30, 1998
March 31, 1997 US $50,000.00
Alameda, California
FOR VALUE RECEIVED, ValueStar Corporation, the undersigned Colorado
corporation (together with all successors, "Borrower"), hereby promises to pay
to the order of _________________, or her successors or assigns (collectively,
"Noteholder") at 925 E. Desert Inn Road, Las Vegas, Nevada 89109 or at such
other address or addresses as Noteholder may subsequently designate in writing
to Borrower, the full and true sum of Fifty Thousand and NO/100 Dollars
($50,000.00), due and payable in one (1) installment on or before September 30,
1998, unless sooner accelerated ("Maturity Date"), plus simple interest thereon
at the rate of twelve percent (12.00%) per annum, in lawful monies of the United
States of America. Interest shall be payable in monthly installments, each
respectively due on 16th day of each month during the term of this Note. If the
Maturity Date should fall on a weekend or national holiday, payment shall be due
on the following business day.
1. Any payment shall be deemed timely made if received by Noteholder within
fifteen (15) calendar days of the due date. Payments received shall be imputed
first to interest payments then due, and next to the remaining principal
balance.
2. Borrower may prepay the principal amount due under this Note at any time
or from time to time in full or in part without penalty, premium or permission.
3. Should interest not be timely paid it shall thereafter bear like
interest as the principal, but such unpaid interest so compounded shall not
exceed an amount equal to simple interest on the unpaid principal at the maximum
rate permitted by law. The entire unpaid principal balance hereunder shall
become immediately due and payable at the option and written demand of the
Noteholder if Borrower fails to pay any interest when due.
4. (a) The Noteholder is entitled to purchase, on or before September 30,
1998 five thousand (5,000) shares of the common stock ("Common Stock") of
Borrower upon exercise of this Warrant along with presentation of the full
purchase price or in the manner prescribed by paragraph 5 below. The purchase
price of the common stock upon exercise of this Warrant ("Warrant Shares") is
equal to the Seventy Five Cents ($0.75) per share (the "Exercise Price"). This
Warrant is granted to Noteholder for valuable consideration received.
(b) This Warrant may be exercised one time, in whole only, on any
business day on or before the expiration date listed above in the manner
prescribed in paragraph 5 or by presentation and surrender hereof to the
Borrower at its principal office of a written exercise request and the
Exercise Price in lawful money of the United
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States of America in the form of a wire transfer or check, subject to
collection, for the 5,000 Warrant Shares specified in the exercise request.
Upon receipt by the Borrower of an exercise request and representations,
together with proper payment of the Exercise Price, at such office, the
Noteholder shall be deemed to be the holder of record of the Warrant
Shares, notwithstanding that the stock transfer books of the Borrower shall
then be closed or that certificates representing such Warrant Shares shall
not then be actually delivered to the Noteholder. The Borrower shall pay
any and all transfer agent fees, documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of the Warrant
Shares.
(c) The Exercise Price and the number of Shares purchasable upon the
exercise of this Warrant are subject to adjustment from time to time upon
the occurrence of the events enumerated in this paragraph.
(i) In case the Corporation shall at any time after the date
of this Warrant:
(A) Pay a dividend of its shares of its Common Stock
or make a distribution in shares of its Common Stock
with respect to its outstanding Common Stock;
(B) Subdivide its outstanding shares of Common Stock;
(C) Combine its outstanding shares of Common Stock;
or
(D) Issue any other shares of capital stock by
reclassification of its shares of Common Stock;
the Exercise Price in effect at the time of the record date of
such dividend, subdivision, combination, or reclassification
shall be proportionately adjusted so that Noteholder shall be
entitled to receive the aggregate number and kind of shares
which, if this Warrant had been exercised prior to such event,
Noteholder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision,
combination, or reclassification. Such adjustment shall be
made successively whenever any event listed above shall occur.
(ii) In case of any reorganization of the Corporation, or in
case of any reclassification or change of outstanding Common
Stock issuable upon exercise of this Warrant (other than a
change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a
subdivision or split-up or combination of the Common Stock),
or in case of any consolidation or merger of the Borrower with
or into another entity (other than a consolidation or merger
with a subsidiary or a continuing corporation), or in case of
any sale or conveyance to another entity of all or
substantially all of the property of the Corporation, then, as
a condition of such reorganization, reclassification, change,
consolidation, merger, sale, or conveyance, the Corporation or
such successor or purchasing entity, as the case may be, shall
forthwith provide to Noteholder a supplemental warrant (the
"Supplemental Warrant") which will make lawful and adequate
provision whereby Noteholder shall have the right thereafter
to receive, upon exercise of such Supplemental Warrant, the
kind and amount of shares and other securities and property
which would have been received upon such reorganization,
reclassification, change, consolidation, merger, sale, or
conveyance by a holder of a number of shares of Common Stock
equal to the number of Shares issuable upon exercise of this
Warrant immediately prior to such reorganization,
reclassification, change, consolidation, merger, sale, or
conveyance. Such Supplemental Warrant shall include provisions
for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this paragraph.
The above provisions of this paragraph shall similarly apply
to successive reorganizations, reclassifications, and changes
of Common Stock and to successive consolidations, mergers,
sales, or conveyances.
(d) Noteholder has been advised and understands that the Warrants and
the Shares purchasable thereby are characterized as "restricted securities"
under the federal securities laws because they are being acquired from
Borrower in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances.
Noteholder further understands that the certificates evidencing the Shares
will bear the following legend: "These securities have not been registered
under the Securities Act of 1933. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such Act or an opinion of
counsel satisfactory to
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the Borrower that such registration is not required or unless sold
pursuant to Rule 144 of such Act." The Noteholder understands that the
Borrower may place, and may instruct any transfer agent or depository for
the Shares to place, a stop transfer notation in the securities records in
respect of the Shares.
(e) This Warrant is non-detachable and may only be exercised by the
Noteholder, her successors or assigns, at the time of exercise. Should this
Note be prepaid in full, then upon surrender and cancellation of this Note,
the Borrower shall issue a separate Warrant to the Noteholder on the date
of final payment.
5. (a) A portion of the principal amount of this Note may, at any time but
one time only and not in part, be applied at the option of the Noteholder to
exercise the Warrant Shares described in paragraph 4 above.
(b) Noteholder's election to apply principal to the warrant exercise
shall be made in writing which unequivocally expresses Noteholder's intent
to effect the exercise. Exercise shall be deemed to occur on the date such
writing is presented to Borrower. Upon such exercise duly made, Borrower
shall deliver such common stock to Noteholder. Borrower shall bear all
expenses and charges of issuing and delivering the warrant shares.
6. This Note when duly executed and accepted by Noteholder replaces a
Promissory Note dated September 10, 1996 between the Borrower and Noteholder in
the same amount. Noteholder shall upon receipt and acceptance of this Note
tender the original of the previous note to the Borrower for cancellation.
7. In the event that this Note is placed with an attorney for collection or
that Noteholder resorts to legal process in order to enforce any rights under
this Note, Borrower shall pay all reasonable costs, including attorneys' fees,
thereby incurred by the Noteholder.
IN WITNESS WHEREOF, the undersigned Borrower has executed this Promissory
Note and has affixed hereto its corporate seal.
VALUESTAR CORPORATION
(SEAL) By ..................................
Authorized Officer
Noteholder Acknowledgment:
__________________________
3
EXHIBIT 3.4
THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933 ("ACT"), AND THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT.
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE __________ SHARES OF COMMON STOCK
THIS CERTIFIES THAT _________________________ ("Holder") is entitled to
purchase, on or before April 30, 2002, _______________ (________) shares of the
common stock ("Common Stock") of VALUESTAR CORPORATION (the "Corporation") upon
exercise of this Warrant along with presentation of the full purchase price. The
purchase price of the common stock is equal to Seventy Five Cents ($0.75) per
share (the "Exercise Price"). This Warrant (which is one of five individual
warrants exercisable into an aggregate of 150,000 shares) is granted in
consideration of the payment by Barron Chase Securities, Inc. pursuant to that
certain consulting agreement, dated April 30, 1997, between Barron Chase
Securities, Inc. and the Corporation.
1. Net Issuance Option. At the option of Holder, in lieu of payment of the
Exercise Price for the Shares, the Holder may request in writing that the
Corporation issue to it the net Shares issuable determined in accordance with
the following formula:
NS = WS - [EP/CMP x WS]
NS = New Shares
WS = No. of Shares issuable upon exercises of the warrants
EP = Exercise Price
CMP = Current Market Price as of the date of the request
Upon such surrender of this Warrant and payment for the Shares a written request
that the Corporation issue the net Shares in accordance with the foregoing
formula, the Corporation shall issue and cause to be delivered within five (5)
business days to or upon the written order of the Holder and in such name or
names as the Holder may designate a certificate or certificates for the number
of full Shares issuable upon the exercise of the Warrants, together with cash in
respect of any fractional Share otherwise issuable upon such exercise.
2. Adjustment of Exercise Price and Number of Shares Deliverable Upon Exercise
of Warrant. The Exercise Price and the number of Shares purchasable upon the
exercise of this Warrant ("Warrant Shares") are subject to adjustment from time
to time upon the occurrence of the events enumerated in this paragraph.
(a) In case the Corporation shall at any time after the date of this Warrant:
(i) Pay a dividend of its shares of its Common Stock or make a
distribution in shares of its Common Stock with respect to its
outstanding Common Stock;
(ii) Subdivide its outstanding shares of Common Stock;
(iii) Combine its outstanding shares of Common Stock; or
(iv) Issue any other shares of capital stock by reclassification of
its shares of Common Stock;
the Exercise Price in effect at the time of the record date of such dividend,
subdivision, combination, or reclassification shall be proportionately adjusted
so that Holder shall be entitled to receive the aggregate number and kind of
shares which, if this Warrant had been exercised prior to such event, Holder
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
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(b) In case the Corporation shall fix a record date for the issuance of rights,
options, or warrants or make a distribution of shares of Common Stock to all
(but not less than all) holders of its outstanding Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into shares of Common Stock) at a price per share (or having a conversion price
per share, if a security convertible into Common Stock) less than the market
price of the shares (based on the closing price on the record date on NASDAQ or
a listed securities exchange of the Corporation's Common Stock, or if no such
quote is available, the shareholders equity on the date of the last financial
statement divided by the total number of shares outstanding) (the "Market
Price"), the Exercise Price to be in effect after such record date shall be
determined by multiplying the then current Exercise Price in effect immediately
prior to such record date by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
Market Price and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible). Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights or warrants are not so issued, the Exercise Price
shall again be adjusted to be the Exercise Price which would then be in effect
if such record date had not been fixed.
(c) In case of any reorganization of the Corporation, or in case of any
reclassification or change of outstanding Common Stock issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
split-up or combination of the Common Stock), or in case of any consolidation or
merger of the Company with or into another entity (other than a consolidation or
merger with a subsidiary or a continuing corporation), or in case of any sale or
conveyance to another entity of all or substantially all of the property of the
Corporation, then, as a condition of such reorganization, reclassification,
change, consolidation, merger, sale, or conveyance, the Corporation or such
successor or purchasing entity, as the case may be, shall forthwith provide to
Holder a supplemental warrant (the "Supplemental Warrant") which will make
lawful and adequate provision whereby Holder shall have the right thereafter to
receive, upon exercise of such Supplemental Warrant, the kind and amount of
shares and other securities and property which would have been received upon
such reorganization, reclassification, change, consolidation, merger, sale, or
conveyance by a holder of a number of shares of Common Stock equal to the number
of Shares issuable upon exercise of this Warrant immediately prior to such
reorganization, reclassification, change, consolidation, merger, sale, or
conveyance. Such Supplemental Warrant shall include provisions for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this paragraph. The above provisions of this paragraph shall
similarly apply to successive reorganizations, reclassifications, and changes of
Common Stock and to successive consolidations, mergers, sales, or conveyances.
3. Restrictions on Transfer.
Holder has been advised and understands that the Warrants and the Shares
purchasable thereby are characterized as "restricted securities" under the
federal securities laws because they are being acquired from Corporation in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances.Holder further understands that
the certificates evidencing the Shares will bear the following legend: "These
securities have not been registered under the Securities Act of 1933. They may
not be sold, offered for sale, pledged or hypothecated in the absence of a
registration statement in effect with respect to the securities under such Act
or an opinion of counsel satisfactory to the Company that such registration is
not required or unless sold pursuant to Rule 144 of such Act."
The Holder understands that the Company may place, and may instruct any transfer
agent or depository for the Shares to place, a stop transfer notation in the
securities records in respect of the Shares.
4. Registration Rights.
Holder shall have the right, at any time and from time to time until April 30,
2002, to include all of the shares purchased or purchasable upon the exercise of
this Warrant ( the "Registrable Shares") within any Registration Statement of
the Corporation filed by the Corporation covering shares of its Common Stock
other than a
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Registration Statement filed solely with respect to any employee benefit plan of
the Corporation or an offering solely related to an acquisition or for which
such Registrable Shares cannot be appropriately registered. The Corporation
shall promptly give written notice to Holder of any intended registration of its
Common Stock not less than forty-five (45) days prior to the anticipated
effective date of the Registration Statement, and Holder shall, within fifteen
(15) days of receipt thereof, notify the Corporation of the number of
Registrable Shares it desires to include in the Registration Statement. The
number of Registrable Shares which may be included by the Holder in any such
Registration Statement may be restricted by the Corporation if, in the opinion
of the Corporation's managing underwriter, the number of shares proposed to be
sold by the Holder and by the Corporation in such offering exceeds the number of
securities which can be sold in such offering. In such event, the Registrable
Shares of Holder to be included within such Registration Statement shall not
exceed the number approved for inclusion therein by the Corporation and its
managing underwriter. All costs or expenses, incident to the registration,
qualification or listing of such securities shall be paid by the Corporation,
and the Corporation shall comply with all reasonable requests of Holder made in
connection with the registration, qualification, listing or sale of Registrable
Shares.
Upon written request of Holders of Warrants for more than 50% of the Warrant
Shares the Company shall use its best efforts to file a registration statement
on Form S-8 at any time after one year from the date of this Warrant provided
that (i) counsel for the Corporation concurs that such shares qualify for
registration on Form S-8 at such time, (ii) the average closing bid price of the
Common Stock for the last thirty trading days has exceeded $1.50 per share, and
(iii) in the opinion of the Board of Directors such registration will not have
an adverse effect on any contemplated corporate actions. Should the Board of
Directors opine that the registration could have an adverse effect, then the
Corporation may delay registration one time for a period of 90 days.
5. Assignment or Loss of Warrant.
(a) The Holder of this Warrant shall be entitled, without obtaining the consent
of the Corporation, to assign its interest in this Warrant, or any of the
Warrant Shares, in whole or in part to any person, provided, however, that the
transferee, prior to any such transfer, provides the Corporation with a legal
opinion, in form and substance satisfactory to the Company, that such transfer
will not violate the Act or any applicable state securities or blue sky laws.
Otherwise without obtaining the prior written consent of the Company, Holder
shall not transfer or assign its interest in this Warrant, or any of the Warrant
Shares prior to exercise, in whole or in part to any transferee.
(b) Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnification satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
6. Reservation of Shares. The Company hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise or exchange of this
Warrant all shares of its Common Stock or other shares of capital stock of the
Company from time to time issuable upon exercise or exchange of this Warrant.
All such shares shall be duly authorized and, when issued upon the exercise or
exchange of the Warrant in accordance with the terms hereof, shall be validly
issued, fully paid and nonassessable, free and clear of all liens, security
interests, charges and other encumbrances or restrictions on sale (other than as
provided in the Company's articles of incorporation and any restrictions on sale
set forth herein or pursuant to applicable federal and state securities laws)
and free and clear of all preemptive rights.
7. Arbitration. In the event that a dispute arises between the Corporation and
the holder of this Warrant as to any matter relating to this Warrant, the matter
shall be settled by arbitration in Alameda County, California in accordance with
the Rules of the American Arbitration Association and the award rendered by such
arbitrator(s) shall not be subject to appeal and may be entered in any federal
or state court located in Alameda County having jurisdiction thereof, and
actions or proceedings shall be brought in no other forum or venue.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by
its duly authorized officers and the corporate seal hereunto affixed on this
30th day of April, 1997.
VALUESTAR CORPORATION
/s/ JAMES STEIN
James Stein, President and CEO
/s/ BENJAMIN A. PITTMAN
Benjamin A. Pittman, Secretary
3
EXHIBIT 6.1
AGREEMENT No. 4
between
THE PUBLIC RESEARCH INSTITUTE at SAN FRANCISCO STATE
UNIVERSITY,
THE SAN FRANCISCO STATE UNIVERSITY FOUNDATION, INC.,
and
VALUESTAR, INC.
1. PARTIES TO THIS AGREEMENT
The Public Research Institute (PRI) is a unit of San Francisco State University
(SFSU). Its mission is to provide applied social research, consultation, and
training to Bay Area and Northern California community groups, non-profit
organizations, government agencies, and private businesses; and to provide San
Francisco State students with advanced training and practical experience in
research methods and analysis.
The San Francisco State University Foundation (the Foundation) provides
personnel, payroll, legal, contractual, financial, and accounting services for
PRI.
ValueStar, Inc. (VS) is an employee owned private company committed to consumer
education and protection in the service industry. Its mission is to collect and
disseminate reliable information on business performance and customer
satisfaction and to raise the overall level of service business quality in the
Bay Area.
II. CONDITIONS AND TERMS
PRI will conduct customer satisfaction surveys for VS, monitor the work of other
survey providers, and provide other research and consulting services to VS,
under the conditions and financial terms set forth below. For purposes of this
agreement, a "survey" is defined as a series of up to 100 telephone interviews
with a service firm's customers conducted by PRI staff using a standardized or
customized VS questionnaire. The exact number of completed interviews that
constitutes a successful survey will vary depending on the target quota (not to
exceed 100) established by VS for each service firm.
A. VS AGREES:
1. To hold PRI, and SFSU, and the Foundation harmless from any financial claims
or legal disputes resulting from or associated with VS's third-party contracts
and agreements with service companies applying for the Consumer ValueStar
rating. Further, PRI, SFSU, and the Foundation will not be held legally or
financially liable for any disputes arising from any rating provided. Further,
VS holds PRI, SFSU, and the Foundation harmless for disputes arising from
reasonable performance of surveys conducted under this agreement.
2. To allow PRI the option of declining to conduct surveys in those cases judged
by PRI to be inconsistent with the institutional and educational mission of PRI
and SFSU.
3. To refrain from making any use of PRI's, SFSU's, or the Foundation's
institutional name or logo in VS advertising and media presentations without
prior approval of appropriate officers of PRI, SFSU, or the Foundation. If PRI
is not the exclusive provider of customer satisfaction surveys, PRI will not be
represented by VS as the exclusive provider of such services but only as one
provider among others.
5. To provide PRI with standardized sample lists of firm customers in electronic
form in a format compatible with PRI's software. The cost to PRI for processing
non-standard lists will be billed in addition to any other charge.
6. To specify a minimum quota of completed interviews required for each survey
to meet VS's standards of statistical reliability.
7. To provide PRI once a week with a projection of the number of surveys likely
to be requested in the following week.
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8. To pay by the 15th business day of each month for all ratings and other work
performed during the previous calendar month. Checks will be made payable to the
San Francisco State University Foundation/PRI and sent to the San Francisco
State University Foundation, 1640 Holloway Avenue, San Francisco, CA 94132. The
Foundation will send a detailed invoice for each month to VS on the 5th business
day of the following month.
9. To provide a minimum of forty (40) customer-rating surveys per month to be
carried out by PRI. With advance notice to VS, PRI may at its option reduce the
number of surveys it accepts.
B. PRI AGREES:
1. To ensure that all customer ratings are performed with professional care and
scientific integrity and in a manner that prevents data contamination or
violations of respondent confidentiality.
2. To provide completed surveys to VS, subject to PRI's capacity to meet VS's
needs; and to make reasonable efforts to provide that capacity.
3. To provide completed rating reports to VS within 12 working days of receipt
of sample lists for up to 36 surveys per month; within 14 working days for 37-45
surveys per month; and within 16 working days for 46-60 surveys per month,
unless the parties agree to a different completion date for a given survey. VS
understands that smoothing the flow of work is an important cost factor for PRI
and will endeavor to smooth it. PRI may at its option delay the start of new
surveys so that no more than three surveys start the 12-day completion period on
each successive working day and/or no more than 13 in a given week. PRI will
notify VS promptly if it implements this delay. In this event, VS may specify
the order in which PRI works on the new surveys. To start the 12-day completion
period, survey sample lists musts be ready to process, requiring no further
cleaning or correction.
4. That all information provided by PRI and gathered for VS in performance of
this agreement is the property of VS.
5. To allow VS to represent to service providers and consumers that PRI is
conducting the telephone surveys and is preparing the subsequent data for VS,
subject to the provisions of section II.A.3 above.
6. To refrain from divulging any information about VS's methodology or data to
another consumer rating company and from engaging in a similar consumer rating
product in the service industry. This restriction does not preclude PRI from
conducting market survey research for individual firms or for clients engaged in
other types of products. This provision endures for two years after the
expiration of this agreement.
7. To meet in person with VS staff as necessary to discuss the working
relationship between VS and PRI.
8. To monitor the work of VS's other survey providers:
(a) PRI will conduct orientation and training sessions with VS's other survey
providers. These will focus on the maintenance of high standards for ValueStar
survey work. Once supervisors and teleresearchers for a provider have received
PRI's orientation and training, providers are responsible for training their
staff. Renewing orientation and hearing feedback from teleresearchers and
supervisors will be arranged from time to time during PRI's site visits.
(b) PRI will conduct a listen-in session for each teleresearcher employed by
another provider at least once a week, when surveys are being conducted, with a
written evaluation of the teleresearcher faxed to the shift supervisor and a
verbal follow-up with the supervisor. PRI will identify and follow up on
potential problems, including thorough communication with ValueStar and with the
provider.
(c) PRI will conduct site visits at least monthly and may participate in the
training of new teleresearchers, including practice interviewing.
9. To provide a monthly written report to ValueStar on the work of other
providers. The report will review PRI's monitoring and auditing work and report
any problems found and their resolution.
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10. To audit the reports on customer surveys produced by VS's other survey
providers.
III. PRICES
The prices listed in Exhibit A may be renegotiated by either VS or PRI upon
written proposal of a new price schedule on January 1 or July 1 of each year. If
the parties fail to agree on the price schedule within 60 days, either party may
terminate this agreement with 30 days' written notice.
IV. TERMS OF THIS AGREEMENT
The terms and conditions of this agreement commence on January 1, 1997, and
shall be in force for a period of three years from that date.
The terms of this agreement shall be limited to the jurisdiction for the courts
of the City and County of San Francisco and the State of California, and the
jurisdiction over any dispute arising as a result of the terms of this agreement
is limited to the courts of said state.
Either party may, for cause, after a 30-day period to redress cause, terminate
this agreement with an additional 30-day written notice.
V. AGREEMENT BY AUTHORIZED SIGNERS
The undersigned of PRI, the Foundation, and VS agree to the terms and conditions
of this agreement.
/s RUFUS P. BROWNING
Rufus P. Browning, Director Date April 17, 1997
Public Research Institute
/s/WILLIAM F. CLARK
William F. Clark, Interim Director for Grants & Contracts Date April 28, 1997
San Francisco State University Foundation, Inc.
/s/ JIM STEIN
Jim Stein, President and Managing Director Date April 30, 1997
ValueStar, Inc.
3
EXHIBIT 6.2
CARSON CAPITAL CORPORATION
1992
INCENTIVE STOCK OPTION PLAN, AS AMENDED
1. Purpose of this Plan.
This Incentive Stock Option Plan (the "Plan") is intended as an employment
incentive, to aid in attracting and retaining in the employ of CARSON CAPITAL
CORPORATION (the "Company"), a Colorado corporation, and every successor and any
Parent or Subsidiary of the Company (within the meaning of Section 424 the
Internal Revenue Code of 1986, as amended), persons of experience and ability
and whose services are considered valuable, to encourage the sense of
proprietorship in such persons, and to stimulate the active interest of such
persons in the development and success of the Company. It is further intended
that stock options issued pursuant to this Plan (the "Options") shall constitute
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Administration of this Plan.
The Company's Board of Directors ("Board") may appoint and maintain as
administrator of this Plan the Compensation Committee (the "Committee") of the
Board which shall consist of at least three members of the Board. Until such
time as the Committee is duly constituted, the Board itself shall have and
fulfill the duties herein allocated to the Committee. The Committee shall have
full power and authority to designate Plan participants, to determine the
provisions and terms of respective Options (which need not be identical as to
number of shares covered by any Option, the method of exercise as related to
exercise in whole or in installments, or otherwise), including the Option price,
and to interpret the provisions and supervise the administration of this Plan.
The Committee may in its discretion provide that certain Options not vest (that
is, become exercisable) until expiration of a certain period after issuance or
until other conditions are satisfied, so long as not contrary to this Plan or
the Code.
A majority of the members of the Committee shall constitute a quorum. All
decisions and selections made by the Committee pursuant to this Plan's
provisions shall be made by a majority of its members. Any decision reduced to
writing and signed by all of the members shall be fully effective as if it had
been made by a majority at a meeting duly held. The Committee shall select one
of its members as its chairman and shall hold its meetings at such times and
places as it deems advisable. If at any time the Board shall consist of seven or
more members, then the Board may amend this Plan to provide that the Committee
shall consist only of Board members who shall not have been eligible to
participate in this Plan (or similar stock or stock option plan) of the Company
or its affiliates at any time within one year prior to appointment to the
Committee.
All Options granted under this Plan are subject to, and may not be exercised
before, the approval of this Plan by the holders of a majority of the Company's
outstanding shares on or before the expiration of twelve months from the date of
adoption of this Plan by the Board, and if such approval is not obtained, all
Options previously granted shall be void. Each Option shall be evidenced by a
written agreement containing terms and conditions established by the Committee
consistent with the terms of this Plan.
3. Designation of Participants.
The persons eligible for participation in this Plan as recipients of Options
shall include only officers and key employees (as determined by the Committee),
whether full-time or part-time, of the Company or of any Parent or Subsidiary of
the Company. The Committee shall have full power to designate, from among
eligible individuals, the persons to whom Options may be granted. The directors
of the Company shall not be eligible to participate in this Plan as directors,
but directors otherwise qualified shall be eligible to participate. An employee
who has been granted an Option hereunder may be granted an additional Option or
Options, if the Committee shall so determine. The aggregate fair market value
(determined in accordance with Paragraph 5 below) of the shares of Common Stock
with respect to which Options are exercisable for the first time by an Optionee
during any calendar year (under this Plan and all similar plans of the Company
and any Parent, Subsidiary or Predecessor of the Company) shall not exceed
$100,000, or such higher amount as may subsequently be permitted by the Code, as
it may from time to time be amended. The granting of an Option shall not be
construed as a contract of employment or as entitling the recipient thereof to
any rights of continued employment.
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4. Stock Reserved for this Plan.
Subject to adjustment as provided in Paragraph 9 below, a total of 250,000
shares of Common Stock, $.00001 par value per share ("Stock"), of the Company
shall be subject to this Plan. The Stock subject to this Plan shall consist of
unissued shares or previously issued shares reacquired and held by the Company
or any Parent or Subsidiary of the Company, and such amount of shares shall be
and is hereby reserved for sale for such purpose. Any of such shares which may
remain unsold and which are not subject to outstanding Options at the
termination of this Plan shall cease to be reserved for the purpose of this
Plan, but until termination of this Plan the Company shall at all times reserve
a sufficient number of shares to meet the requirements of this Plan. Should any
Option expire or be canceled prior to its exercise in full, the unexercised
shares theretofore subject to such Option may again be subjected to an Option
under this Plan.
5. Option Price.
(a) The purchase price of each share of Stock placed under Option shall not be
less than one hundred percent (100%) of the fair market value of such share on
the date the Option is granted.
(b) Clause (a) above notwithstanding, if the Optionee owns directly or
indirectly Stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company on the date of grant, the purchase price of each share
placed under Option shall instead be one hundred ten percent (110%) of the fair
market value, and the Option granted to such person shall not be exercisable
after the expiration of five years from the date it is granted. For purposes of
this clause (b), a person shall be considered as indirectly owning Stock
standing in the name of the person's brothers and sisters (whether by the whole
or half blood), spouse, ancestors and lineal descendants, and any Stock standing
in the name of any corporation, partnership, trust or estate shall be considered
as being directly owned by its shareholders, partners or beneficiaries in the
proportions that their interests therein appear; provided, that this sentence
does not exclude all other possible forms of indirect or beneficial ownership of
Stock by any Optionee.
(c) The fair market value of a share on a particular date shall be deemed to be
the average of either (i) the highest and lowest prices at which the shares were
sold on the date of grant, if traded on a national securities exchange, (ii) the
high and low prices reported in the consolidated reporting system, if traded on
a "last sale reported" system, such as NASDAQ, for over the counter securities,
or (iii) the high bid and high asked price for other over-the-counter
securities. If no transactions in the Stock occur on the date of grant, the fair
market value shall be determined as of the next earliest day for which reports
or quotations are available. If the common shares are not then quoted on any
exchange or in any quotation medium at the time the option is granted, then the
Board of Directors or Committee shall use its discretion in selecting a good
faith value believed to represent fair market value.
(d) The cash proceeds from the sale of Stock upon Option exercise will be added
to the general funds of the Company.
6. Option Period.
(a) The Option period shall be a term of not more than ten (10) years (or five
years, if granted to a person described in Paragraph 5(b) above) from the date
of granting of each Option and shall automatically terminate:
(i) Upon termination of the Optionee's employment with the Company for cause;
(ii) At the expiration of twelve (12) months from the date of termination of the
Optionee's employment with the Company for any reason other than death, without
cause; provided, that if the Optionee dies within such nine-month period,
subclause (iii) below shall apply; or
(iii) At the expiration of fifteen (15) months after the date of death of the
Optionee.
(b) "Employment with the Company" as used in this Plan shall include employment
with any Parent or Subsidiary of the Company, and Options granted under this
Plan shall not be affected by an employee's transfer of employment among the
Company and any Parent or Subsidiary thereof. An Optionee's employment with the
Company shall not be deemed interrupted or terminated by a bona fide leave of
absence (such as sabbatical leave or employment by the Government) duly
approved, military leave or sick leave.
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7. Exercise of Options.
(a) The Committee, in granting Options, shall have discretion to determine the
terms upon which Options shall be exercisable, subject to applicable provisions
of this Plan. Once available for purchase, unpurchased shares of Stock shall
remain subject to purchase until the Option expires or terminates in accordance
with Paragraph 6 above. Unless otherwise provided in the Option, an Option may
be exercised in whole or in part, one or more times, but no Option may be
exercised for a fractional share of Stock.
(b) Options may be exercised solely by the Optionee during his lifetime, or
after his death (with respect to the number of shares which the Optionee could
have purchased at the time of death) by the person or persons entitled thereto
under the decedent's will or the laws of descent and distribution.
(c) The purchase price of the shares of Stock as to which an Option is exercised
shall be paid in full at the time of exercise and no shares of Stock shall be
issued until full payment is made therefor. Payment shall be made either (i) in
cash, represented by bank or cashier's check, certified check or money order,
(ii) by delivering shares of the Company's Common Stock which have been
beneficially owned by the optionee, the optionee's spouse, or both of them for a
period of at least six (6) months prior to the time of exercise (the "Delivered
Stock"), in a number equal to the number of shares of Stock being purchased upon
exercise of the Option or (iii) by delivery of shares of corporate stock which
are freely tradeable without restriction and which are part of a class of
securities which has been listed for trading on the NASDAQ system or a national
securities exchange, with an aggregate fair market value equal to or greater
than the exercise price of the shares of Stock being purchased under the Option,
or a combination of cash, Delivered Stock or other corporate shares. An Option
shall be deemed exercised when written notice thereof, accompanied by the
appropriate payment in full, is received by the Company. No holder of an Option
shall be, or have any of the rights and privileges of, a shareholder of the
Company in respect of any shares of Stock purchasable upon exercise of any part
of an Option unless and until certificates representing such shares shall have
been issued by the Company to him or her.
8. Assignability.
No Option shall be assignable or otherwise transferable (by the Optionee or
otherwise) except by will or the laws of descent and distribution. No Option
shall be pledged or hypothecated in any manner, whether by operation of law or
otherwise, nor be subject to execution, attachment or similar process.
9. Reorganizations and Recapitalizations of the Company.
(a) The existence of this Plan and Options granted hereunder shall not affect
in any way the right or power of the Company or its shareholders to make or
authorize any and all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the Company's Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale,
exchange or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
(b) The shares of Stock with respect to which Options may be granted hereunder
are shares of the Common Stock of the Company as currently constituted. If, and
whenever, prior to delivery by the Company of all of the shares of the Stock
which are subject to Options granted hereunder, the Company shall effect a
subdivision or consolidation of shares or other capital readjustment, the
payment of a Stock dividend, a stock split, combination of shares (reverse stock
split) or recapitalization or other increase or reduction of the number of
shares of the Common Stock outstanding without receiving compensation therefor
in money, services or property, then the number of shares of Stock available
under this Plan and the number of shares of Stock with respect to which Options
granted hereunder may thereafter be exercised shall (i) in the event of an
increase in the number of outstanding shares, be proportionately increased, and
the cash consideration payable per share shall be proportionately reduced; and
(ii) in the event of a reduction in the number of outstanding shares, be
proportionately reduced, and the cash consideration payable per share shall be
proportionately increased.
(c) If the Company is reorganized, merged, consolidated or party to a plan of
exchange with another corporation pursuant to which shareholders of the Company
receive any shares of stock or other securities, there shall be substituted for
the shares of Stock subject to the unexercised portions of outstanding Options
an appropriate
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number of shares of each class of stock or other securities which were
distributed to the shareholders of the Company in respect of such shares of
Stock in the case of a reorganization, merger, consolidation or plan of
exchange; provided, however, that all such Options may be canceled by the
Company as of the effective date of a reorganization, merger, consolidation,
plan of exchange, or any dissolution or liquidation of the Company, by giving
notice to each Optionee or his personal representative of its intention to do so
and by permitting the purchase of all the shares subject to such outstanding
Options for a period of not less than thirty (30) days during the sixty (60)
days next preceding such effective date.
(d) Except as expressly provided above, the Company's issuance of shares of
Stock of any class, or securities convertible into shares of Stock of any class,
for cash or property, or for labor or services, either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into shares of Stock or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Stock subject to Options granted
hereunder or the purchase price of such shares.
10. Purchase for Investment.
Unless the shares of Stock covered by this Plan have been registered under the
Securities Act of 1933, as amended, each person exercising an Option under this
Plan may be required by the Company to give a representation in writing that he
or she is acquiring such shares for his or her own account for investment and
not with a view to, or for sale in connection with, the distribution of any part
thereof
11. Effective Date and Expiration of this Plan.
This Plan shall be effective as of May 29,1992, the date of its adoption by the
Board, subject to the approval of the Company's shareholders within one (1) year
after such date. No Option shall be granted pursuant to this Plan after the
expiration of ten years (or five years, in the case of a Significant
Shareholder) from the effective date of this Plan. Options outstanding upon the
expiration of this Plan shall remain in effect until they have expired or been
exercised.
12. Amendments or Termination.
The Board may amend, alter or discontinue this Plan at any time in such respects
as it shall deem advisable in order that the Options shall qualify as "incentive
stock options" under Section 422 of the Code or any successor legislation, or to
conform to any change in any other applicable law, or in order to comply with
the provisions of any rule or regulation of the Securities and Exchange
Commission required to exempt this Plan or any Options granted thereunder from
the operation of Section 16(b) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), or in any other respect not inconsistent with Section
422 of the Code or Section 16(b) of the Exchange Act; provided, that no
amendment or alteration shall be made which would impair the rights of any
participant under any Option theretofore granted, without his consent (unless
made solely to conform such Option to, and necessary because of, changes in the
foregoing laws, rules or regulations), and except that no amendment or
alteration shall be made without the approval of shareholders which would:
(a) Increase the total number of shares reserved for the purposes of this Plan
or decrease the Option price provided for in Paragraph 5 (except as provided in
Paragraph 9), or change the class of employees eligible to participate in this
Plan as provided in Paragraph 3; or
(b) Extend the Option period provided for in Paragraph 6; or
(c) Materially increase the benefits accruing to participants under this Plan;
or
(d) Materially modify the requirements as to eligibility for participation in
this Plan; or
(e) Extend the expiration date of this Plan as set forth in Paragraph 11.
13. Government Regulations.
This Plan, and the granting and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares of Stock under such
Options, shall be subject to all applicable laws, rules and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required.
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14. Notification by Certain Optionees.
Any Optionee who sells shares of Stock received upon exercise of an Option shall
notify the Company of such fact in writing within 30 days after the date of
sale, if
(a) At the time the shares of Stock were sold, less than (i) one (1) year had
elapsed since the date the shares were issued to the Optionee, or (ii) two (2)
years had elapsed since the date of grant of the applicable Option; or
(b) the Optionee was not an employee of the Company (or of a Parent or
Subsidiary thereof) at all times during the period beginning on the date the
applicable Option was granted and ending on the date three (3) months prior to
the date such Option was exercised.
The Committee may take appropriate steps to require compliance by Optionees with
this requirement.
15. Liability.
No member of the Board of Directors, the Committee or officers or employees of
the Company or any Subsidiary or Parent shall be personally liable for any
action, omission or determination made in good faith in connection with this
Plan.
16. Options in Substitution for Other Options.
The Committee may, in its sole discretion, at any time during the term of this
Plan, grant new options to an employee under this Plan or any other stock option
plan of the Company on the condition that such employee shall surrender for
cancellation one or more outstanding options which represent the right to
purchase (after giving effect to any previous partial exercise thereof) a number
of shares, in relation to the number of shares to be covered by the new
conditional grant hereunder, determined by the Committee. If the Committee shall
have so determined to grant such new options on such a conditional basis ("New
Conditional Options"), no such New Conditional Option shall become exercisable
in the absence of such employee's consent to the condition and surrender and
cancellation as appropriate. New Conditional Options shall be treated in all
respects under this Plan as newly granted options. Options may be granted under
this Plan from time to time in substitution for similar rights held by employees
of other corporations who are about to become key employees of the Company or an
Affiliated Corporation as a result of a merger or consolidation of the employing
corporation with the Company or an Affiliated Corporation, or the acquisition by
the Company or an Affiliated Corporation of the assets of the employing
corporation, or the acquisition by the Company or an Affiliated Corporation of
stock of the employing corporation as the result of which it becomes an
Affiliated Corporation. For purposes of this Plan, "Affiliated Corporation"
means any Subsidiary or Parent of the Company.
CARSON CAPITAL CORPORATION
/s/ JOHN D. BRASHER, JR.
By President
ATTEST:
/s/ LISA K. BRASHER
By Secretary
5
EXHIBIT 6.2.1
VALUESTAR CORPORATION
---------------------
Incentive Stock Option
______________________
Under the ValueStar Corporation 1992 Incentive Stock Option Plan
THIS INCENTIVE STOCK OPTION, dated as of ______________ (the "Date of Grant"),
is granted by VALUESTAR CORPORATION, a Colorado corporation ("Company"), to
__________________ (the "Optionee"), whose status under the Company's 1992 Stock
Option Plan is described on the signature page hereof below his or her
signature.
WHEREAS, the Optionee is now an officer or key employee of the Company and the
Company desires to have the Optionee remain in its service and desires to
encourage stock ownership by the Optionee and to increase the Optionee's
proprietary interest in the Companys success; and as an inducement thereto has
determined to grant to the Optionee the option herein provided for, to the end
that the Optionee may thereby be assisted in obtaining an interest, or an
increased interest, as the case may be, in the stock ownership of the Company;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant. Pursuant to its 1992 Incentive Stock Option Plan (the "Plan"), the
Company hereby grants to the Optionee an option (the "Option") to purchase
________ shares of the Company's common stock, $.00025 par value per share (the
"Option Shares"), at the price of $____ per share (the "Purchase Price" or
"Exercise Price"). Both the Purchase Price and the number of Option Shares
purchasable may be adjusted pursuant to Paragraph 10 hereof. Vesting:
2. Term. Subject to the vesting described in Item 1, the Option is exercisable
in whole or from time to time in part during the period beginning on the Date of
Grant (___________) and ending at 5:00 o'clock p.m. (Pacific Time) on _________
except as provided in Paragraph 7 hereof.
3. Exercise of Option. During the Optionee's life, this Option may only be
exercised by him or her. This Option may only be exercised by presentation at
the principal offices of the Company in Alameda, California of written notice to
the Company's Secretary advising the Company of the Optionee's election to
purchase Option Shares, specifying the number of Option Shares being purchased,
accompanied by payment. No Option Shares shall be issued until full payment is
made therefor. Payment shall be made either (i) in cash, represented by bank or
cashier's check, certified check or money order, (ii) by delivering shares of
the Company's Common Stock of the same class as the Option Shares, which have
been beneficially owned by the Optionee, the Optionee's spouse, or both of them
for a period of at least six (6) months prior to the time of exercise (the
"Delivered Stock"), in a number equal to the number of shares of Stock being
purchased upon exercise of this Option, or (iii) by delivery of shares of
corporate stock registered in the Optionee's name, endorsed in blank or
accompanied by an executed stock power with signature guaranteed in either case,
which are freely tradeable without restriction and are part of a class of
securities which has been listed for trading on the NASDAQ system or a national
securities exchange, with an aggregate fair market value equal to or greater
than the total purchase price of the Option Shares being purchased hereunder, or
a combination of cash, Delivered Stock or other corporate shares. The Board of
Directors (or by its designation, the Compensation Committee) shall have the
authority to determine whether any corporate shares offered by the Optionee in
payment of the exercise price of Option Shares are acceptable to the Company,
and the Board's (or Committee's) discretion in this regard shall be absolute.
4. Issuance of Option Shares; Restrictive Legend. (a) Upon proper exercise of
this Option, the Company shall mail or deliver to the Optionee, as promptly as
practicable, a stock certificate or certificates representing the Option Shares
purchased, subject to clause (b) below. The Company shall not be required to
sell or issue any shares under the Option if the issuance of such shares shall
constitute a violation of any applicable law or regulation or of any
requirements of any national securities exchange upon which the Company's common
stock may be listed.
(b) Upon any exercise of this Option, if a registration statement under the
Securities Act of 1933 (the "Act") is not in effect with respect to the Option
Shares, then the Company shall not be required to issue any Option Shares unless
the Company has received evidence reasonably satisfactory to it to the effect
that the Optionee is acquiring such shares for investment and not with a view to
the distribution thereof. Any reasonable determination in this connection by the
Company shall be final, binding and conclusive.
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(c) Unless and until removed as provided below, each certificate evidencing
unregistered Option Shares shall bear a legend in substantially the following
form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any state and may not be sold or transferred except upon such
registration or upon receipt by this Corporation of an opinion of
counsel satisfactory to this Corporation, in form and substance
satisfactory to this Corporation, that registration is not required for
such sale or transfer."
The Company shall issue a new certificate which does not contain such legend if
(i) the shares represented by such certificate are sold pursuant to a
registration statement (including a current prospectus) which has become
effective under the Act, or (ii) the staff of the Securities and Exchange
Commission shall have issued a "no action" letter, reasonably satisfactory to
the Company's counsel, to the effect that such shares may be freely sold and
thereafter traded publicly without registration under the Act, or (iii) the
Company's counsel, or other counsel acceptable to the Company, shall have
rendered an opinion satisfactory to the Company to the effect that such shares
may be freely sold and thereafter publicly traded without registration under the
Act. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act. The Company shall not be
obligated to take any other affirmative action in order to cause the exercise of
the Option or the issuance of any Option Shares to comply with any law or
regulation of any governmental authority.
5. Transfer of Option Shares. Option Shares issued upon exercise of this Option
which have not been registered under the Act shall be transferable by a holder
thereof only upon compliance with the conditions in this Paragraph. Before
making any transfer of Option Shares, the holder of the shares shall give
written notice to the Company of the holder's intention to make the transfer,
describing the manner and circumstances of the transfer. If in the opinion of
the Companys counsel, or of other counsel acceptable to the Company, the
proposed transfer may be effected without registration under the Act, the
Company shall so notify the holder and the holder shall be entitled to transfer
such shares as described in the holder's notice to the Company. If such counsel
opines that the transfer may not be made without registration under the Act,
then the Company shall so notify the holder, in which event the holder shall not
be entitled to transfer the shares until (i) the Company notifies the holder
that it is permissible to proceed with the transfer, or (ii) registration of the
shares under the Act has become effective. The Company may issue "stop transfer"
instructions to its transfer agent with respect to any or all of the Option
Shares as it deems necessary to prevent any violation of the Act.
6. Transfer or Encumbrance of this Option Prohibited. This Option may not be
transferred or assigned in any manner by the Optionee, except by will or trust
upon the Optionee's death or by operation of law under the laws of descent and
distribution. The same restriction on transfer or assignment shall apply to any
heirs, devisees, beneficiaries or other persons acquiring this Option or an
interest herein under such an instrument or by operation of law. Further, this
Option may not be pledged, hypothecated or otherwise encumbered, by operation of
law or otherwise, nor shall it be subject to execution, attachment or similar
process.
7. Termination of Service, Death, or Disability. (a) Except as may be otherwise
expressly provided in this Agreement, this Option shall terminate as follows:
(i) Upon termination of the Optionee's employment with the Company for
cause;
(ii) At the expiration of twelve (12) months from the date of the
Optionee's resignation or termination of the Optionee's employment with
the Company without cause, for any reason other than death; provided,
that if the Optionee dies within such twelve-month period, subclause
(iii) below shall apply; or
(iii) At the expiration of fifteen (15) months after the date of death
of the Optionee.
(b) "Employment with the Company" shall include employment with any parent or
subsidiary of the Company, and this Option shall not be affected by the
Optionee's transfer of employment among the Company and any parent or subsidiary
thereof. An Optionee's employment with the Company shall not be deemed
interrupted or terminated by a bona fide leave of absence (such as sabbatical
leave or employment by the government) duly approved, military leave or sick
leave. This Option shall not be affected in the event the Optionee suffers a
significant diminution in his duties or any significant reduction in his overall
compensation. After the death of the Optionee, his executors, administrators or
personal representatives, or any person or persons to whom the Option may be
transferred by will, trust or by the laws of descent and distribution, shall
have the right, at any time prior to termination hereof, to exercise this Option
pursuant to its terms.
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(c) This Option confers no right upon the Optionee with respect to the
continuation of his employment (or his position as an officer, director or other
provider of services) with the Company or any parent or subsidiary of the
Company, and shall not interfere with the right of the Company, or any parent or
subsidiary of the Company, to terminate such relationship(s) at any time in
accordance with law and any agreements then in force.
8. Change in Control of the Company. If there shall occur a change in control of
the Company while any Option Shares remain subject to this Option, then this
Option shall become immediately exercisable, notwithstanding Paragraph 2 hereof,
and such exercisability shall terminate only upon the termination date set forth
in Paragraph 2 hereof, notwithstanding the provisions of Paragraph 7 hereof
concerning acceleration of the termination date. For purposes of this Agreement,
a "change in control" of the Company shall mean a change in control of a nature
that would be required to be reported in response to Item 5(f) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act") as in effect on the date hereof; provided, that, without
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) 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, or if (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof.
9. No Rights as Stockholder. The Optionee shall have no rights as a stockholder
with respect to Option Shares until the date of issuance of a stock certificate
for such shares. No adjustment for dividends, or otherwise, except as provided
in Paragraph 10, shall be made if the record date therefor is prior to the date
of exercise of such Option.
10. Changes in the Company's Capital Structure. The existence of this Option
shall not limit or affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Option
Shares or the rights thereof, or the dissolulion or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
However,
(a) If, prior to the Company's delivery of all the Option Shares subject to this
Option, the Company shall effect a subdivision (split) or combination (reverse
split) of shares or other capital readjustment, the payment of a common stock
dividend, or other increase or reduction of the number of shares of common stock
outstanding, without receiving compensation therefor in money, services or
property, then (i) in the event of an increase in the number of such shares
outstanding, the Purchase Price shall be proportionately reduced and the number
of Option Shares then still purchasable shall be proportionately increased; and
(ii) in the event of a reduction in the number of such shares outstanding, the
Purchase Price payable per share shall be proportionately increased and the
number of Option Shares then still purchasable shall be proportionately reduced.
(b) If while this Option remains outstanding the Company is reorganized, merged,
consolidated or party to a plan of share exchange with another corporation, or
if the Company sells or otherwise disposes of all or substantially all its
property or assets to another corporation, then subject to the provisions of
clause (ii) below, (i) after the effective date of such reorganization, merger,
consolidation, exchange or sale, as the case may be, the Optionee shall be
entitled, upon exercise of this Option, to receive, in lieu of the Option
Shares, the number and class of shares of such stock, other securities, cash and
other property or rights as the holders of shares of the Company's common stock
received pursuant to the terms of the reorganization, merger, consolidation,
exchange or sale and to which he would have been entitled if, immediately prior
to such reorganization, merger, consolidation, exchange or sale, he had been the
holder of record of a number of shares of common stock equal to the number of
Option Shares as to which this Option shall be so exercised; and (ii) this
Option may be cancelled by the Board of Directors of the Company as of the
effective date of any such reorganization, merger, consolidation, exchange or
sale; provided that (x) such reorganization, merger, consolidation, exchange or
sale results in a change in control of the Company rather than a mere change of
form or domicile of the Company, (y) written notice of such cancellation is
given to the Optionee or other holder of this Option not less than 45 days prior
to such effective date, and (z) the Optionee or other holder shall have the
right to exercise the Option in full during such 45-day period preceding the
effective date of such reorganization, merger, consolidation, exchange or sale.
(c) In case the Company shall determine to offer to the holders of its common
stock rights to subscribe pro rata for any new or additional shares of common
stock, or any securities convertible into common stock, then the Optionee shall
be entitled to participate in such pro rata offering in the same manner and to
the same extent as if this Option had been
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<PAGE>
exercised at the Purchase Price then in effect and the number of Option Shares
then purchasable upon exercise hereof had been issued to the Optionee pursuant
to the terms hereof.
(d) Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thercof shall
be made with respect to, the Purchase Price or the number of Option Shares then
subject to this Option.
11. Notification to Company of Certain Sales. The Optionee or other holder of
Option Shares who sells any of such shares shall notify the Company of such fact
in writing within 30 days after the date of sale, if:
(a) At the time the Option Shares were sold, less than ONE year had elapsed
since the date the Option Shares were purchased by the Optionee, and less than
TWO years had elapsed since the Date of Grant of this Option; or
(b) the Optionee was not an employee of the Company (or of a parent or
subsidiary thereof) at all times during the period beginning on the Date of
Grant of this Option and ending on the date three (3) months prior to the date
this Option was exercised to purchase the Oplion Shares sold.
The failure of the Optionee or other holder of Option Shares to promptly give
such notice to the Company shall entitle the Company to cancel this Option
forthwith, without prior notice to the holder hereof.
12. Notices, etc. Any notice hereunder by the Optionee shall be given to the
Company in writing, and such notice and any payment by the Optionee hereunder
shall be deemed duly given or made only upon receipt thereof at the Company's
office at 1120A Ballena Blvd., Alameda, California 94501, or at such other
address as the Company may designate by notice to the Optionee. Any notice or
other communication to the Optionee hereunder shall be in writing and shall be
deemed duly given or made if mailed or delivered to the Optionee at the last
address as the Optionee may have on file with the Companys Secretary. This
Option shall be governed under and construed in accordance with the laws of the
State of California. This address shall be binding on the Company and the
Optionee and all successors, assigns, heirs, devisees and personal
representatives thereof.
NOTE: This option must match the Control copy maintained by the Company, in all
particulars.
IN WITNESS WHEREOF, the parties hereto have executed this Incentive Stock Option
as of the day and year first above written.
VALUESTAR CORPORATION
By
ATTEST:
By
OPTIONEE NAME and STATUS:
4
EXHIBIT 6.3
CARSON CAPITAL CORPORATION
1992
NON-STATUTORY STOCK OPTION PLAN, AS AMENDED
1. Purpose of this Plan.
This Non-Statutory Stock Option Plan (the "Plan") is intended as an employment
incentive, to aid in attracting and retaining in the employ or service of CARSON
CAPITAL CORPORATION (the "Company"), a Colorado corporation, and any Affiliated
Corporation, persons of experience and ability and whose services are considered
valuable, to encourage the sense of proprietorship in such persons, and to
stimulate the active interest of such persons in the development and success of
the Company. This Plan provides for the issuance of non-statutory stock options
("NSOs" or "Options") which are not intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Administration of this Plan.
The Company's Board of Directors ("Board") may appoint and maintain as
administrator of this Plan the Compensation Committee (the "Committee") of the
Board which shall consist of at least three members of the Board. Until such
time as the Committee is duly constituted, the Board itself shall have and
fulfill the duties herein allocated to the Committee. The Committee shall have
full power and authority to designate Plan participants, to determine the
provisions and terms of respective NSOs (which need not be identical as to
number of shares covered by any NSO, the method of exercise as related to
exercise in whole or in installments, or otherwise), including the NSO price,
and to interpret the provisions and supervise the administration of this Plan.
The committee may in its discretion provide that certain NSOs not vest (that is,
become exercisable) until expiration of a certain period after issuance or until
other conditions are satisfied, so long as not contrary to this Plan.
A majority of the members of the Committee shall constitute a quorum. All
decisions and selections made by the Committee pursuant to this Plan's
provisions shall be made by a majority of its members. Any decision reduced to
writing and signed by all of the members shall be fully effective as if it had
been made by a majority at a meeting duly held. The Committee shall select one
of its members as its chairman and shall hold its meetings at such times and
places as it deems advisable. If at any time the Board shall consist of seven or
more members, then the Board may amend this Plan to provide that the Committee
shall consist only of Board members who shall not have been eligible to
participate in this Plan (or similar stock or stock option plan) of the Company
or its affiliates at any time within one year prior to appointment to the
Committee.
All NSOs granted under this Plan are subject to, and may not be exercised
before, the approval of this Plan by the holders of a majority of the Company's
outstanding shares, and if such approval is not obtained, all NSOs previously
granted shall be void. Each NSO shall be evidenced by a written agreement
containing terms and conditions established by the Committee consistent with the
provisions of this Plan.
3. Designation of Participants.
The persons eligible for participation in this Plan as recipients of NSOs shall
include full-time and part-time employees (as determined by the Committee) and
officers of the Company or of an Affiliated Corporation. In addition, directors
of the Company or any Affiliated Corporation who are not employees of the
Company or an Affiliated Corporation and any attorney, consultant or other
adviser to the Company or any Affiliated Corporation shall be eligible to
participate in this Plan. For all purposes of this Plan, any director who is not
also a common law employee and is granted an option under this Plan shall be
considered an "employee" until the effective date of the director's resignation
or removal from the Board of Directors, including removal due to death or
disability. The Committee shall have full power to designate, from among
eligible individuals, the persons to whom NSOs may be granted. A person who has
been granted an NSO hereunder may be granted an additional NSO or NSOs, if the
Committee shall so determine. The granting of an NSO shall not be construed as a
contract of employment or as entitling the recipient thereof to any rights of
continued employment. Persons eligible under this Plan additionally may be
granted one or more options under the Company's 1992 Incentive Stock Option
Plan.
4. Stock Reserved for this Plan.
Subject to adjustment as provided in Paragraph 9 below, a total of 250,000
shares of Common Stock, $.00001 par value per share ("Stock"), of the Company
shall be subject to this Plan. The Stock subject to this Plan shall
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consist of unissued shares or previously issued shares reacquired and held by
the Company or any Affiliated Corporation, and such amount of shares shall be
and is hereby reserved for sale for such purpose. Any of such shares which may
remain unsold and which are not subject to outstanding NSOs at the termination
of this Plan shall cease to be reserved for the purpose of this Plan, but until
termination of this Plan the Company shall at all times reserve a sufficient
number of shares to meet the requirements of this Plan. Should any NSO expire or
be canceled prior to its exercise in full, the unexercised shares theretofore
subject to such NSO may again be subjected to an NSO under this Plan.
5. Option Price.
The purchase price of each share of Stock placed under NSO shall not be less
than one hundred percent (100%) of the fair market value of such share on the
date the NSO is granted. The fair market value of a share on a particular date
shall be deemed to be the average of either (i) the highest and lowest prices at
which shares were sold on the date of grant, if traded on a national securities
exchange, (ii) the high and low prices reported in the consolidated reporting
system, if traded on a "last sale reported" system, such as NASDAQ, for over the
counter securities, or (iii) the high bid and high asked price for other
over-the-counter securities. If no transactions in the Stock occur on the date
of grant, the fair market value shall be determined as of the next earliest day
for which reports or quotations are available. If the common shares are not then
quoted on any exchange or in any quotation medium at the time the option is
granted, then the Board of Directors or Committee will use its discretion in
selecting a good faith value believed to represent fair market value based on
factors then known to them. The cash proceeds from the sale of Stock are to be
added to the general funds of the Company.
6. Exercise Period.
(a) The NSO exercise period shall be a term of not more than ten (10) years from
the date of granting of each NSO and shall automatically terminate:
(i) Upon termination of the optionee's employment with the Company for cause;
(ii) At the expiration of twelve (12) months from the date of termination of the
optionee's employment with the Company for any reason other than death, without
cause; provided, that if the optionee dies within such nine-month period,
subclause (iii) below shall apply, or
(iii) At the expiration of fifteen (15) months after the date of death of the
optionee.
(b) "Employment with the Company" as used in this Plan shall include employment
with any Affiliated Corporation, and NSOs granted under this Plan shall not be
affected by an employee's transfer of employment among the Company and any
Parent or Subsidiary thereof. An optionee's employment with the Company shall
not be deemed interrupted or terminated by a bona fide leave of absence (such as
sabbatical leave or employment by the Government) duly approved, military leave
or sick leave.
7. Exercise of Options.
(a) The Committee, in granting NSOs, shall have discretion to determine the
terms upon which NSOs shall be exercisable, subject to applicable provisions of
this Plan. Once available for purchase, unpurchased shares of Stock shall remain
subject to purchase until the NSO expires or terminates in accordance with
Paragraph 6 above. Unless otherwise provided in the NSO, an NSO may be exercised
in whole or in part, one or more times, but no NSO may be exercised for a
fractional share of Stock.
(b) NSOs may be exercised solely by the optionee during his lifetime, or after
his death (with respect to the number of shares which the optionee could have
purchased at the time of death) by the person or persons entitled thereto under
the decedent's will or the laws of descent and distribution.
(c) The purchase price of the shares of Stock as to which an NSO is exercised
shall be paid in full at the time of exercise and no shares of Stock shall be
issued until full payment is made therefor. Payment shall be made either (i) in
cash, represented by bank or cashier's check, certified check or money order,
(ii) by delivering shares of the Company's Common Stock which have been
beneficially owned by the optionee, the optionee's spouse, or both of them for a
period of at least six (6) months prior to the time of exercise (the "Delivered
Stock") in a number equal
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to the number of shares of Stock being purchased upon exercise of the NSO or
(iii) by delivery of shares of corporate stock which are freely tradeable
without restriction and which are part of a class of securities which has been
listed for trading on the NASDAQ system or a national securities exchange, with
an aggregate fair market value equal to or greater than the exercise price of
the shares of Stock being purchased under the NSO, or a combination of cash,
Delivered Stock or other corporate shares. An NSO shall be deemed exercised when
written notice thereof, accompanied by the appropriate payment in full, is
received by the Company. No holder of an NSO shall be, or have any of the rights
and privileges of, a shareholder of the Company in respect of any shares of
Stock purchasable upon exercise of any part of an NSO unless and until
certificates representing such shares shall have been issued by the Company to
him or her.
8. Assignability.
No NSO shall be assignable or otherwise transferable (by the optionee or
otherwise) except by will or the laws of descent and distribution. No NSO shall
be pledged or hypothecated in any manner, whether by operation of law or
otherwise, nor be subject to execution, attachment or similar process.
9. Reorganizations and Recapitalizations of the Company.
(a) The existence of this Plan and NSOs granted hereunder shall not affect in
any way the right or power of the Company or its shareholders to make or
authorize any and all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company or any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the Company's Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale,
exchange or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
(b) The shares of Stock with respect to which NSOs may be granted hereunder are
shares of the Common Stock of the Company as currently constituted. If, and
whenever, prior to delivery by the Company of all of the shares of the Stock
which are subject to NSOs granted hereunder, the Company shall effect a
subdivision or consolidation of shares or other capital readjustment, the
payment of a Stock dividend, a stock split, combination of shares (reverse stock
split) or recapitalization or other increase or reduction of the number of
shares of the Common Stock outstanding without receiving compensation therefor
in money, services or property, then the number of shares of Stock available
under this Plan and the number of shares of Stock with respect to which NSOs
granted hereunder may thereafter be exercised shall (i) in the event of an
increase in the number of outstanding shares, be proportionately increased, and
the cash consideration payable per share shall be proportionately reduced; and
(ii) in the event of a reduction in the number of outstanding shares, be
proportionately reduced, and the cash consideration payable per share shall be
proportionately increased.
(c) If the Company is reorganized, merged, consolidated or party to a plan of
exchange with another corporation pursuant to which shareholders of the Company
receive any shares of stock or other securities, there shall be substituted for
the shares of Stock subject to the unexercised portions of outstanding NSOs an
appropriate number of shares of each class of stock or other securities which
were distributed to the shareholders of the Company in respect of such shares of
Stock in the case of a reorganization, merger, consolidation or plan of
exchange; provided, however, that all such NSOs may be canceled by the Company
as of the effective date of a reorganization, merger, consolidation, plan of
exchange, or any dissolution or liquidation of the Company, by giving notice to
each optionee or his personal representative of its intention to do so and by
permitting the purchase of all the shares subject to such outstanding NSOs for a
period of not less than thirty (30) days during the sixty (60) days next
preceding such effective date.
(d) Except as expressly provided above, the Company's issuance of shares of
Stock of any class, or securities convertible into shares of Stock of any class,
for cash or property, or for labor or services, either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into shares of Stock or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Stock subject to NSOs granted hereunder
or the purchase price of such shares.
10. Purchase for Investment.
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Unless the shares of Stock covered by this Plan have been registered under the
Securities Act of 1933, as amended, each person exercising an NSO under this
Plan may be required by the Company to give a representation in writing that he
is acquiring such shares for his own account for investment and not with a view
to, or for sale in connection with, the distribution of any part thereof.
11. Effective Date and Expiration of this Plan.
This Plan shall be effective as of May 29, 1992, the date of its adoption by the
Board, subject to the approval of the Company's shareholders, and no NSO shall
be granted pursuant to this Plan after its expiration. This Plan shall expire on
May 28, 2002 except as to NSOs then outstanding, which shall remain in effect
until they have expired or been exercised.
12. Amendments or Termination.
The Board may amend, alter or discontinue this Plan at any time in such respects
as it shall deem advisable in order to conform to any change in any other
applicable law, or in order to comply with the provisions of any rule or
regulation of the Securities and Exchange Commission required to exempt this
Plan or any NSOs granted thereunder from the operation of Section 16(b) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or in any other
respect not inconsistent with Section 16(b) of the Exchange Act; provided, that
no amendment or alteration shall be made which would impair the rights of any
participant under any NSO theretofore granted, without his consent (unless made
solely to conform such NSO to, and necessary because of, changes in the
foregoing laws, rules or regulations), and except that no amendment or
alteration shall be made without the approval of shareholders which would:
(a) Increase the total number of shares reserved for the purposes of this Plan
or decrease the NSO price provided for in Paragraph 5 (except as provided in
Paragraph 9), or change the classes of persons eligible to participate in this
Plan as provided in Paragraph 3; or
(b) Extend the NSO period provided for in Paragraph 6; or
(c) Materially increase the benefits accruing to participants under this Plan;
or
(d) Materially modify the requirements as to eligibility for participation in
this Plan; or
(e) Extend the expiration date of this Plan as set forth in Paragraph 11
13. Government Regulations.
This Plan, and the granting and exercise of NSOs hereunder, and the obligation
of the Company to sell and deliver shares of Stock under such NSOs, shall be
subject to all applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
14. Liability.
No member of the Board of Directors, the Committee or officers or employees of
the Company or any Affiliated Corporation shall be personally liable for any
action, omission or determination made in good faith in connection with this
Plan
15. Miscellaneous.
(a) The term "Affiliated Corporation" used herein shall mean any Parent or
Subsidiary.
(b) The term "Parent" used herein shall mean any corporation owning 50 percent
or more of the total combined voting stock of all classes of the Company or of
another corporation qualifying as a Parent within this definition.
(c) The term "Subsidiary" used herein shall mean any corporation more than 50
percent of whose total combined voting stock of all classes is held by the
Company or by another corporation qualifying as a Subsidiary within this
definition.
16. Options in Substitution for Other Options.
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The Committee may, in its sole discretion, at any time during the term of this
Plan, grant new options to an employee under this Plan or any other stock option
plan of the Company on the condition that such employee shall surrender for
cancellation one or more outstanding options which represent the right to
purchase (after giving effect to any previous partial exercise thereof) a number
of shares, in relation to the number of shares to be covered by the new
conditional grant hereunder, determined by the Committee. If the Committee shall
have so determined to grant such new options on such a conditional basis ("New
Conditional Options"), no such New Conditional Option shall become exercisable
in the absence of such employee's consent to the condition and surrender and
cancellation as appropriate. New Conditional Options shall be treated in all
respects under this Plan as newly granted options. Options may be granted under
this Plan from time to time in substitution for similar rights held by employees
of other corporations who are about to become employees of the Company or an
Affiliated Corporation as a result of a merger or consolidation of the employing
corporation with the Company or an Affiliated Corporation, or the acquisition by
the Company or an Affiliated Corporation of the assets of the employing
corporation, or the acquisition by the Company or an Affiliated Corporation of
stock of the employing corporation as the result of which it becomes an
Affiliated Corporation.
17. Withholding Taxes.
Pursuant to applicable federal and state laws, the Company may be required to
collect withholding taxes upon the exercise of a NSO. The Company may require,
as a condition to the exercise of a NSO, that the optionee concurrently pay to
the Company the entire amount or a portion of any taxes which the Company is
required to withhold by reason of such exercise, in such amount as the Committee
or the Company in its discretion may determine. In lieu of part or all of any
such payment, the optionee may elect to have the Company withhold from the
shares to be issued upon exercise of the option that number of shares having a
Fair Market Value equal to the amount which the Company is required to withhold.
CARSON CAPITAL CORPORATION
/s/ JOHN D. BRASHER, JR.
By President
ATTEST:
/s/ LISA K. BRASHER
By Secretary
5
EXHIBIT 6.3.1
VALUESTAR CORPORATION
---------------
Non-Statutory
STOCK OPTION
----------------
Under the ValueStar Corporation 1992 Non-Statutory Stock Option Plan
THIS NON-STATUTORY STOCK OPTION, dated as of ____________ (the "Date of Grant")
is granted by VALUESTAR CORPORATION, a Colorado corporation ("Company"), to
____________ (the "Optionee"), whose status under the Company's 1992
Non-Statutory Stock Option plan is described on the Signature Page hereof.
WHEREAS, the Optionee is now an employee or director of the Company or a parent
or subsidiary thereof, or an attorney, consultant, adviser or other provider of
services to the Company or parent or subsidiary thereof and the Company desires
to have the Optionee remain in its employ or service and desires to encourage
stock ownership by the Optionee and to increase the Optionee's proprietary
interest in the Company's success; and as an inducement thereto has determined
to grant to the Optionee the option herein provided for, so that the Optionee
may thereby be assisted in obtaining an interest, or an increased interest, as
the case may be, in the stock ownership of the Company;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant. Pursuant to its 1992 Non-Statutory Stock Option Plan (the "Plan "),
the Company hereby grants to the Optionee an option (the "Option") to purchase
_________ shares of the Company's common stock, $.00025 par value per share (the
"Option Shares"), at the price of $_______ per share (the "Purchase Price" or
"Exercise Price"). Both the Purchase Price and the number of Option Shares
purchasable may be adjusted pursuant to Paragraph 10 hereof.
2. Term. The Option is exercisable in whole or from time to time in part during
the period beginning on the Date of Grant (___________) and ending at 5:00
o'clock p.m. (Pacific Time) on ___________ except as provided in Paragraph 7
hereof.
3. Exercise of Option. During the Optionee's life, this Option may only be
exercised by him or her. This Option may only be exercised by presentation at
the principal offices of the Company in Alameda, California of written notice to
the Company's Secretary advising the Company of the Optionee's election to
purchase Option Shares, specifying the number of Option Shares being purchased,
accompanied by payment. No Option Shares shall be issued until full payment is
made therefor. Payment shall be made either (i) in cash, represented by bank or
cashier's check, certified check or money order, (ii) by delivering shares of
the Company's Common Stock of the same class as the Option Shares, which have
been beneficially owned by the Optionee, the Optionee's spouse, or both of them
for a period of at least six (6) months prior to the time of exercise (the
"Delivered Stock"), in a number equal to the number of shares of Stock being
purchased upon exercise of this Option, or (iii) by delivery of shares of
corporate stock registered in the Optionee's name, endorsed in blank or
accompanied by an executed stock power with signature guaranteed in either case,
which are freely tradable without restriction and are part of a class of
securities which has been listed for trading on the NASDAQ system or a national
securities exchange, with an aggregate fair market value equal to or greater
than the total purchase price of the Option Shares being purchased hereunder, or
a combination of cash, Delivered Stock or other corporate shares. The Board of
Directors (or by its designation, the Compensation Committee) shall have the
authority to determine whether any corporate shares offered by the Optionee in
payment of the exercise price of Option Shares are acceptable to the Company,
and the Board's (or Committee's) discretion in this regard shall be absolute.
4. Issuance of Option Shares; Restrictive Legend. (a) Upon proper exercise of
this Option, the Company shall mail or deliver to the Optionee, as promptly as
practicable, a stock certificate or certificates representing the Option Shares
purchased, subject to clause (b) below. The Company shall not be required to
sell or issue any shares under the Option if the issuance of such shares shall
constitute a violation of any applicable law or regulation or of any
requirements of any national securities exchange upon which the Company's common
stock may be listed.
(b) Upon any exercise of this Option, if a registration statement under the
Securities Act of 1933 (the "Act") is not in effect with respect to the Option
Shares, then the Company shall not be required to issue any Option Shares unless
the Company has received evidence reasonably satisfactory to it to the effect
that the Optionee is acquiring such shares for investment and not with a view to
the distribution thereof. Any reasonable determination in this connection by the
Company shall be final, binding and conclusive.
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(c) Unless and until removed as provided below, each certificate evidencing
unregistered Option Shares shall bear a legend in substantially the following
form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any state and may not be sold or transferred except upon such
registration or upon receipt by this Corporation of an opinion of
counsel satisfactory to this Corporation in form and substance
satisfactory to this Corporation, that registration is not required for
such sale or transfer."
The Company shall issue a new certificate which does not contain such legend if
(i) the shares represented by such certificate are sold pursuant to a
registration statement (including a current prospectus) which has become
effective under the Act, or (ii) the staff of the Securities and Exchange
Commission shall have issued a "no action" letter, reasonably satisfactory to
the Company's counsel, to the effect that such shares may be freely sold and
thereafter traded publicly without registration under the Act, or (iii) the
Company's counsel, or other counsel acceptable to the Company, shall have
rendered an opinion satisfactory to the Company to the effect that such shares
may be freely sold and thereafter publicly traded without registration under the
Act. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act. The Company shall not be
obligated to take any other affirmative action in order to cause the exercise of
the Option or the issuance of any Option Shares to comply with any law or
regulation of any governmental authority.
5. Transfer of Option Shares. Option Shares issued upon exercise of this Option
which have not been registered under the Act shall be transferable by a holder
thereof only upon compliance with the conditions in this Paragraph. Before
making any transfer of Option Shares, the holder of the shares shall give
written notice to the Company of the holder's intention to make the transfer,
describing the manner and circumstances of the transfer. If in the opinion of
the Company's counsel, or of other counsel acceptable to the Company, the
proposed transfer may be effected without registration under the Act, the
Company shall so notify the holder and the holder shall be entitled to transfer
such shares as described in the holder's notice to the Company. If such counsel
opines that the transfer may not be made without registration under the Act,
then the Company shall so notify the holder, in which event the holder shall not
be entitled to transfer the shares until (i) the Company notifies the holder
that it is permissible to proceed with the transfer, or (ii) registration of the
shares under the Act has become effective. The Company may issue "stop transfer"
instructions to its transfer agent with respect to any or all of the Option
Shares as it deems necessary to prevent any violation of the Act.
6. Transfer or Encumbrance of this Option Prohibited. This Option may not be
transferred or assigned in any manner by the Optionee, except by will or trust
upon the Optionee's death or by operation of law under the laws of descent and
distribution. The same restriction on transfer or assignment shall apply to any
heirs, devisees, beneficiaries or other persons acquiring this Option or an
interest herein under such an instrument or by operation of law. Further, this
Option shall not be pledged, hypothecated or otherwise encumbered, by operation
of law or otherwise, nor shall it be subject to execution, attachment or similar
process.
7. Termination of Service, Death, or Disability. (a) Except as may be otherwise
expressly provided in this Agreement, this Option shall terminate as follows:
(i) Upon termination of the Optionee's employment with the Company for
cause;
(ii) At the expiration of twelve (12) months from the date of the
Optionee's resignation or termination of the Optionee's employment with
the Company without cause, for any reason other than death; provided,
that if the Optionee dies within such twelve-month period, subclause
(iii) below shall apply, or
(iii) At the expiration of fifteen (15) months after the date of death
of the Optionee.
(b) "Employment with the Company" shall include employment with or service as a
director of any parent or subsidiary of the Company, and this Option shall not
be affected by the Optionee's transfer of employment among the Company and any
parent or subsidiary thereof. An Optionee's employment with the Company shall
not be deemed interrupted or terminated by a bona fide leave of absence (such as
sabbatical leave or employment by the Government) duly approved, military leave
or sick leave. This Option shall not be affected in the event the Optionee
suffers a significant diminution in his duties or any significant reduction in
his overall compensation. After the death of the Optionee, his executors,
administrators or personal representatives, or any person or persons to whom the
Option may be transferred by will, trust or by the laws of descent and
distribution, shall have the right, at any time prior to termination hereof, to
exercise this Option pursuant to its terms.
(c) In regard to attorneys, consultants, advisers or other providers of
services, employment with the Company means that professional or other services
are provided to the Company or any parent or subsidiary thereof, and employment
shall be deemed to cease when services are no longer provided.
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(d) This Option confers no right upon the Optionee with respect to the
continuation of his employment (or his position as an officer, director or other
provider of services) with the Company or any parent or subsidiary of the
Company, and shall not interfere with the right of the Company, or any parent or
subsidiary of the Company, to terminate such relationship(s) at any time in
accordance with law and any agreements then in force.
8. Change in Control of the Company. If there shall occur a change in control of
the Company while any Option Shares remain subject to this Option, then this
Option shall become immediately exercisable, notwithstanding Paragraph 2 hereof,
and such exercisability shall terminate only upon the termination date set forth
in Paragraph 2 hereof, notwithstanding the provisions of Paragraph 7 hereof
concerning acceleration of the termination date. For purposes of this Agreement,
a "change in control" of the Company shall mean a change in control of a nature
that would be required to be reported in response to Item 5(f) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act") as in effect on the date hereof; provided, that, without
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) 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, or if (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof.
9. No Rights as Stockholder. The Optionee shall have no rights as a stockholder
with respect to Option Shares until the date of issuance of a stock certificate
for such shares. No adjustment for dividends, or otherwise, except as provided
in Paragraph 10, shall be made if the record date therefor is prior to the date
of exercise of such Option.
10. Changes in the Company's Capital Structure. The existence of this Option
shall not limit or affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Option
Shares or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
However,
(a) If, prior to the Company's delivery of all the Option Shares subject to this
Option, the Company shall effect a subdivision (split) or combination (reverse
split) of shares or other capital readjustment, the payment of a common stock
dividend, or other increase or reduction of the number of shares of common stock
outstanding, without receiving compensation therefor in money, services or
property, then (i) in the event of an increase in the number of such shares
outstanding, the Purchase Price shall be proportionately reduced and the number
of Option Shares then still purchasable shall be proportionately increased; and
(ii) in the event of a reduction in the number of such shares outstanding, the
Purchase Price payable per share shall be proportionately increased and the
number of Option Shares then still purchasable shall be proportionately reduced.
(b) If while this Option remains outstanding the Company is reorganized, merged,
consolidated or party to a plan of share exchange with another corporation, or
if the Company sells or otherwise disposes of all or substantially all its
property or assets to another corporation, then subject to the provisions of
clause (ii) below, (i) after the effective date of such reorganization, merger,
consolidation, exchange or sale, as the case may be, the Optionee shall be
entitled, upon exercise of this Option, to receive, in lieu of the Option
Shares, the number and class of shares of such stock, other securities, cash and
other property or rights as the holders of shares of the Company's common stock
received pursuant to the terms of the reorganization, merger, consolidation,
exchange or sale and to which he would have been entitled if, immediately prior
to such reorganization, merger, consolidation, exchange or sale, he had been the
holder of record of a number of shares of common stock equal to the number of
Option Shares as to which this Option shall be so exercised; and (ii) this
Option may be canceled by the Board of Directors of the Company as of the
effective date of any such reorganization, merger, consolidation, exchange or
sale; provided that (x) such reorganization, merger, consolidation, exchange or
sale results in a change in control of the Company rather than a mere change of
form or domicile of the Company, (y) written notice of such cancellation is
given to the Optionee or other holder of this Option not less than 45 days prior
to such effective date, and (z) the Optionee or other holder shall have the
right to exercise the Option in full during such 45-day period preceding the
effective date of such reorganization, merger, consolidation, exchange or sale.
(c) In case the Company shall determine to offer to the holders of its common
stock rights to subscribe pro rata for any new or additional shares of common
stock, or any securities convertible into common stock, then the Optionee shall
be entitled to participate in such pro rata offering in the same manner and to
the same extent as if this Option had been exercised at the Purchase Price then
in effect and the number of Option Shares then purchasable upon exercise hereof
had been issued to the Optionee pursuant to the terms hereof.
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(d) Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the Purchase Price or the number of Option Shares then
subject to this Option.
11. Withholding Taxes. Pursuant to applicable federal and state laws, the
Company may be required to collect withholding taxes upon any exercise of this
Option. The Company may require, as a condition to any exercise of this Option,
that the Optionee concurrently pay to the Company the entire amount or a portion
of any taxes which the Company is required to withhold by reason of such
exercise, in such amount as the Board of Directors or Compensation Committee of
the Board in its discretion may determine. In lieu of part or all of any such
payment, the Optionee may elect, with the consent of the Board of Directors or
Compensation Committee, to have the Company withhold from the Option Shares to
be issued upon exercise of this Option that number of shares having a fair
market value equal to the amount which the Company is required to withhold.
12. Notices, etc. Any notice hereunder by the Optionee shall be given to the
Company in writing, and such notice and any payment by the Optionee hereunder
shall be deemed duly given or made only upon receipt thereof at the Company's
office at 1120A Ballena Blvd., Alameda, California 94501, or at such other
address as the Company may designate by notice to the Optionee. Any notice or
other communication to the Optionee hereunder shall be in writing and shall be
deemed duly given or made if mailed or delivered to the Optionee at the last
address as the Optionee may have on file with the Company's Secretary. This
Option shall be governed under and construed in accordance with the laws of the
State of California. This address shall be binding on the Company and the
Optionee and all successors, assigns, heirs, devisees and personal
representatives thereof
NOTE: This option must match the Control copy maintained by the Company, in all
particulars.
IN WITNESS WHEREOF, the Company has executed this Stock Option as of the date of
the Date of Grant.
VALUESTAR CORPORATION
By
ATTEST:
By
- --------------------------------------
OPTIONEE NAME and STATUS:
- --------------------------------------------------------------------------------
**** Original to Optionee/COPY to Company ****
4
EXHIBIT 6.4
EMPLOYMENT AGREEMENT
This Agreement, entered into on the 27 day of June, 1992 (the "Agreement") by
and between CARSON CAPITAL CORPORATION, a Colorado corporation with its
principal office in Alameda, California (the "Company") and JAMES STEIN, 2120
Eagle Avenue, Alameda, California ("Stein").
1. Employment. The Company hereby employs Stein, and Stein hereby accepts
employment with the Company, upon the terms and conditions set forth herein. The
Company and Stein hereby agree that this Agreement shall hereinafter govern
their relationship and their respective rights and obligations under this
Agreement. The parties acknowledge that Stein has heretofore entered into a
substantially identical employment agreement with ValueStar, Inc., a California
corporation which is an Affiliate of the Company, dated as of May 1, 1992 (the
"ValueStar Employment Agreement"). The parties intend that this Agreement shall
be coterminus with and expire at the same time, and on the same terms, as the
ValueStar Employment Agreement.
2. Term of Employment. This Agreement will be effective as of and from the date
first above written and shall terminate at the same time and for the same
reasons as the ValueStar Employment Agreement.
3. Duties of Stein. Stein will be employed by the Company as its Chief Executive
Officer and President and shall serve as Chairman of the board of directors, and
shall have such duties and shall serve in such capacity and in such other
capacities at the Company or any of its Affiliates as shall be designated, or to
which Stein shall be elected, from time to time, by the Board of Directors of
the Company ("Board") and in accordance with the bylaws of the Company as in
effect from time to time.
4. Extent of Services; Right to Name, etc. (a) Stein will devote his full time
and attention exclusively to the business of the Company and its Affiliates in
the advancement of the best interests of the Company and such Affiliates. Stein
may, however, devote such time to his personal investments as shall be necessary
and which do not interfere with the performance of his duties hereunder.
(b) Stein hereby grants to the Company and its Affiliates the non-exclusive
right to use his name, picture or other likeness and biographical material
concerning him, in connection with advertising, promotion and publicizing the
Company and its activities, so long as this Agreement is in effect. Such use of
Stein's name shall be fair and not misleading or unflattering, and Stein will be
allowed to review and approve all such uses prior to actual use or
publicization.
5. Expenses. The Company will reimburse Stein (against receipt vouchers or other
evidence of payment) for all ordinary, necessary and reasonable expenses
incurred by him in the performance of his duties under this Agreement or in
performing such duties prior to execution of this Agreement.
6. Compensation. During the Term of this Agreement, Stein will receive a monthly
salary at the rate of ONE DOLLAR $1.00, payable at the end of each month. This
salary shall not be increased except upon Board approval, and any compensation
paid hereunder shall be in addition to and shall not reduce any compensation
paid to Stein pursuant to the ValueStar Employment Agreement or otherwise.
7. Incapacity of Stein. If Stein shall, at any time, be incapacitated or
prevented by physical or mental disability or any other circumstances beyond his
control from performing his duties under this Agreement for a consecutive period
of at least 6 months, the Company may, by written notice to Stein given at any
time after such 6-month period and so long as the incapacity shall continue,
discontinue payment in whole or in part of the compensation provided for herein
from such date as may be specified in the notice until the incapacity of Stein
shall cease. Otherwise, the said payment shall, notwithstanding the incapacity
of Stein, continue to be paid to Stein in accordance with the foregoing
provisions; provided, that if Stein shall receive any amount during the time of
such incapacity by reason of any disability insurance or any other insurance
plan, senior executive loss or income policy, disability policy or any other
plan or scheme of a like nature funded by the Company, the payment above
provided may be reduced by a like amount.
1
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8. Relationship of the Parties. Stein will perform his duties as an employee of
the Company and is not, nor will he be deemed to be, a joint venturer or partner
with the Company or any Affiliate thereof, and nothing in this Agreement will be
construed so as to make him a joint venturer or partner with the Company or
Affiliate.
9. Termination of Agreement. This Agreement shall terminate at the same time and
may be terminated by a party upon the same grounds as the ValueStar Employment
Agreement. Upon termination of this Agreement for any reason, Stein shall not be
entitled to severance pay or damages, except as provided in the ValueStar
Employment Agreement. On the effective date of termination of this Agreement,
Stein will deliver to the Company, in a reasonable state of repair, all property
of the Company, both real and personal owned, leased or bailed to Stein and used
by or in the possession of Stein.
10. Indemnification of Stein. Stein shall be indemnified to the same extent as
set forth in the ValueStar Employment Agreement.
11. Confidential Information. Stein will not, during or after the Term of this
Agreement, disclose to any firm or person any confidential or non-public
information, except as otherwise required by law, as necessary in the ordinary
course of the Company's business, or with prior written consent of the Company,
including but not limited to information about the Company or any Affiliate, and
the operations, products, assets, and customers thereof, to which Stein has
gained or gains excess by reason of his position as an employee of the Company
or an Affiliate. Stein shall not use for his own purposes, or for any purpose
other than those of the Company or an Affiliate, any information he may acquire
with respect to the Company's or an Affiliate's affairs.
12. Non-Competition Covenant. While this Agreement is in full force and effect
and has not expired, has not been terminated or otherwise been canceled or
annulled and for a period of 2 years following the termination of this
Agreement, Stein shall not, directly or indirectly, whether individually or as
controlling owner, officer, director, employee, shareholder, investor,
consultant, agent or in any other capacity whatsoever, own, manage, work for,
participate in the activities of, any person, firm, business or venture or any
part thereof in the United States of America which competes with the Company or
any Affiliate of the Company in its or their capacity as a research company,
rating company or licensor of certification marks. If the scope of this Section
(covering the entire United States of America) shall be deemed too broad or
otherwise impermissible by any court of competent jurisdiction or arbitration
panel, then the area subject to this non-competition covenant shall be deemed
limited to the Standard Metropolitan Statistical Areas in which the Company or
any Affiliate is carrying on operations.
Stein acknowledges that this covenant is valid, necessary and fundamental to the
protection of the Company and its Affiliates, and is reasonable in the
circumstances, including the fact that the Company intends for itself and its
Affiliates to operate nationwide and establish is services and trademarks and
service marks nationwide. The salary payable to Stein as provided for herein
includes the entire consideration for Stein's covenant in this Section.
13. Right to Injunctive Relief. Stein acknowledges that the Company will suffer
irreparable injury, not readily susceptible of valuation in monetary damages, if
Stein breaches any of his obligations under Sections 11 or 12 above.
Accordingly, Stein agrees that the Company will be entitled to injunctive relief
against any breach or prospective breach by Stein of Stein's obligations under
Sections 11 or 12 in any Federal or State court of competent jurisdiction
sitting in the State of California. Stein hereby submits to the jurisdiction of
such courts for the purposes of any actions or proceedings instituted by the
Company to obtain such injunctive relief, and agrees that the process may be
served on Stein by registered mail, addressed to the last address of Stein known
to the Company, or in any other manner authorized by law.
14. Notices. Any notice under this Agreement must be given in writing and must
be delivered by a messenger or courier service which retains its delivery
receipts, sent by telex, telegram or facsimile transmission ("fax") or mailed by
first class mail, postage prepaid, and addressed to the party to which notice is
to be given at such party's address indicated below or at such other address as
may be hereafter designated in writing to the other party in accordance with the
notice provisions herein contained. If notice is sent by telex, telegram or
facsimile transmission, it will be deemed to have been given at the time of
transmission, and if by delivery, at the time delivered. If notice is mailed, it
will be deemed to have been received 5 business days following the date of
mailing of the notice. Notice should be sent to
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<PAGE>
if to the Company: 2020 Challenger Drive, Suite 103
Alameda, California 94501-1017
Attention: Secretary
if to Stein: 2120 Eagle Drive
Alameda, California 94501
with a copy to: Roger Metzler, Esq.
Keck, Mahin & Cate
1 Maritime Plaza, 23rd Floor
San Francisco, California 94111
15. No Assignment. This Agreement may not be assigned in whole or in part by any
party without the written consent of the other party, which consent may not be
unreasonably withheld.
16. Miscellaneous.
(a) Stein represents and warrants to the Company that there is no restriction or
limitation, by reason of any agreement or otherwise, upon Stein's right or
ability to enter into this Agreement and fulfill his obligations under this
Agreement.
(b) The provisions of Sections 10,11,12 and 13 will survive the termination or
expiration of this Agreement. All other obligations of the Company and Stein
will cease on termination or expiration of this Agreement, except that the
Company and Stein remain liable for obligations which accrued before termination
or expiration of this Agreement (including Stein's right to be indemnified or
paid or reimbursed for services rendered and expenses incurred before
termination or expiration of this Agreement).
(c) This Agreement sets forth the entire understanding of the parties and may
not be varied by any statement, representation, warranty or covenant not set
forth in this Agreement.
(d) This Agreement may not be modified or amended except by an instrument in
writing signed by the parties to this Agreement or, where applicable, by their
heirs, representatives, successors or permitted assigns.
(e) This Agreement will be governed by and construed in accordance with the laws
of the State of California and the parties agree that the courts of such state
shall have exclusive jurisdiction to determine any disputes arising hereunder.
(f) This Agreement shall be binding upon and enure to the benefit of the parties
hereto and their respective heirs, executors, successors, administrators and
permitted assigns.
(g) The term "Affiliate" as used herein shall mean every parent and subsidiary
corporation of the Company, and every corporation or other entity which owns
thirty percent or more of the Company or of which the Company owns thirty
percent or more, of the equity ownership interest.
IN WITNESS WHEREOF the parties hereto have hereunto affixed their respective
hands and seals as of the day and year first above written.
CARSON CAPITAL CORPORATION JAMES STEIN
/s/ JAMES STEIN /s/ JAMES STEIN
By James Stein, President Signature
3
EXHIBIT 6.4.1
EMPLOYMENT AGREEMENT
This Agreement, entered into on the 1 day of May, 1992 (the "Agreement") by and
between VALUESTAR, INC., a California corporation with its principal office in
Alameda, California (the "Company") and JAMES STEIN, 2120 Eagle Avenue, Alameda,
California ("Stein").
1. Employment. The Company hereby employs Stein, and Stein hereby accepts
employment with the Company, upon the terms and conditions set forth herein. The
Company and Stein hereby agree that this Agreement shall hereinafter govern
their relationship and their respective rights and obligations under this
Agreement.
2. Term of Employment. This Agreement will be effective as and from the date
first above written and will, unless otherwise terminated pursuant to the terms
of this Agreement, continue in force for a term of THREE years (the "Term").
Upon expiration of the original Term, this Agreement shall be automatically
renewed for further consecutive terms of ONE year each on the same terms and
conditions contained in this Agreement, unless the Board of Directors of the
Company shall have given to Stein at least 30 days' written notice of
termination prior to the expiration of the Term or of any subsequent one-year
period, unless this Agreement has otherwise been terminated pursuant to Article
9 hereof. The Term hereof includes all extensions.
3. Duties of Stein. Stein will be employed by the Company as its Chief Executive
Officer and President and shall serve as Chairman of the board of directors, and
shall have such duties and shall serve in such capacity and in such other
capacities at the Company or any of its Affiliates as shall be designated, or to
which Stein shall be elected, from time to time, by the Board of Directors of
the Company ("Board"), and in accordance with the bylaws of the Company as in
effect from time to time.
4. Extent of Services; Right to Name, etc. (a) Stein will devote his full time
and attention exclusively to the business of the Company and its Affiliates in
the advancement of the best interests of the Company and such Affiliates. Stein
may, however, devote such time to his personal investments as shall be necessary
and which do not interfere with the performance of his duties hereunder.
(b) Stein hereby grants to the Company and its Affiliates the non-exclusive
right to use his name, picture or other likeness and biographical material
concerning him, in connection with advertising, promotion and publicizing the
Company and its activities, so long as this Agreement is in effect. Such use of
Stein's name shall be fair and not misleading or unflattering, and Stein will be
allowed to review and approve all such uses prior to actual use or
publicization.
5. Expenses. The Company will reimburse Stein (against receipt vouchers or other
evidence of payment) for all ordinary, necessary and reasonable expenses
incurred by him in the performance of his duties under this Agreement or in
performing such duties prior to execution of this Agreement.
6. Compensation. During the Term of this Agreement, Stein will receive a monthly
salary at the rate of $3,500.(degree)(degree), payable at the end of each month,
to be increased to $5,000.(degree)(degree) beginning August 1, 1992. Subject to
appropriate regulatory approvals, the base salary provided herein may be
increased annually, effective as at each anniversary date of this Agreement. The
amount of such increase will be at the discretion of the Board.
7. Incapacity of Stein. If Stein shall, at any time, be incapacitated or
prevented by physical or mental disability or any other circumstances beyond his
control from performing his duties under this Agreement for a consecutive period
of at least 6 months, the Company may, by written notice to Stein given at any
time after such 6-month period and so long as the incapacity shall continue,
discontinue payment in whole or in part of the compensation provided for herein
from such date as may be specified in the notice until the incapacity of Stein
shall cease. Otherwise, the said payment shall, notwithstanding the incapacity
of Stein, continue to be paid to Stein in accordance with the foregoing
provisions; provided, that if Stein shall receive any amount during the time of
such incapacity by reason of any disability insurance or any other insurance
plan, senior executive loss or income policy, disability policy or any other
plan or scheme of a like nature funded by the Company, the payment above
provided may be reduced by a like amount.
1
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8. Relationship of the Parties. Stein will perform his duties as an employee of
the Company and is not, nor will he be deemed to be, a joint venturer or partner
with the Company or any Affiliate thereof, and nothing in this Agreement will be
construed so as to make him a joint venturer or partner with the Company or
Affiliate.
9. Termination of Agreement. (a) The Company may terminate this Agreement prior
to the end of the Term because of (i) a material breach of a provision of this
Agreement by Stein and Stein's failure to correct such breach within 20 days
after notice thereof by the Company, (ii) conviction of Stein of an indictable
offense; (iii) absence of Stein from the performance of his duties hereunder for
any reason other than contemplated in Section 7 hereof for a period in excess of
40 working days total in any six-month period; or (iv) death of Stein. Any such
termination shall be effective only if written notice, setting forth cause and
date of notice and effective date of termination, is given to Stein not later
than 10 days following the event, transaction or occurrence giving rise to such
right of termination, or, if later, 10 days after the Company first discovers
that such event, transaction or occurrence has taken place (except in case of
his death).
(b) Stein may terminate this Agreement prior to the end of the Term upon 90
days' written notice to the Company setting forth the date of such notice and
the effective date of such termination.
(c) If the Company terminates this Agreement other than pursuant to Section 9(a)
of this Agreement, the Company shall within 30 days thereof pay to Stein, as
liquidated damages for the loss of reputation and standing in the business
community and other damages suffered by Stein as a result of the termination and
in discharge of all obligations of the Company to Stein under this Agreement,
the sum of Fifteen Thousand ($15,000.(degree)(degree)) Dollars.
(d) Upon termination of this Agreement or upon receipt of such monies as may
become payable to him pursuant to Section 9(c) hereof, Stein shall immediately
resign all offices held with the Company and all Affiliates thereof, and, except
as set forth in Section 9(c) hereof, Stein shall not be entitled to receive any
termination or severance payment or compensation for loss of office or
otherwise. If Stein fails to immediately resign as herein provided, then Stein
irrevocably appoints the Secretary of the Company in his name and on his behalf
to sign any resignation confirmation or do anything necessary or requisite to
give effect to such resignation(s). In such event, so long as Stein continues to
own at least fifteen percent (15~o) of the Company's outstanding shares and is
not in competition with the Company or its Affiliates, Stein shall be entitled
to examine, at the Company's offices, the Company's financial information in the
form available to the Board, upon at least 48 hours' notice to the Secretary of
the Company.
(e) On the effective date of termination of this Agreement, Stein will deliver
to the Company, in a reasonable state of repair, all property of the Company,
both real and personal owned, leased or bailed to Stein and used by or in the
possession of Stein.
10. Indemnification of Stein. Should the Company, during the term of this
Agreement, fail to deduct, withhold, remit or pay an amount of tax for a
taxation year as required under applicable tax legislation, and should Stein, by
reason of his position as a Director of the Company, be jointly and severally
liable by a court of a competent jurisdiction to pay that amount and any
interest or penalties relating thereto, then the Company will hold harmless and
indemnify Stein from and against all obligations, commitments, liabilities,
causes of action, claims, debts, losses, damages, expenses and demands for any
such tax and any interest or penalties relating thereto whatsoever. The Company
will, at the Company's own cost and expense, defend any such obligation,
commitment, liability, cause of action, claim, debt, loss, damage, expense or
demand for any tax and any interest or penalty and will pay to Stein the amount
of any such tax and any such interest or penalty incurred by Stein within 45
days after such tax and any interest or penalty is so incurred. Every such
indemnification shall be to the maximum extent allowable under applicable law.
In addition, Stein shall be indemnified to the full extent now or hereafter
permitted under the Company's articles of incorporation and bylaws, as they may
be amended, and as otherwise may now or hereafter be permitted under applicable
law.
11. Confidential Information. Stein will not, during or after the Term of this
Agreement, disclose to any firm or person any confidential or non-public
information, except as otherwise required by law, as necessary in the ordinary
course of the Company's business, or with prior written consent of the Company,
including but not limited to information about the Company or any Affiliate, and
the operations, products, assets, and customers
2
<PAGE>
thereof, to which Stein has gained or gains excess by reason of his position as
an employee of the Company or an Affiliate. Stein shall not use for his own
purposes, or for any purpose other than those of the Company or an Affiliate,
any information he may acquire with respect to the Company's or an Affiliate's
affairs.
12. Non-Competition Covenant. While this Agreement is in full force and effect
and has not expired, has not been terminated or otherwise been canceled or
annulled and for a period of 2 years following the termination of this
Agreement, Stein shall not, directly or indirectly, whether individually or as
controlling owner, officer, director, employee, shareholder, investor,
consultant, agent or in any other capacity whatsoever, own, manage, work for,
participate in the activities of, any person, firm, business or venture or any
part thereof in the United States of America which competes with the Company or
any Affiliate of the Company in its or their capacity as a research company,
rating company or licensor of certification marks. If the scope of this Section
(covering the entire United States of America) shall be deemed too broad or
otherwise impermissible by any court of competent jurisdiction or arbitration
panel, then the area subject to this non-competition covenant shall be deemed
limited to the Standard Metropolitan Statistical Areas in which the Company or
any Affiliate is carrying on operations.
Stein acknowledges that this covenant is valid, necessary and fundamental to the
protection of the Company and its Affiliates, and is reasonable in the
circumstances, including the fact that the Company intends for itself and its
Affiliates to operate nationwide and establish is services and trademarks and
service marks nationwide. The salary payable to Stein as provided for herein
includes the entire consideration for Stein's covenant in this Section.
13. Right to Injunctive Relief. Stein acknowledges that the Company will suffer
irreparable injury, not readily susceptible of valuation in monetary damages, if
Stein breaches any of his obligations under Sections 11 or 12 above.
Accordingly, Stein agrees that the Company will be entitled to injunctive relief
against any breach or prospective breach by Stein of Stein's obligations under
Sections 11 or 12 in any Federal or State court of competent jurisdiction
sitting in the State of California. Stein hereby submits to the jurisdiction of
such courts for the purposes of any actions or proceedings instituted by the
Company to obtain such injunctive relief, and agrees that the process may be
served on Stein by registered mail, addressed to the last address of Stein known
to the Company, or in any other manner authorized by law.
14. Notices. Any notice under this Agreement must be given in writing and must
be delivered by a messenger or courier service which retains its delivery
receipts, sent by telex, telegram or facsimile transmission ("fax") or mailed by
first class mail, postage prepaid, and addressed to the party to which notice is
to be given at such party's address indicated below or at such other address as
may be hereafter designated in writing to the other party in accordance with the
notice provisions herein contained. If notice is sent by telex, telegram or
facsimile transmission, it will be deemed to have been given at the time of
transmission, and if by delivery, at the time delivered. If notice is mailed, it
will be deemed to have been received 5 business days following the date of
mailing of the notice. Notice should be sent to
if to the Company: 2020 Challenger Drive, Suite 103
Alameda, California 94501-1017
Attention: Secretary
if to Stein: 2120 Eagle Drive
Alameda, California 94501
with a copy to: Roger Metzler, Esq.
Keck, Mahin & Cate
1 Maritime Plaza, 23rd Floor
San Francisco, California 94111
16. No Assignment. This Agreement may not be assigned in whole or in part by any
party without the written consent of the other party, which consent may not be
unreasonably withheld.
17. Miscellaneous.
3
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(a) Stein represents and warrants to the Company that there is no restriction or
limitation, by reason of any agreement or otherwise, upon Stein's right or
ability to enter into this Agreement and fulfill his obligations under this
Agreement.
(b) The provisions of Sections 10, 11, 12 and 13 will survive the termination or
expiration of this Agreement. All other obligations of the Company and Stein
will cease on termination or expiration of this Agreement, except that the
Company and Stein remain liable for obligations which accrued before termination
or expiration of this Agreement (including Stein's right to be indemnified or
paid or reimbursed for services rendered and expenses incurred before
termination or expiration of this Agreement).
(c) This Agreement sets forth the entire understanding of the parties and may
not be varied by any statement, representation, warranty or covenant not set
forth in this Agreement.
(d) This Agreement may not be modified or amended except by an instrument in
writing signed by the parties to this Agreement or, where applicable, by their
heirs, representatives, successors or permitted assigns.
(e) This Agreement will be governed by and construed in accordance with the laws
of the State of California and the parties agree that the courts of such state
shall have exclusive jurisdiction to determine any disputes arising hereunder.
(f) This Agreement shall be binding upon and enure to the benefit of the parties
hereto and their respective heirs, executors, successors, administrators and
permitted assigns.
(g) The term "Affiliate" as used herein shall mean every parent and subsidiary
corporation of the Company, and every corporation or other entity which owns
thirty percent or more of the Company or of which the Company owns thirty
percent or more, of the equity ownership interest.
IN WITNESS WHEREOF the parties hereto have hereunto affixed their respective
hands and seals as of the day and year first above written.
VALUESTAR, INC. JAMES STEIN
/s/ JAMES STEIN /s/ JAMES STEIN
By James Stein, President Signature
4
EXHIBIT 6.5
January 29,1996
PERSONAL AND CONFIDENTIAL
Mr. Benjamin Pittman
18947 Mt. Jasper Dr.
Castro Valley, CA 94552
Dear Ben:
It is our pleasure to offer you full time employment with ValueStar, Inc. on the
following terms:
Employment and Duties. Your employment shall be with ValueStar, Inc. as Finance
and Operations Manager. In this position you will be responsible for all aspects
of the business except sales and marketing. Some of your primary duties include
managing departments in finance, ratings, computer systems, human resources and
operations. Additionally, you will assist the managing director in a host of
activities including special projects. Additionally, you will be a key advisor
and senior executive involved in miscellaneous projects that bring value to
ValueStar.
In this position you shall report to and perform as directed by the managing
director or other individual if assigned. You shall devote your full time,
ability, attention, energy and skills solely and exclusively to performing your
duties on behalf of ValueStar, Inc. ValueStar, Inc. reserves the right to change
your duties or hours during the course of your employment if necessary.
2. Start Date. If you accept this offer, your full time employment with
ValueStar, Inc. shall begin on February 8, 1996.
3. Compensation. In consideration for your services to ValueStar, Inc., you
shall receive compensation of $3,333.33 per month. Compensation earned during
the course of a month shall be paid on the 1st and 16th of each month in
arrears. If the 1st or 16th of the month fall on a weekend or holiday, payment
will be made on the following business day. All compensation payable to you will
be subject to applicable state and federal withholding requirements.
Earn from 0% to 15% of base salary based on achieving agreed upon MBOs.
Incentive Stock Options (earned after one year): earn from 0 to 20,000 shares of
five year options at market price based on MBO attainment and performance
appraisal by managing director.
4. Benefits. You will be allowed to participate in the Company's health benefit
program. The Company will contribute $100 per month toward this program or other
program you are involved in.
During your first year you will earn a one week paid vacation. During your
second and third year you will earn two weeks paid vacation. During your fourth
year and thereafter you will earn three weeks paid vacation. Additionally, you
will be allowed to take six personal days off work with pay for any reason
during the course of any year. During your first year you may not use more than
three personal days during your first six months. Unused vacation days must be
used during the year following the year it is earned, or it is forfeited. Unused
personal days are not earned days and are therefore not credited to you upon
your termination for any reason.
Paid holidays follow: New Year's day, Martin Luther King day, Managing
director's day, Memorial day, Independence Day, Labor Day, Thanksgiving, the day
after Thanksgiving, and Christmas day.
5. Proprietary Rights and Confidentiality. As a condition of your employment
with ValueStar, Inc., you must execute a Proprietary Rights and Confidentiality
Agreement.
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6. Arbitration. Any dispute or controversy arising out of or in connection with
your employment, or the termination of your employment, including the
interpretation of the terms set forth in this letter, shall be settled
exclusively by arbitration in Alameda county in accordance with the then current
rules of the American Arbitration Association. The decision of the arbitrator
shall be final and binding as to all parties and each party shall bear their own
attorneys' fees.
7. At-Will Employment and Limited Term. Your employment with ValueStar, Inc. is
entirely voluntary and either you or ValueStar, Inc. may terminate the
employment relationship at any time for any reason. ValueStar, Inc.'s
relationship with you shall thus be one of "at will" employment.
The terms of this offer supersede any other terms or agreements between you and
ValueStar, Inc., and any statements made by a representative of ValueStar, Inc.
which contradict in any way the terms of this letter are unauthorized and not
binding. Modifications of the terms and conditions of your employment are valid
only if made in writing by the Managing Director of ValueStar, Inc. ValueStar's
Member Human Resource Manual will be created and will contain various other
policies and procedures which you will be expected to abide by.
If you wish to accept this offer of employment, please sign in the space
provided below. By so signing, you acknowledge that you have received no
inducement or representation other than those set forth in this letter which
cause you to accept this offer. We look forward to your joining us at ValueStar,
Inc.
Sincerely,
ValueStar, Inc. Offer accepted:
/s/ JIM STEIN /s/ BENJAMIN PITTMAN
By: Jim Stein, Managing Director Benjamin Pittman
1/29/96 2/3/96
Date Date
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EXHIBIT 6.6
OFFICE LEASE
ALMAR LTD.
This Lease between BALLENA ISLE MARINA a California Limited Partnership
("Landlord", and, VALUE STAR, INC. a California corporation, ("Tenant"), Is
dated July 14, 1995
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A", and further described at Section 2l. The Premises are located within the
Building and Project described In Section 2m. Tenant shall have the
non-exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and Invitees, to use of the Common Areas (as defined
at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a Base Rent (initial): $21,900.00 per year.
b. Base Year: The calendar year of 1995.
c. Broker(s) Landlord's:
Tenant's: N/A
d. Commencement Date: August 1, 1995.
e. Common Areas: the building lobbies, common corridors and hallways, restrooms,
garage and parking areas, stairways, elevators and other generally understood
public or common areas. Landlord shall have the right to regulate or restrict
the use of the Common Areas.
f. Expense Stop: (fill in if applicable): $ N/A
g. Expiration Date: July 31, 1998, unless otherwise sooner terminated in
accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers, San Francisco, San Jose
Average, Subgroup "All Items" (1967=100).
i. Landlord's Mailing Address: 1150 Ballena Blvd., Ste. 111, Alameda, CA 94501
Tenant's Mailing Address: 1120A Ballena Blvd., Alameda, CA 94501
j. Monthly Installments of Base Rent (initial): $1,825.00 per month.
k. Parking: See Article 37 below.
l. Premises: that portion of the Building containing approximately 1825 square
feet of Rentable Area, shown by diagonal lines on Exhibit "A", located on the
2nd floor of the Building and known as Suite 1120A.
m. Project: the building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property" located
at 1150 Ballena Blvd. Alameda, CA 94501 and further described at Exhibit "B".
The Project is known as BBOB #1.
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n. Rentable Areas: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by Landlord
and applied on a consistent basis throughout the Project.
o. Security Deposit (Article 7): $1825.00.
p. State: the State of California.
q. Tenant's First Adjustment Date (Section 5.2): the first day of the calendar
month following the Commencement Date plus 36 months.
r. Tenant's Proportionate Share: 8%. Such share is a fraction, the numerator of
which is the Rentable Area of the Premises, and the denominator of which is the
Rentable Area of the Project, as determined by Landlord from time to time. The
Project consists of 3 building(s) containing a total Rentable Area of 22,776
square feet.
s. Tenant's Use Clause (Article 8): Commercial Office.
t. Term: the period commencing on the Commencement Date and expiring at midnight
on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" - Floor Plan showing the Premises.
c. Exhibit "C" - Building Standard Work Letter.
e. Exhibit "E" - Guarantee.
Addenda:
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall be deemed to occur on the date
Landlord completes Landlord's Work as defined In Exhibit "C." If Landlord
permits Tenant to enter into possession of the Premises before the Commencement
Date, such possession shall be subject to the provisions of this Lease,
including, without limitation, the payment of Rent.
5. RENT.
5.1 Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 Adjusted Base Rent.
a. The Base Rent (and the corresponding Monthly Installments of Base Rent) set
forth at Section 2a shall be adjusted annually (the "Adjustment Date"),
commencing on Tenant's First Adjustment Date. Adjustments, if any, shall be
based upon increases (if any) in the Index. The Index in publication three (3)
months before the Commencement Date shall be the "Base Index." The Index in
publication three (3) months before each Adjustment Date "Comparison Index." As
of each Adjustment Date, the Base Rent payable during the ensuing twelve-month
period shall be determined by increasing the Initial Base Rent by a percentage
equal to the percentage increase, if any, in the Comparison Index over the Base
Index. If the Comparison Index for any Adjustment Date is equal to or less than
the Comparison Index for the preceding Adjustment Date (or the Base Index, in
the case of First Adjustment Date), the Base Rent for the ensuing twelve-month
period shall remain the amount of Base Rent payable during the preceding
twelve-month period. When the Base Rent payable as of each Adjustment Date Is
determined, Landlord shall promptly give Tenant written notice of such adjusted
Base Rent and the manner in
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which it was computed. The Base Rent as so adjusted from time to time shall be
the "Base Rent" for all purposes under this Lease.
b. If at any Adjustment Date the Index no longer exists in the form described in
this Lease, Landlord may substitute any substantially equivalent official Index
published by the Bureau of Labor Statistics or its successor. Landlord shall use
any appropriate conversion factors to accomplish such substitution. The
substitute Index shall then become the "Index" hereunder.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's
Proportionate Share of all increases in costs, expenses and obligations
attributable to the Project and its operation, all as provided below.
b. If, during any calendar year during the Term, Project Operating Costs exceed
the Project Operating Costs for the Base Year, Tenant shall pay to Landlord, In
addition to the Base Rent and all other payments due under this Lease, an amount
equal to Tenant's Proportionate Share of such excess Project Operating Costs in
accordance with the provisions of this Section 5.3b.
(1) The term "Project Operating Costs shall include all those Items described in
the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project or
their operation, including without limitation, (i) real property taxes or
assessments levied or assessed against the Building or Project, (ii) assessments
or charges levied or assessed against the Building or Project by any
redevelopment agency, (iii) any tax measured by gross rentals received from, the
leasing of the Premises, Building or Project, excluding any net income,
franchise, capital stock, estate or inheritance taxes imposed by the State or
federal government or their agencies, branches or departments; provided that if
at any time during the Term any governmental entity levies, assesses or imposes
on Landlord any (1) general or special, ad valorem or specific, excise, capital
levy or other tax, assessment, levy or charge directly on the Rent received
under this Lease or on the rent received under any other leases of space in the
Building or Project, or (2) any license fee, excise or franchise tax,
assessment, levy or charge measured by or based, in whole or in part, upon such
rent, or (3) any transfer, transaction, or similar tax, assessment, levy or
charge based directly or indirectly upon the transaction represented by this
Lease or such other leases, or (4) any occupancy, use, per capita or other tax,
assessment, levy or charge based directly or indirectly upon the use or
occupancy of the Premises or other premises within the Building or Project, then
any such taxes, assessments, levies and charges shall be deemed to be included
in the term Project Operating Costs. If at any time during the Term the assessed
valuation of, or taxes on, the Project are not based on a completed Project
having al least eighty-five percent (85%) of the Rentable Area occupied, then
the "taxes" component of Project Operating Costs shall be adjusted by Landlord
to reasonably approximate the taxes which would have been payable if the Project
were completed and at least eighty-five percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, Including without limitation the following: costs of (1)
utilities; (2) supplies; (3) insurance (including public liability, property
damage, earthquake, and fire and extended coverage insurance for the full
replacement cost of the Building and Project as required by Landlord or its
lenders for the Project; (4) services of independent contractors; (5)
compensation (including employment taxes and fringe benefits) of all persons who
perform duties connected with the operation, maintenance, repair or overhaul of
the Building or Project, and equipment, improvements and facilities located
within the Project including without limitation engineers, janitors, painters,
floor waxers, window washers, security and parking personnel and gardeners (but
excluding persons performing services not uniformly available to or performed
for substantially all Building or Project Tenants); (6) operation and
maintenance of a room for delivery and distribution of mail to tenants of the
Building or Project as required by the U.S. Postal Service (including, without
limitation, an amount equal to the fair market rental value of the mail room
premises); (7) management of the Building or Project, whether managed by
Landlord or an Independent contractor (including, without limitation, an amount
equal to the fair market value of any on-site manager's office); (8) rental
expenses for (or a reasonable depreciation allowance on) personal property used
in the maintenance, operation or repair of the Building or Project; (9) costs,
expenditures or charges (whether capitalized or not) required by any
governmental or quasi-governmental authority; (10) amortizatlon of capital
expenses (including financing costs) (i) required by a
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governmental entity for energy conservation or life safety purposes, or (ii)
made by Landlord to reduce Project Operating Costs; and (11) any other costs or
expenses incurred by Landlord under this Lease and not otherwise reimbursed by
tenants of the Project. If at any time during the Term, less than eighty-five
percent (85%) of the Rentable Area of the Project is occupied, the "operating
costs" component of Project Operating Costs shall be adjusted by Landlord to
reasonably approximate the operating costs which would have been incurred if the
Project had been at least eighty-five percent (85%) occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable by
Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter "Comparison Year", Tenant shall pay Landlord an amount
equal to Tenant's Proportionate Share of the Project Operating Costs incurred by
Landlord in the Comparison Year which exceeds the total amount of Project
Operating Costs payable by Landlord for the Base Year. This excess is referred
to as the "Excess Expenses".
(b) To provide for current payments of Excess Expense, Tenant shall at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses payable
during such Comparison Year, as estimated by Landlord from time to time. Such
payments shall be made in monthly installments, commencing on the first day of
the month following the month in which Landlord notifies Tenant of the amount it
is to pay hereunder and continuing until the first day of the month following
the month in which Landlord gives Tenant a new notice of estimated Excess
Expenses. It is the intention hereunder to estimate from time to time the amount
of the Excess Expenses for each Comparison Year and Tenant's Proportionate Share
thereof, and then to make an adjustment in the following year based on the
actual Excess Expenses incurred for that Comparison Year.
(c) On or before April 1 of each Comparison Year after the first Comparison Year
(or as soon thereafter as is practical), Landlord shall deliver to Tenant a
statement setting forth Tenant's Proportionate Share of the Excess Expenses for
the preceding Comparison Year. If Tenant's Proportionate Share of the actual
Excess Expenses for the previous Comparison Year exceeds the total of the
estimated monthly payments made by Tenant for such year, Tenant shall pay
Landlord the amount of the deficiency within ten (10) days of the receipt of the
statement. If such total exceeds Tenant's Proportionate Share of the actual
Excess Expenses for such Comparison Year, then Landlord shall credit against
Tenant's next ensuing monthly installment(s) of additional rent an amount equal
to the difference until the credit is exhausted, If a credit is due from
Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the
credit. The obligations of Tenant and Landlord to make payments required under
this Section 5.33 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due hereunder,
Tenant shall have the right after reasonable notice and at reasonable times to
inspect Landlord's accounting records at Landlord's accounting office and, if
after such inspection Tenant still disputes the amount of additional rent owed,
a certification as to the proper amount shall be made by Landlord's certified
public accountant, which certification shall be final and conclusive. Tenant
agrees to pay the cost of such certification unless it b determined that
Landlord's original statement overstated Project Operating Costs by more than
five percent (5%).
(f) If this Lease sets forth an Expense Stop at Section 2f, then during the Term
Tenant shall be liable for Tenant's Proportionate Share of any actual Project
Operating Costs which exceed the amount of the Expense Stop. Tenant shall make
current payments of such excess costs during the Term in the same manner as is
provided for payment of Excess Expenses under the applicable provisions of
Section 5.3b(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees to
pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
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5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon termination
of the restrictions, Landlord shall, to the extent it is legally permitted,
recover from Tenant the difference between the amounts received during the
period of the restrictions and the amounts Landlord would have received had
there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to be
paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
and all taxes payable by Landlord (other than net income taxes) which are not
otherwise reimbursable under this Lease, whether or not now customary or within
the contemplation of the parties, where such taxes are upon, measured by or
reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or for
Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the receipt
of the Rent hereunder; (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises; if it
becomes unlawful for Tenant to reimburse Landlord for any costs as required
under this Lease, the Base Rent shall be revised to net Landlord the same net
Rent after imposition of any tax or other charge upon Landlord as would have
been payable to Landlord but for the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant acknowledges
that the late payment of any Monthly Installment of Base Rent will cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to ten percent
(10%) of such installment. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.0 upon execution of this Lease, as security for Tenant's faithful performance
of its obligation under this Lease. Landlord and Tenant agree that the Security
Deposit may be commingled with funds of Landlord and Landlord shall have no
obligation or liability for payment of interest on such deposit. Tenant shall
not mortgage, assign, transfer or encumber the Security Deposit without the
prior written consent of Landlord and any attempt by Tenant to do so shall be
void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach If Landlord so uses
any of the Security Deposit Tenant shall within ten (10) days after written
demand therefor restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 27 hereof. Within fifteen (15) days after the Term (or any extension
thereof) has expired or Tenant has vacated the Premises, whichever shall last
occur, and provided Tenant is not then
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in default on any of its obligations hereunder, Landlord shall return the
Security Deposit to Tenant, or, if Tenant has assigned its interest under this
Lease, to the last assignee of Tenant. If Landlord sells its interest in the
Premises, Landlord may deliver this deposit to the purchaser of Landlords
Interest and thereupon be relieved of any further liability or obligation with
respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth In Tenant's Use
Clause. Tenant shall not use or occupy the Premises In violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any directions
of any governmental agencies or authorities having jurisdiction which shall, by
reason of the nature of Tenant's use or occupancy of the Premises, impose any
duty upon Tenant or Landlord with respect to the Premises or its use or
occupation. A judgment of any court of competent jurisdiction or the admission
by Tenant in any action or proceeding against Tenant that Tenant has violated
any such laws, ordinances, regulations, rules and/or directions in the use of
the Premises shall be deemed to be a conclusive determination of that fact as
between Landlord and Tenant. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any fire, extended coverage or
other insurance policy covering the Building or Project and/or property located
therein, and shall comply with all rules, orders, regulations, requirements and
recommendations of the Insurance Services Office or any other organization
performing a similar function. Tenant shall promptly upon demand reimburse
Landlord for any additional premium charged for such policy by reason of
Tenant's failure to comply with the provisions of this Article. Tenant shall not
do or permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or Project or injure or annoy them or use or allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment, and heating, ventilation and air
conditioning (HVAC) as required in Landlord's judgment for the comfortable use
and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant and Tenant shall pay Landlord's charges therefor on demand.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall the Rent
be abated by reason of (i) the installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing services,
(ii) failure to furnish or delay in furnishing any such services where such
failure or delay is caused by accident or any condition or event beyond the
reasonable control of Landlord, or by the making of necessary repairs or
improvements to the Premises, Building or Project, or (iii) the limitation,
curtailment or rationing of, or restrictions on, use of water, electricity, gas
or any other form of energy serving the Premises, Building or Project. Landlord
shall not be liable under any circumstances for a loss of or injury to property
or business, however occurring, through or in connection with or incidental to
failure to furnish any such services. If Tenant uses heat generating machines or
equipment in the Premises which affect the temperature otherwise maintained by
the HVAC system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
Installation, operation and maintenance thereof, shall be paid by Tenant to
Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any apparatus or
device in the Premises, including without limitation, electronic data processing
machines, punch card machines or machines using in excess of 120 volts, which
consumes more electricity than is usually furnished or supplied for the use of
premises as general office space, as determined by Landlord. Tenant shall not
connect any apparatus with electric current except through existing electrical
outlets in the Premises. Tenant shall not consume water or electric current In
excess of that
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usually furnished or supplied for the use of premises as general office space
(as determined by Landlord) without first procuring the written consent of
Landlord, which Landlord may refuse, and in the event of consent, Landlord may
have installed a water meter or electrical current meter in the Premises to
measure the amount of water or electric current consumed. The cost of any such
meter and of its installation, maintenance and repair shall be paid for by the
Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such
water and electric current consumed as shown by said meters, at the rates
charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the event
utilities are separately metered, Tenant shall pay promptly upon demand for all
utilities consumed at utility rates charged by the local public utility plus any
additional expense incurred by Landlord in keeping account of the utilities so
consumed. Tenant shall be responsible for the maintenance and repair of any such
meters at Its sole cost.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave Landlord
notice on or before the Commencement Date. No promise of Landlord to alter,
remodel, repair or improve the Premises, the Building or the Project and no
representation, express or implied, respecting any matter or thing relating to
the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work to the
Premises as described in Exhibit "C." Landlord shall maintain in good order,
condition and repair the Building and all other portions of the Premises not the
obligation of Tenant or of any other tenant in the Building.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as described In Exhibit
"C."
(2) Tenant at Tenant's sole expense shall except for services furnished by
Landlord pursuant to Article 9 hereof, maintain the Premises in good order,
condition and repair, including the interior surfaces of the ceilings, walls and
floors, all doors, all interior windows, all plumbing, pipes and fixtures,
electrical wiring, switches and fixtures, Building Standard furnishings and
special items and equipment installed by or at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and to the
Premises, Building and Project and the facilities and systems thereof, the need
for which arises out of (i) Tenant's use or occupancy of the Premises, (ii) the
installation, removal use or operation of Tenant's Property (as defined in
Article 13) in the Premises, (iii) the moving of Tenant's Property into or out
of the Building, or (iv) the act, omission, misuse or negligence of Tenant, its
agents, contractors, employees or invitees. (4) If Tenant falls to maintain the
Premises in good order, condition and repair, Landlord shall give Tenant notice
to do such acts as are reasonably required to so maintain the Premises. If
Tenant falls to promptly commence such work and diligently prosecute it to
completion, then Landlord shall have the right to do such acts and expend such
funds at the expense of Tenant as are reasonably required to perform such work.
Any amount so expended by Landlord shall be paid by Tenant promptly after demand
with interest at the prime commercial rate then being charged by Bank of America
NT & SA plus two percent (2%) per annum, from the date of such work, but not to
exceed the maximum rate then allowed by law. Landlord shall have no liability to
Tenant for any damage, inconvenience, or interference with the use of the
Premises by Tenant as a result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts required to
comply with all applicable laws, ordinances, and rules of any public authority
relating to their respective maintenance obligations as set forth herein.
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d. Waiver by Tenant. Tenant expressly waives the benefits of any statute now or
hereafter In effect which would otherwise afford the Tenant the right to make
repairs at Landlord's expense or to terminate this Lease because of Landlord's
failure to keep the Premises in good order, condition and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any floor of
the Premises which exceeds the load per square foot which such floor was
designed to carry, as determined by Landlord or Landlord's structural engineer.
The cost of any such determination made by Landlord's structural engineer shall
be paid for by Tenant upon demand. Tenant shall not install business machines or
mechanical equipment which cause noise or vibration to such a degree as to be
objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall have no
liability to Tenant nor shall Tenant's obligations under this Lease be reduced
or abated in any manner whatsoever by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord's making any repairs or
changes which Landlord is required or permitted by this Lease or by any other
tenant's lease or required by law to make in or to any portion of the Project,
Building or the Premises. Landlord shall nevertheless use reasonable efforts to
minimize any interference with Tenant's business in the Premises. Tenant shall
give Landlord prompt notice of any damage to or defective condition in any part
or appurtenance of the Building's mechanical, electrical plumbing, HVAC or other
systems serving, located in, or passing through the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical electrical,
plumbing, HVAC or other systems serving, located in, or passing through the
Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall return
the Premises to Landlord clean and In the same condition as on the date Tenant
took possession, except for normal wear and tear. Any damage to the Premises,
including any structural damage, resulting from Tenant's use or from the removal
of Tenant's fixtures, furnishings and equipment pursuant to Section 13b shall be
repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or Improvements to the
Premises without obtaining the prior written consent of Landlord. Landlord's
consent may be conditioned on Tenant's removing any such additions, alterations
or improvements upon the expiration of the Term and restoring the Premises to
the same condition as on the date Tenant took possession. All work with respect
to any addition, alteration or improvement shall be done in a good and
workmanlike manner by properly qualified and licensed personnel approved by
Landlord, and such work shall be diligently prosecuted to completion. Landlord
may, at Landlord's option, require that any such work be performed by Landlord's
contractor, in which case the cost of such work shall be paid for before
commencement of the work. Tenant shall pay to Landlord upon completion of any
such work by Landlord's contractor, an administrative fee of fifteen percent
(15%) of the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section 12a, and shall keep the Premises, Building and Project free and clear of
liens of any kind. Tenant shall indemnify, defend against and keep Landlord free
and harmless from all liability, loss, damage, costs, attorneys' fees and any
other expense incurred on account of claims by any person performing work or
furnishing materials or supplies for Tenant or any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or improvements
which are or become the property of Landlord under this Lease, free and clear of
all attachment or judgment liens. Before the actual commencement of any work by
which a claim or lien may be filed, Tenant shall give Landlord notice of the
intended commencement date a sufficient time before that date to enable Landlord
to post notices of non-responsibility or any other notices which Landlord deems
necessary for the proper protection of Landlord's interest in the Premises,
Building or the Project, and Landlord shall have the right to enter the Premises
and post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount equal to
at least one and one-half (1 1/2) times the total estimated cost of any
additions, alterations or improvements to be made in or to the Premises, to
protect Landlord against any liability for mechanic's and materialmen's liens
and to insure timely completion of the work. Nothing contained in this
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Section 12c shall relieve Tenant of its obligation under Section 12b to keep the
Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section 12a, all
additions, alterations and improvements made to the Premises shall become the
property of Landlord and be surrendered with the Premises upon the expiration of
the Term; provided, however, Tenant's equipment, machinery and trade fixtures
which can be removed without damage to the Premises shall remain the property of
Tenant and may be removed, subject to the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANTS PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or built
into the Premises at the commencement of or during the Term, whether or not by
or at the expense of Tenant "Leasehold Improvements" shall be and remain a part
of the Premises, shall be the property of Landlord and shall not be removed by
Tenant, except as expressly provided in Section 13b.
b. All movable partitions, business and trade fixtures, machinery and equipment,
communications equipment and office equipment located in the Premises and
acquired by or for the account of Tenant, without expense to Landlord, which can
be removed without structural damage to the Building, and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Premises (collectively "Tenant's Property") shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of Tenant's Property is removed, Tenant shall
promptly repair any damage to the Premises or to the Building resulting from
such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make Landlord shall not be responsible for any
violation of said rules and regulations by other tenants or occupants of the
Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenants use or
possession of the Premises:
a. To name the Building and Project and to change the name or street address of
the Building or Project;
b. To install and maintain ail signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenants vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant, to
Inspect the Premises, and to show the Premises to any prospective purchaser or
mortgagee of the Project, or to any assignee of any mortgagee on the Project, or
to others having an interest in the Project or Landlord, and during the last six
months of the Term, to show the Premises to prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building including
without limitation, checking, calibrating, adjusting or balancing controls and
other parts of the HVAC system), and to take all steps as may be necessary or
desirable for the safety, protection, maintenance or preservation of the
Premises or the Building or Landlords interest therein, or as may be necessary
or desirable for the operation or improvement of the Building or in order to
comply with laws, orders or requirements of governmental or other authority.
Landlord agrees to use its best efforts (except in an emergency to minimize
interference with Tenant's business in the Premises in the course of any such
entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign or
hypothecate this Lease or any interest herein or sublet the Premises or any part
thereof, or permit the use of the Premises by any party other than Tenant. Any
of the foregoing acts without such consent shall be void and shall at the option
of Landlord, terminate this
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Lease. This Lease shall not, nor shall any interest of Tenant herein, be
assignable by operation of law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to assign
this Lease or sublet all or any part of the Premises, Tenant shall give notice
to Landlord setting forth the terms and provisions of the proposed assignment or
sublease, and the identity of the proposed assignee or subtenant. Tenant shall
promptly supply Landlord with such information concerning the business
background and financial condition of such proposed assignee or subtenant as
Landlord may reasonably request. Landlord shall have the option, exercisable by
notice given to Tenant within twenty (20) days after Tenant's notice s given,
either to sublet such space from Tenant at the rental and on the other terms set
forth in this Lease for the term set forth in Tenant's notice or, in the case of
an assignment, to terminate this Lease. If Landlord does not exercise such
option, Tenant may assign the Lease or sublet such space to such proposed
assignee or subtenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth in the
notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or sublessee shall
take possession of the Premises until an executed counterpart of such assignment
or sublease has been delivered to Landlord;
(4) No assignee or sublessee shall have a further right to assign or sublet
except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a result of
such assignment or subletting, however denominated under the assignment or
sublease, which exceed in the aggregate, (i) the total sums which Tenant is
obligated to pay Landlord under this Lease (prorated to reflect obligations
allocable to any portion of the Premises subleased), plus (ii) any real estate
brokerage commissions or fees payable in connection with such assignment or
subletting shall be paid to Landlord as additional rent under this Lease without
affecting or reducing any other obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may assign
this Lease or sublet the Premises or any portion thereof, without Landlord's
consent and without extending any recapture or termination option to Landlord,
to any corporation which controls, is controlled by or is under common control
with Tenant, or to any corporation resulting from a merger or consolidation with
Tenant, or to any person or entity which acquires all the assets of Tenant's
business as a going concern, provided that (i) the assignee or sublessee
assumes, in full the obligations of Tenant under this Lease, (ii) Tenant remains
fully liable under this Lease, and (iii) the use of the Premises under Article 8
remains unchanged.
d. No subletting or assignment shall release Tenant of Tenant's obligations
under this Lease or alter the primary liability of Tenant to pay the Rent and to
perform all other obligations to be performed by Tenant hereunder. The
acceptance of Rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by an assignee or subtenant of Tenant or any
successor of Tenant in the performance of any of the terms hereof, Landlord may
proceed directly against Tenant without the necessity of exhausting remedies
against such assignee, subtenant or successor. Landlord may consent to
subsequent assignments of the Lease or subletting or amendments or modifications
to the Lease with assignees of Tenant, without notifying Tenant, or any
successor of Tenant, and without obtaining its or their consent thereto and any
such actions shall not relieve Tenant of liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the consent
of Landlord to any assignment or subletting or if Tenant requests the consent of
Landlord for any act that Tenant proposes to do, then Tenant shall, upon demand,
pay Landlord an administrative fee of One Hundred Fifty and No/100ths Dollars
($150.00) plus any attorneys' fees reasonably incurred by Landlord in connection
with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (110%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term. Such
monthly rent shall be payable in advance on or before the first day of each
month. If either party desires to terminate such month to month tenancy, it
shall give the other party not less than thirty (30) days advance written notice
of the date of termination.
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18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the Expiration
Date, In broom-clean condition and In as good condition as when Tenant took
possession, except for (i) reasonable wear and tear, (ii) loss by fire or other
casually, and (iii) loss by condemnation. Tenant shall on Landlords request,
remove Tenants Property on or before the Expiration Date and promptly repair all
damage to the Premises or Building caused by such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by process
of law or otherwise, any of Tenants Property left on the Premises shall be
deemed to be abandoned, and, at Landlord's option, title shall pass to Landlord
under this Lease as by a bill of sale. If Landlord elects to remove all or any
part to such Tenants Property, the cost of removal including repairing any
damage to the Premises or Building caused by such removal, shall be paid by
Tenant. On the Expiration Date Tenant shall surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenants
occupancy is damaged by fire, earthquake, act of God, the elements of other
casualty, Landlord shall subject to the provisions of this Article, promptly
repair the damage, if such repairs can, in Landlord's opinion, be completed
within (90) ninety days. If Landlord determines that repairs can be completed
within ninety (90) days, this Lease shall remain in full force and effect,
except that if such damage is not the result of the negligence or willful
misconduct of Tenant or Tenants agents, employees, contractors, licensees or
invitees, the Base Rent shall be abated to the extent Tenant's use of the
Premises is impaired, commencing with the date of damage and continuing until
completion of the repairs required of Landlord under Section 19d.
b. If in the Landlord's opinion, such repairs to the Premises or potion of the
Building necessary for Tenant's occupancy cannot be completed within ninety (90)
days, Landlord may elect, upon notice to Tenant given within thirty (30) days
after the date of such fire or other casualty, to repair such damage, in which
event this Lease shall continue in full force and effect, but the Base Rent
shall be partially abated as provided in Section 19a. If Landlord does not so
elect to make such repairs, this Lease shall terminate as of the date of such
fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed or
damaged to the extent that in Landlord's opinion repair thereof cannot be
completed within ninety (90) days, Landlord may elect upon notice to Tenant
given within thirty (30) days after the date of such fire or other casualty, to
repair such damage, in which event this Lease shall continue in full force and
effect, but the Base Rent shall be partially abated as provided in Section 19a.
If Landlord does not elect to make such repairs, this Lease shall terminate as
of the date of such fire or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall repair
at its cost any injury or damage to the Building and Building Standard Work in
the Premises. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements and
Tenant's Property. Landlord shall not be liable for any loss of business,
inconvenience or annoyance arising from any repair or restoration of any portion
of the Premises, Building or Project as a result of any damage from fire or
other casualty.
e. This Lease shall be considered an express agreement governing any case of
damage to or destruction of the Premises, Building or Project by fire or other
casualty, and any present or future law which purports to govern the rights of
Landlord and Tenant in such circumstances in the absence of express agreement,
shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by condemnation or
in any other manner for any public or quasi-public purpose, this Lease shall
terminate as of the date of such taking and Rent shall be prorated to such date.
If less than the whole of the Building or Premises is so taken, this Lease shall
be unaffected by such taking, provided that (i) Tenant shall have the right to
terminate this Lease by notice to Landlord given within ninety (90) days after
the date of such taking if twenty percent (20%) or more of the Premises is taken
and the remaining area of the Premises is not reasonably sufficient for Tenant
to continue operation of its business, and (ii) Landlord shall have the right to
terminate this Lease by notice to Tenant given within ninety (90) days after the
date of such taking. If either Landlord or Tenant so elects to terminate this
Lease, the Lease shall terminate on the thirtieth (30th) day after either such
notice. The Rent shall be prorated to the date of termination. If this Lease
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continues in force upon such partial taking, the Base Rent and Tenant's
Proportionate Share shall be equitably adjusted according to the remaining
Rentable Area of the Premises and Project.
b. In the event of any taking, partial or whole, all of the proceeds of any
award, judgment or settlement payable by the condemnation authority shall be the
exclusive property of Landlord, and Tenant hereby assigns to Landlord all of its
right, title and interest in any award, judgment or settlement from the
condemning authority. Tenant, however, shall have the right, to the extent that
Landlord's award is not reduced or prejudiced, to claim from the condemning
authority (but not from Landlord) such compensation as may be recoverable by
Tenant in its own right for relocation expenses and damage to Tenants personal
property.
c. In the event of a partial taking of the Premises which does not result in a
termination of this Lease, Landlord shall restore the remaining portion of the
Premises as nearly as practicable to its condition prior to the condemnation or
taking, but only to the extent of Building Standard Work. Tenant shall be
responsible at its sole cost and expense for the repair, restoration and
replacement of any other Leasehold Improvements and Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from liability
and claims of any kind for loss or damage to property of Tenant or any other
person, or for any injury to or death of any person, arising out of: (1)
Tenant's use and occupancy of the Premises, or any work, activity or other
things allowed or suffered by Tenant to be done in, on or about the Premises;
(2) any breach or default by Tenant of any of Tenant's obligations under this
Lease; or (3) any negligent or otherwise tortuous act or omission of Tenant, its
agents, employees, invitees or contractors. Tenant shall at Tenants expense, and
by counsel satisfactory to Landlord, defend Landlord in any action or proceeding
arising from any such claim and shall indemnify Landlord against all costs,
attorneys' fees, expert witness fees and any other expenses incurred in such
action or proceeding. As a material part of the consideration for Landlord's
execution of this Lease, Tenant hereby assumes all risk of damage or injury to
any person or property in, on or about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be sustained by
the person or property of Tenant, its employees, invitees or customers, or any
other person in or about the Premises, caused by or resulting from fire, steam,
electricity, gas, water or rain which may leak or flow from or into any part of
the Premises, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, whether such damage or injury results from conditions arising upon the
Premises or upon other portions of the Building or Project or from other
sources. Landlord shall not be liable for any damages arising from any act or
omission of any other tenant of the Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be issued by
responsible insurance companies acceptable to Landlord and Landlords lender and
qualified to do business in the State. Each policy shall name Landlord, and at
Landlords request any mortgagee of Landlord, as an additional insured, as their
respective interests may appear. Each policy shall contain (i) a cross-liability
endorsement, (ii) a provision that such policy and the coverage evidenced
thereby shall be primary and non-contributing with respect to any policies
carried by Landlord and that any coverage carried by Landlord shall be excess
insurance, and (iii) a waiver by the insurer of any right of subrogation against
Landlord, its agents, employees and representatives, which arises or might arise
by reason of any payment under such policy or by reason of any act or omission
of Landlord, its agents, employees or representatives. A copy of each paid up
policy (authenticated by the insurer) or certificate of the insurer evidencing
the existence and amount of each insurance policy required hereunder shall be
delivered to Landlord before the date Tenant is first given the right of
possession of the Premises, and thereafter within thirty (30) days after any
demand by Landlord therefor. Landlord may, at any time and from time to time,
inspect and/or copy any insurance policies required to be maintained by Tenant
hereunder. No such policy shall be cancelable except after twenty (20) days
written notice to Landlord and Landlord's lender. Tenant shall furnish Landlord
with renewals or binders of any such policy at least ten (10) days prior to the
expiration thereof. Tenant agrees that if Tenant does not take out and maintain
such insurance, Landlord may (but shall not be required to) procure said
insurance on Tenant's behalf and charge the Tenant the premiums together with a
twenty-five percent (25%) handling charge, payable upon demand. Tenant shall
have the right to provide such insurance coverage pursuant to blanket policies
obtained by the Tenant,
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provided such blanket policies expressly afford coverage to the Premises,
Landlord, Landlord's mortgagee and Tenant as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any purpose
and continuing until expiration of the Term, Tenant shall procure, pay for and
maintain in effect policies of casualty insurance covering (i) all Leasehold
Improvements (including any alterations, additions or improvements as may be
made by Tenant pursuant to the provisions of Article 12 hereof), and (ii) trade
fixtures, merchandise and other personal property from time to time in, on or
about the Premises, in an amount not less than one hundred percent (100%) of
their actual replacement cost from time to time, providing protection against
any peril included within the classification "Fire and Extended Coverage"
together with insurance against sprinkler damage, vandalism and malicious
mischief. The proceeds of such insurance shall be used for the repair or
replacement of the property so insured. Upon termination of this Lease following
a casualty as set forth herein, the proceeds under (i) shall be paid to
Landlord, and the proceeds under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any purpose
and continuing until expiration of the Term, Tenant shall procure, pay for and
maintain in effect workers' compensation insurance as required by law and
comprehensive public liability and property damage insurance with respect to the
construction of improvements on the Premises, the use, operation or condition of
the Premises and the operations of Tenant in, on or about the Premises,
providing personal injury and broad form property damage coverage for not less
than One Million Dollars ($1,000,000.00) combined single limit for bodily
injury, death and property damage liability.
d. Not less than every three (3) years during the Term, Landlord and Tenant
shall mutually agree to increases in all of Tenant's insurance policy limits for
all insurance to be carried by Tenant as set forth in this Article. In the event
Landlord and Tenant cannot mutually agree upon the amounts of said increases,
then Tenant agrees that all insurance policy ;limits as set forth in this
Article shall be adjusted for increases in the cost of living in the same manner
as is set forth in Section 5 hereof for the adjustment of the Base Rent.
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing,
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust, or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However,
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
Lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from the Landlord, Tenant shall
execute and deliver to Landlord or Landlord's designee, a written statement
certifying (a) that this Lease is unmodified and in full force and effect, or is
in full force and effect as modified and stating the modifications; (b) the
amount of Base Rent and the date to which Base Rent and additional rent have
been paid in advance; (c) the amount of any security deposited with Landlord;
and (d) that Landlord is not in default hereunder or, if Landlord is claimed to
be in default, stating the nature of any claimed default. Any such statement may
be relied upon by a purchaser, assignee or lender. Tenant's failure to
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execute and deliver such statement within the time required shall at Landlord's
election be a default under this Lease and shall also be conclusive upon Tenant
that: (1) this Lease is in full force and effect and has not been modified
except as represented by Landlord; (2) there are no uncured defaults in
Landlord's performance and that Tenant has no right of offset, counter-claim or
deduction against Rent; and (3) not more than one month's Rent has been paid in
advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring alter
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord
may transfer the security deposit or prepaid Rent to Landlord's successor and
upon such transfer, Landlord shall be relieved of any and all further liability
with respect thereto.
27. DEFAULT.
27.1 Tenant's Default. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be paid by
Tenant under this Lease and such failure continues for five (5) days after such
payment is due and payable; or
c. If Tenant falls to promptly and fully perform any other covenant, condition
or agreement contained in this Lease and such failure continues for thirty (30)
days after written notice thereof from Landlord to Tenant: or
d. If a writ of attachment or execution is levied on this Lease or on any of
Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors or provides
for an arrangement, composition, extension or adjustment with its creditors; or
f. If Tenant files a voluntary petition for relief or if a petition against
Tenant in a proceeding under the federal bankruptcy laws or other insolvency
laws is filed and not withdrawn or dismissed within forty-five (45) days
thereafter, or if under the provisions of any law providing for reorganization
or winding up of corporations, any court of competent jurisdiction assumes
jurisdiction, custody or control of Tenant or any substantial part of its
property and such jurisdiction, custody or control remains n force
unrelinquished, unstayed or unterminated for a period of forty-five (45) days;
or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises or
Tenant's Property (or has the authority to do so) for the purpose of enforcing a
lien against the Premises or Tenant's Property; or
h. Tenant is a partnership or consists of more than one (1) person or entity, if
any partner of the partnership or other person or entity is involved in any of
the acts or events described in subparagraphs d through g above.
2. Remedies. In the event of Tenant's default hereunder, then in addition to any
other rights or remedies Landlord may have under any law, Landlord shall have
the right, at Landlord's option, without further notice or demand of any kind to
do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises and
reenter the Premises and take possession thereof, and Tenant shall have no
further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant, and collect any unpaid Rent or other charges which have or
thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and thereafter
elect to terminate this Lease and Tenant's right to possession of the Premises.
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by
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the Landlord from such reletting shall be applied as follows: first, to the
payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord; second to the payment of any costs of such reletting; third, to the
payment of the cost of any alterations or repairs to the Premises; fourth to the
payment of Rent due and unpaid hereunder; and the balance, if any, shall be held
by Landlord and applied in payment of future Rent as it becomes due. If that
portion of rent received from the reletting which is applied against the Rent
due hereunder is less than the amount of the Rent due, Tenant shall pay the
deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall
be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
determined, any costs and expenses incurred by Landlord in connection with such
reletting or in making alterations and repairs to the Premises, which are not
covered by the rent received from the reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent which had
been earned at the time of termination plus
2. Rent Prior to Award. The worth at the time of the award of the amount by
which the unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the amount by which
the unpaid Rent for the balance of the Term after the time of award exceeds the
amount of the rental loss that Tenant proves could be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate Landlord
for all detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom including, but not limited to; any costs or expenses
(including attorneys' fees) incurred by Landlord in (a) retaking possession of
the Premises, (b) maintaining the Premises after Tenants default, (c) preparing
the Premises for reletting to a new tenant, including any repairs or
alterations, and (d) reletting the Premises, including brokers commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition or
agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence to
cure within that thirty (30) day period then Landlord shall be liable to Tenant
for any damages sustained by Tenant as a result of Landlord's breach: provided,
however, it is expressly understood and agreed that if Tenant obtains a money
judgment against Landlord resulting from any default or other claim arising
under this Lease, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Premises, Building or Project, and no other
real, personal or mixed property of Landlord (or of any of the partners which
comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgment. If, after notice to Landlord of default, Landlord (or any
first mortgagee or first deed of trust beneficiary of Landlord) fails to cure
the default as provided herein, then Tenant shall have the right to cure that
default at Landlord's expense. Tenant shall not have the right to terminate this
Lease or to withhold, reduce or offset any amount against any payments of Rent
or any other charges due and payable under this Lease except as otherwise
specifically provided herein.
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28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except Broker and
Sales Agent. Tenant shall Indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent in connection with this Lease or its negotiation by reason of any act
of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mall postage prepaid, and
addressed as follows: (a) If to Landlord, to Landlord's Mailing Address and to
the Building Manager, and (b) if to Tenant, to Tenant's Mailing Address:
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time
to time by notice to the other designate another place for receipt of future
notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal state or local government controls, rules,
regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
31. RELOCATION OF PREMISES.
(deleted)
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now In force or which may hereafter be enacted
or promulgated. Tenant shall at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS.
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If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant shall
pay Landlord all costs of such performance promptly upon receipt of a bill
therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right to
remove any signs or other matter, installed without Landlords permission,
without being liable to Tenant by reason of such removal and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control unless otherwise provided In the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold consent to changes or amendments to this Lease requested by the lender
on Landlord's interest, so long as these changes do not alter the basic business
terms of this Lease or otherwise materially diminish any rights or materially
increase any obligations of the party from whom consent to such change or
amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance with
the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall have no claim, and hereby waives the right to any claim against
Landlord for money damages by reason of any refusal, withholding or delaying by
Landlord of any consent, approval or statement of satisfaction, and in such
event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, etc.
h. Corporate Authority. If Tenant is a corporation, each individual signing this
Lease on behalf of Tenant represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of the corporation, and that this Lease
is binding on Tenant in accordance with its terms. Tenant shall, at Landlords
request, deliver a certified copy or a resolution of its board of directors
authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. Execution of Lease: No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
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of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord notwithstanding any time interval until Landlord has in fact
signed and delivered this Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order to
induce Landlord to enter into this Lease Tenant agrees that it shall promptly
furnish Landlord, from time to time, upon Landlord's written request, with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects. Landlord shall keep records confidential.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a short form memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction that
any provision of this Lease is invalid shall not affect the validity of any
other provision, and any provision so determined to be invalid shall, to the
extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default. The receipt and acceptance by Landlord of
delinquent Rent shall not constitute a waiver of any other default; it shall
constitute only a waiver of timely payment for the particular Rent payment
involved.
No act or conduct of Landlord including without limitation, the acceptance of
keys to the Premises shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance or the surrender of the Premises
and accomplish a termination of the Lease.
Landlord s consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below.
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Landlord: BALLENA ISLE MARINA Tenant: VALUESTAR, INC.
By: Almar Ltd. By: /s/ JIM STEIN
Title: General Partner Title: President
By: /s/
Title: /s/
19
EXHIBIT 6.7
VALUESTAR CORPORATION
1996 STOCK OPTION PLAN
(as amended and restated on March 20, 1997)
1. Purpose of the Plan.
The purpose of this 1996 Stock Option Plan ("Plan") of ValueStar Corporation, a
Colorado corporation ("Company") is to provide the Company with a means of
attracting and retaining the services of selected employees, directors and
consultants. The Plan is intended to advance the interests of the Company by
affording to selected employees, directors and consultants, upon whose skill,
judgment, initiative and efforts the Company is largely dependent for the
successful conduct of its business, an opportunity for investment in the Company
and the incentives inherent in stock ownership in the Company. For purposes of
this Plan, the term Company shall include subsidiaries, if any, of the Company.
2. Legal Compliance.
It is the intent of the Plan that all options granted under it ("Options") shall
be non-qualified stock options ("NQOs"); provided, however, that any Options
granted prior to the March 20, 1997 amendment and restatement intended as
"Incentive Stock Options" ("ISOs"), as such term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended ("Code"), shall be NQOs and shall
not become void for reason of lack of shareholder approval within one year of
plan adoption. An Option shall be identified as an NQO in writing in the
document or documents evidencing the grant of the Option. It is the further
intent of the Plan that it conform in all respects with the requirements of Rule
16b-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended ("Rule 16b-3"). To the extent that any aspect of the
Plan or its administration shall at any time be viewed as inconsistent with the
requirements of Rule 16b-3 or, the Code, as the same shall be amended from time
to time, such aspect shall be deemed to be modified, deleted, or otherwise
changed as necessary to ensure continued compliance with such provisions.
Failure to conform with the requirements of Rule 16b-3 or the Code, shall not
invalidate this Plan or any options granted pursuant hereto.
3. Administration of the Plan.
3.1 Plan Committee.
The Plan shall be administered by a committee ("Committee"). The members of the
Committee shall be appointed from time to time by the Board of Directors of the
Company ("Board") and shall consist of not less than two (2) directors. All of
the members of the Committee shall be disinterested persons. The term
"disinterested person," as used in this Plan, shall mean a director: (i) who was
not during the one (1) year prior to service as an administrator of the Plan
granted or awarded equity securities pursuant to the Plan or any other plan of
the Company or any of its Affiliates entitling the participants therein to
acquire equity securities of the Company or any of its Affiliates except as
permitted by Rule 16b-3(c)(2)(i) ("16b-3(c)(2)(i)") promulgated under the
Securities Exchange Act of 1934, as amended; or (ii) who is otherwise considered
to be a "disinterested person" in accordance with Rule 16b-3(c)(2)(i), or any
other applicable rules, regulations or interpretations of the Securities and
Exchange Commission. Any such persons shall otherwise comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act. Should the Board
not appoint a Committee or for any other reason should a Committee not be
properly appointed or in existence, then the entire Board of Directors shall
constitute the Committee for the purposes of administration of this Plan.
3.2 Grants of Options by the Committee.
In accordance with the provisions of the Plan, the Committee, by resolution,
shall select those eligible persons to whom Options shall be granted
("Optionees"); shall determine the time or times at which each Option shall be
granted, and the number of shares to be subject to each Option; and shall fix
the time and manner in which the Option may be exercised, the Option exercise
price, and the Option period. The Committee shall determine the form of option
agreement to evidence the foregoing terms and conditions of each Option, which
need not be identical, in the form provided for in Section 7. Such option
agreement may include such other provisions as the Committee may deem necessary
or desirable consistent with the Plan, the Code and Rule 16b-3.
All options granted under this Plan are subject to, and may not be exercised
before, the approval of this Plan by the holders of a majority of the Company's
outstanding shares and if such approval is not obtained prior to expiration of
an Option, the Option granted shall be void.
3.3 Committee Procedures.
The Committee from time to time may adopt such rules and regulations for
carrying out the purposes of the Plan as it may deem proper and in the best
interests of the Company. The Committee shall keep minutes of its meetings and
records of its actions. A majority of the members of the Committee shall
constitute a quorum for the transaction of any business by the Committee. The
Committee may act at any time by an affirmative vote of a majority of those
members voting. Such vote
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may be taken at a meeting (which may be conducted in person or by any
telecommunication medium) or by written consent of Committee members without a
meeting.
3.4 Finality of Committee Action.
The Committee shall resolve all questions arising under the Plan and option
agreements entered into pursuant to the Plan. Each determination,
interpretation, or other action made or taken by the Committee shall be final
and conclusive and binding on all persons, including, without limitation, the
Company, its shareholders, the Committee and each of the members of the
Committee, and the directors, officers, and employees of the Company, including
Optionees and their respective successors in interest.
3.5 Non-Liability of Committee Members and Others.
No Committee member, Board member or employee, consultant or advisor of the
Company shall be liable for any action or determination made by him in good
faith with respect to the Plan or any Option granted under it.
4. Board Power to Amend, Suspend, or Terminate the Plan.
The Board may, from time to time, make such changes in or additions to the Plan
as it may deem proper and in the best interests of the Company and its
shareholders. The Board may also suspend or terminate the Plan at any time,
without notice, and in its sole discretion.
Notwithstanding the foregoing, no such change, addition, suspension, or
termination by the Board shall (i) materially impair any option previously
granted under the Plan without the express written consent of the optionee; or
(ii) materially increase the number of shares subject to the Plan, materially
increase the benefits accruing to options under the Plan, materially modify the
requirements as to eligibility to participate in the Plan or alter the method of
determining the option exercise price described in Section 8, without
shareholder approval.
5. Shares Subject to the Plan.
For purposes of the Plan, the Committee is authorized to grant Options to
purchase not more than three hundred thousand (300,000) shares of the Company's
common stock, $.00025 par value per share ("Common Stock"), either treasury or
authorized but unissued shares, or the number and kind of shares of stock or
other securities which, in accordance with Section 13, shall be substituted for
such shares of Common Stock or to which such shares shall be adjusted. The
Committee is authorized to grant Options under the Plan with respect to such
shares. Any or all unsold shares subject to an Option which for any reason
expires or otherwise terminates (excluding shares returned to the Company in
payment of the exercise price for additional shares) may again be made subject
to grant under the Plan.
6. Optionees.
Options may be granted to employees (including officers) and directors of and
consultants to the Company. In no event, however, may a member of the Committee
be granted an Option under the Plan. Any Optionee may hold more than one option
to purchase Common Stock, whether such option is an Option held pursuant to the
Plan or otherwise.
7. Grants of Options.
The Committee shall have the sole discretion to grant Options under the Plan.
The terms and conditions of Options granted under the Plan may differ from one
another as the Committee, in its absolute discretion, shall determine as long as
all Options granted under the Plan satisfy the requirements of the Plan. Upon
determination by the Committee that an Option is to be granted to an Optionee, a
written option agreement evidencing such Option shall be given to the Optionee,
specifying the number of shares subject to the Option, the Option exercise
price, that the Option is an NQO, and the other individual terms and conditions
of such Option. Such option agreement may incorporate generally applicable
provisions from the Plan, a copy of which shall be provided to all Optionees at
the time of their initial grants under the Plan. The Option shall be deemed
granted as of the date specified in the grant resolution of the Committee, and
the option agreement shall be dated as of the date of such resolution.
8. Option Exercise Price.
The price per share to be paid by the Optionee at the time an NQO is exercised
shall not be less than eighty-five percent (85%) of the Fair Market Value on the
date on which the NQO is granted, as determined by the Committee.
For purposes of the Plan, the "Fair Market Value" of a share of the Company's
Common Stock as of a given date shall be: (i) the closing price of a share of
the Company's Common Stock on the principal exchange on which shares of the
Company's Common Stock are then trading, if any, on such date, or, if shares
were not traded on such date, then on the next preceding trading day during
which a sale occurred; or (ii) if the Company's Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, (1) the last
sales price (if the Common Stock is then
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listed as a National Market Issue under the NASD National Market System) or (2)
the mean between the closing representative bid and asked prices (in all other
cases) for the Common Stock on such date as reported by NASDAQ or such successor
quotation system; or (iii) if the Company's Common Stock is not publicly traded
on an exchange and not quoted on NASDAQ or a successor quotation system, the
mean between the closing bid and asked prices for the Common Stock on such date
as determined in good faith by the Committee; or (iv) if the Company's Common
Stock is not publicly traded, the fair market value established by the Committee
acting in good faith.
9. Ceiling on Grants.
There is not ceiling on grants to Optionee's under this Plan other than may be
determined by the Committee.
10. Duration, Exercisability, and Termination of Options.
10.1 Option Period.
The option period shall be determined by the Committee with respect to each
Option granted. In no event, however, may the option period exceed ten (10)
years from the date on which the Option is granted.
10.2 Exercisability of Options and Acceleration of Exercisability.
Each Option shall be exercisable in whole or in consecutive installments,
cumulative or otherwise, during its term as determined in the discretion of the
Committee.
10.3 Termination of Options.
An Option shall terminate six (6) months after termination of the Optionee's
employment or relationship as a consultant or director with the Company, unless
(i) such termination is due to such person's permanent and total disability,
within the meaning of Section 422(c)(6) of the Code, in which case the Option
may, but need not, provide that it may be exercised at any time within one (1)
year following such termination of employment or relationship as a consultant or
director; or (ii) the Optionee dies while in the employ of or while serving as a
consultant or director to the Company or within not more than six (6) months
after termination of such relationships, in which case the Option may, but need
not, provide that it may be exercised at any time within fifteen (15) months
following the death of the Optionee by the person or persons to whom the
Optionee's rights under such Option pass by will or by the laws of descent and
distribution; or (iii) the Option by its terms specifies either (A) that it
shall terminate sooner than six (6) months after termination of the Optionee's
employment or relationship as a consultant or director, or (B) that it may be
exercised more than six (6) months after termination of such relationship with
the Company. This Section 10.3 shall not be construed to extend the term of any
Option or to permit anyone to exercise the Option after expiration of its term,
nor shall it be construed to increase the number of shares as to which any
Option is exercisable from the amount exercisable on the date of termination of
the Optionee's employment or relationship as a consultant or director.
11. Manner of Option Exercise; Rights and Obligations of Optionees.
11.1 Written Notice of Exercise.
An Optionee may elect to exercise an Option in whole or in part, from time to
time, subject to the terms and conditions contained in the Plan and in the
agreement evidencing such Option, by giving written notice of exercise to the
Company, or made by bank wire transfer, at its principal executive office.
11.2 Cash Payment for Optioned Shares.
If an Option is exercised for cash, such notice shall be accompanied by a
cashier's check or personal check, or money order, made payable to the Company
for the full exercise price of the shares purchased.
11.3 Stock Swap Feature.
At the time of the Option exercise, and subject to the discretion of the
Committee to accept payment in cash only, the Optionee may determine whether the
total purchase price of the shares to be purchased shall be paid solely in cash
or by transfer from the Optionee to the Company of previously acquired shares of
Common Stock, or by a combination thereof. In the event that the Optionee elects
to pay the total purchase price in whole or in part with previously acquired
shares of Common Stock, the value of such shares shall be equal to their Fair
Market Value on the date of exercise, determined by the Committee in the same
manner used for determining Fair Market Value at the time of grant for purposes
of Section 8.
11.4 Investment Representation for Non-Registered Shares and Legality of
Issuance.
The receipt of shares of Common Stock upon the exercise of an Option shall be
conditioned upon the Optionee (or any other person who exercises the Option on
his or her behalf as permitted by Section 14) providing to the Committee a
written representation that, at the time of such exercise, it is the intent of
such person(s) to acquire the shares for investment only and not with a view
toward distribution. The certificate for unregistered shares issued for
investment shall be restricted by the Company as to transfer unless the Company
receives an opinion of counsel satisfactory to the Company to the effect
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that such restriction is not necessary under then pertaining law. The providing
of such representation and such restrictions on transfer shall not, however, be
required upon any person's receipt of shares of Common Stock under the Plan in
the event that, at the time of grant of the Option relating to such receipt or
upon such receipt, whichever is the appropriate measure under applicable federal
or state securities laws, the shares subject to the Option shall be (i) covered
by an effective and current registration statement under the Securities Act of
1933, as amended, and (ii) either qualified or exempt from qualification under
applicable state securities laws. The Company shall, however, under no
circumstances be required to sell or issue any shares under the Plan if, in the
opinion of the Committee, (i) the issuance of such shares would constitute a
violation by the Optionee or the Company of any applicable law or regulation of
any governmental authority, or (ii) the consent or approval of any governmental
body is necessary or desirable as a condition of, or in connection with, the
issuance of such shares.
11.5 Shareholder Rights of Optionee.
Upon exercise, the Optionee (or any other person who exercises the Option on his
behalf as permitted by Section 14) shall be recorded on the books of the Company
as the owner of the shares, and the Company shall deliver to such record owner
one or more duly issued stock certificates evidencing such ownership. No person
shall have any rights as a shareholder with respect to any shares of Common
Stock covered by an Option granted pursuant to the Plan until such person shall
have become the holder of record of such shares. Except as provided in Section
13, no adjustments shall be made for cash dividends or other distributions or
other rights as to which there is a record date preceding the date such person
becomes the holder of record of such shares.
11.6 Holding Periods for Tax Purposes.
The Plan does not provide that an Optionee must hold shares of Common Stock
acquired under the Plan for any minimum period of time. Optionees are urged to
consult with their own tax advisors with respect to the tax consequences to them
of their individual participation in the Plan.
12. Successive Grants and Substitution.
12.1. Successive Grants.
Successive grants of Options may be made to any Optionee under the Plan.
12.2 Options in Substitution for Other Options.
The Committee may, in its sole discretion, at any time during the term of this
Plan, grant new options to an employee under this Plan or any other stock option
plan of the Company on the condition that such employee shall surrender for
cancellation one or more outstanding options which represent the right to
purchase (after giving effect to any previous partial exercise thereof) a number
of shares, in relation to the number of shares to be covered by the new
conditional grant hereunder, determined by the Committee. If the Committee shall
have so determined to grant such new options on such a conditional basis ("New
Conditional Options"), no such New Conditional Option shall become exercisable
in the absence of such employee's consent to the condition and surrender and
cancellation as appropriate. New Conditional Options shall be treated in all
respects under this Plan as newly granted options. Options may be granted under
this Plan from time to time in substitution for similar rights held by employees
of other corporations who are about to become employees of the Company or an
Affiliated Corporation as a result of a merger or consolidation of the employing
corporation with the Company or an Affiliated Corporation, or the acquisition by
the Company or an Affiliated Corporation of the assets of the employing
corporation, or the acquisition by the Company or an Affiliated Corporation of
stock of the employing corporation as the result of which such other corporation
becomes an Affiliated Corporation.
13. Adjustments.
If the outstanding Common Stock shall be hereafter increased or decreased, or
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation, by reason of a
recapitalization, reclassification, reorganization, merger, consolidation, share
exchange, or other business combination in which the Company is the surviving
parent corporation, stock split-up, combination of shares, or dividend or other
distribution payable in capital stock or rights to acquire capital stock,
appropriate adjustment shall be made by the Committee in the number and kind of
shares for which options may be granted under the Plan. In addition, the
Committee shall make appropriate adjustment in the number and kind of shares as
to which outstanding and unexercised options shall be exercisable, to the end
that the proportionate interest of the holder of the option shall, to the extent
practicable, be maintained as before the occurrence of such event. Such
adjustment in outstanding options shall be made without change in the total
price applicable to the unexercised portion of the option but with a
corresponding adjustment in the exercise price per share.
In the event of the dissolution or liquidation of the Company, any outstanding
and unexercised options shall terminate as of a future date to be fixed by the
Committee.
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In the event of a Reorganization (as hereinafter defined), then,
a. If there is no plan or agreement with respect to the Reorganization
("Reorganization Agreement"), or if the Reorganization Agreement does
not specifically provide for the adjustment, change, conversion, or
exchange of the outstanding and unexercised options for cash or other
property or securities of another corporation, then any outstanding and
unexercised options shall terminate as of a future date to be fixed by
the Committee; or
b. If there is a Reorganization Agreement, and the Reorganization
Agreement specifically provides for the adjustment, change, conversion,
or exchange of the outstanding and unexercised options for cash or
other property or securities of another corporation, then the Committee
shall adjust the shares under such outstanding and unexercised options,
and shall adjust the shares remaining under the Plan which are then
available for the issuance of options under the Plan if the
Reorganization Agreement makes specific provisions therefor, in a
manner not inconsistent with the provisions of the Reorganization
Agreement for the adjustment, change, conversion, or exchange of such
options and shares.
The term "Reorganization" as used in this Section 13 shall mean any
reorganization, merger, consolidation, share exchange, or other business
combination pursuant to which the Company is not the surviving parent
corporation after the effective date of the Reorganization, or any sale or lease
of all or substantially all of the assets of the Company. Nothing herein shall
require the Company to adopt a Reorganization Agreement, or to make provision
for the adjustment, change, conversion, or exchange of any options, or the
shares subject thereto, in any Reorganization Agreement which it does adopt.
The Committee shall provide to each Optionee then holding an outstanding and
unexercised Option not less than thirty (30) calendar days' advanced written
notice of any date fixed by the Committee pursuant to this Section 13 and of the
terms of any Reorganization Agreement providing for the adjustment, change,
conversion, or exchange of outstanding and unexercised Options. Except as the
Committee may otherwise provide, each Optionee shall have the right during such
period to exercise his Option only to the extent that the Option was exercisable
on the date such notice was provided to the Optionee.
No modification, extension, renewal, or other change in any option granted under
the Plan may be made, after the grant of such option, without the optionee's
consent, unless the same is permitted by the provisions of the Plan and the
option agreement.
All adjustments and determinations under this Section 13 shall be made by the
Committee in good faith in its sole discretion.
14. Non-Transferability of Options.
An Option shall be exercisable only by the Optionee, or in the event of his
disability, by his guardian(s), conservator(s), or other legal
representative(s), during the Optionee's lifetime. In the event of the death of
the Optionee, an Option shall be exercisable by his legal representative(s),
legatee(s), or heir(s), as the case may be, or by such person(s) as he may
designate as his beneficiary or beneficiaries in a signed statement included as
a part of the option agreement.
An NQO shall not be transferable by the Optionee, either voluntarily or
involuntarily, except by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act, or the rules thereunder. Any
attempt to exercise, transfer or otherwise dispose of an interest in an Option
in contravention of the terms and conditions of the Plan, or of the option
agreement for the Option, shall immediately void the Option.
15. Continued Employment.
As determined in the sole discretion of the Committee at the time of grant and
if so stated in a writing signed by the Company, each Option may have as a
condition the requirement of an Optionee who is an employee of the Company (an
"Employee Optionee") to remain in the employ of the Company, or of its
affiliates, and to render to it his or her service, at such compensation as may
be determined from time to time by it, for a period not to exceed the term of
the Option, except for earlier termination of employment by or with the express
written consent of the Company or on account of disability or death. The failure
of any Employee Optionee to abide by such agreement as to any Option under the
Plan may result in the termination of all of his or her then outstanding Options
granted pursuant to the Plan.
Neither the creation of the Plan nor the granting of Option(s) under it shall be
deemed to create a right in an Employee Optionee to continued employment with
the Company, and each such Employee Optionee shall be and shall remain subject
to discharge by the Company as though the Plan had never come into existence.
Except as specifically provided by the Committee in any particular case, the
loss of existing or potential profit in options granted under this Plan shall
not
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constitute an element of damages in the event of termination of the employment
of an employee even if the termination is in violation of an obligation of the
Company to the employee by contract or otherwise.
16. Tax Withholding.
The exercise of any option granted under the Plan is subject to the condition
that if at any time the Company shall determine, in its discretion, that the
satisfaction of withholding tax or other withholding liabilities under any
federal, state or local law is necessary or desirable as a condition of, or in
connection with, such exercise or a later lapsing of time or restrictions on or
disposition of the shares of Common Stock received upon such exercise, then in
such event, the exercise of the option shall not be effective unless such
withholding shall have been effected or obtained in a manner acceptable to the
Company.
17. Term of Plan.
17.1 Effective Date.
Subject to shareholder approval for exercise of options, as provided in Section
3.2, the Plan shall is effective on January 19, 1996, the date of its adoption
by the Board, as amended and restated on March 20, 1997.
17.2 Termination Date.
Except as to options previously granted and outstanding under the Plan, the Plan
shall terminate at midnight on Janaury 18, 2006 and no Option shall be granted
after that time. Options then outstanding may continue to be exercised in
accordance with their terms. The Plan may be suspended or terminated at any
earlier time by the Board within the limitations set forth in Section 4.
18. Non-Exclusivity of the Plan.
Nothing contained in the Plan is intended to amend, modify, or rescind any
previously approved compensation plans, programs or options entered into by the
Company. This Plan shall be construed to be in addition to and independent of
any and all such other arrangements. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations on the power or
authority of the Board to adopt, with or without shareholder approval, such
additional or other compensation arrangements as the Board may from time to time
deem desirable.
19. Governing Law.
The Plan and all rights and obligations under it shall be construed and enforced
in accordance with the laws of the State of California.
* * * *
By signature below, the undersigned officers of the Company hereby certify that
the foregoing is a true and correct copy of the 1996 Stock Option Plan of the
Company, as amended and restated.
DATED: March 20, 1997
VALUESTAR CORPORATION
By /s/ JAMES STEIN
James Stein, President and CEO
By /s/ BENJAMIN PITTMAN
Benjamin Pittman, Secretary
EXHIBIT 6.7.1
VALUESTAR CORPORATION
1996 STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as of the
Date of Grant indicated below by and between ValueStar Corporation, a Colorado
corporation (the "Company"), and the person named below as Participant.
WHEREAS, Participant is an employee, director or consultant of the Company
and/or one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's 1996 Stock Option Plan (the "Plan"), the
committee of the Board of Directors of the Company administering the Plan (the
"Committee") has approved the grant to Participant of an option to purchase
shares of the common stock, $.00025 par value, of the Company (the "Common
Stock" or "Shares"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set
forth herein, the parties hereto hereby agree as follows:
1. Grant of Option: Certain Terms and Conditions. The Company hereby grants to
Participant, and Participant hereby accepts, as of the Date of Grant, an option
to purchase the number of shares of Common Stock indicated below (the "Option
Shares") at the Exercise Price per share indicated below, which option shall
expire at 5:00 o'clock p.m., California time, on the Expiration Date indicated
below and shall be subject to all of the terms and conditions set forth in this
Agreement (the "Option"). The Option shall become exercisable to purchase, and
shall vest with respect to, that number of Option Shares as provided in the
Vesting Schedule provided below.
Participant:
Date of Grant:
Number of shares purchasable:
Exercise Price per share:
Expiration Date:
Vesting Schedule:
The Option is not intended to qualify as an incentive stock option under Section
422 of the Internal Revenue Code (an "Incentive Stock Option").
2. Acceleration and Termination of Option.
(a) Termination of Employment or Relationship.
(i) Permanent Disability. If Participant's Employment is Terminated by reason of
Permanent Disability (within the meaning of Section 422(c)(6) of the Code) of
Participant, then (A) the portion of the Option that has not vested on or prior
to the date of such Termination of Employment shall terminate on such date and
(B) the remaining vested portion of the Option shall terminate upon the earlier
of the Expiration Date or the first anniversary of the date of such Termination
of Employment. Any determination by the Board that Participant does or does not
have a Permanent Disability shall be final and binding upon the Company and
Participant.
(ii) Death During Employment. If Participant's Employment is Terminated by
reason of death of Participant, then (A) the portion of the Option that has not
vested on or prior to the date of such Termination of Employment shall terminate
on such date and (B) the remaining vested portion of the Option shall terminate
upon the earlier of the Expiration Date or fifteen (15) months after the date of
such Termination of Employment.
(iii) Other Termination. If Participant's Employment is Terminated for no
reason, or for any reason other than Retirement, death or Permanent Disability,
then the Option shall terminate six months after such Termination of Employment.
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(b) Death Following Termination of Employment. Notwithstanding anything to the
contrary in this Agreement, if Participant shall die within not more than six
months after the Termination of his or her Employment and prior to the
Expiration Date, then (i) the portion of the Option that has not vested on or
prior to the date of such death shall terminate on such date and (ii) the
remaining vested portion of the Option shall terminate on the earlier of the
Expiration Date or fifteen (15) months after the date of such death.
(c) Other Events Causing Acceleration of Option. The Committee, in its sole
discretion, may accelerate the exercisability of the Option at any time and for
any reason.
(d) Other Events Causing Termination of Option. Notwithstanding anything to the
contrary in this Agreement, the Option shall terminate upon the consummation of
any of the following events, or, if later, the thirtieth day following the first
date upon which such event shall have been approved by both the Board and the
shareholders of the Company:
(i) the dissolution or liquidation of the Company; or
(ii) a sale or lease of all or substantially all of the property and assets of
the Company, unless the term of such sale or lease shall provide otherwise.
3. Adjustments. In the event that the outstanding securities of the class then
subject to the Option are increased, decreased or exchanged for or converted
into cash, property and/or a different number or kind of securities, or cash,
property and/or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless such event shall cause the
Option to terminate pursuant to Section 2(d) hereof, the Committee shall make
appropriate and proportionate adjustments in the number and type of shares or
other securities or cash or other property that may thereafter be acquired upon
the exercise of the Option; provided, however, that any such adjustments in the
Option shall be made without changing the aggregate Exercise Price of the then
unexercised portion of the Option.
4. Exercise.
(a) The Option shall be exercisable during a Participant's lifetime only by
Participant or by his or her guardian or legal representative, and after
Participant's death only by the person or entity entitled to do so under
Participant's last will and testament or applicable intestate law. The Option
may only be exercised by the delivery to the Company of a written notice of such
exercise, which notice shall specify the number of Option Shares to be purchased
(the "Purchased Shares") and the aggregate Exercise Price for such shares (the
"Exercise Notice"), together with payment in full of such aggregate Exercise
Price in cash or by cashier's or personal check or money order payable to the
Company; provided, however, that at the option of the Committee payment of such
aggregate Exercise Price may instead be made, in whole or in part, by the
delivery to the Company of a certificate or certificates representing shares of
Common Stock, duly endorsed or accompanied by a duly executed stock powers,
which delivery effectively transfers to the Company good and valid title to such
shares, free and clear of any pledge, commitment, lien, claim or other
encumbrance (such shares to be valued on the basis of the aggregate Fair Market
Value (as defined in the Plan) thereof on the date of such exercise), provided
that the Company is not then prohibited from purchasing or acquiring such shares
of Common Stock.
5. Payment of Withholding Taxes. The exercise of any Option is subject to the
condition that if at any time the Company shall determine, in its discretion,
that the satisfaction of withholding tax or other withholding liabilities under
any federal, state or local law is necessary or desirable as a condition of, or
in connection with, such exercise or a later lapsing of time or restrictions on
or disposition of the shares of Common Stock received upon such exercise, then
in such event, the exercise of the Option shall not be effective unless such
withholding shall have been effected or obtained in a manner acceptable to the
Company.
6. Notices. All notices and other communications required or permitted to be
given pursuant to this Agreement shall be in writing and shall be deemed given
if delivered personally or five days after mailing by certified or registered
mail, postage prepaid, return receipt requested, to the Company at 1120A Ballena
Blvd., Alameda, California, 94501, attn. Jim Stein, or to Participant at the
address set forth beneath his or her signature on the signature page hereto, or
at such other addresses as they may designate by written notice in the manner
aforesaid.
7. Applicable Laws. Notwithstanding anything to the contrary in this Agreement,
no shares of stock purchased upon exercise of the Option, and no certificate
representing all or any part of such shares, shall be issued or delivered if in
the opinion of counsel to the Company, such issuance or delivery would cause the
Company to be in violation of or to incur liability under any federal, state or
other securities law, or any requirement of any stock exchange listing agreement
to which
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the Company is a party, or any other requirement of law or of any administrative
or regulatory body having jurisdiction over the Company. The issuance of any
unregistered Shares upon the exercise of an Option shall be conditioned upon the
Participant providing to the Committee a written representation that, at the
time of exercise, it is the intent of the Participant to acquire the Shares for
investment only and not with a view toward distribution. Any unregistered Shares
shall be restricted as to transfer by the Company unless the Company receives an
opinion of counsel satisfactory to the Company to the effect that such
restriction is not necessary.
8. Nontransferability. Neither the Option nor any interest therein may be sold,
assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in
any manner other than by will or the laws of descent and distribution.
9. Plan. The Option is granted pursuant to the Plan, as in effect on the Date of
Grant, and is subject to all the terms and conditions of the Plan, as the same
may be amended from time to time; provided, however, that no such amendment
shall deprive Participant, without his or her consent, of the Option or of any
of Participant's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Participant. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Participant or any other person or entity then entitled to exercise the Option.
10. Shareholder Rights. No person or entity shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of any Option Shares until the
Option shall have been duly exercised to purchase such Option Shares in
accordance with the provisions of this Agreement.
11. Unemployment or Contract Rights. No provision of this Agreement or of the
Option granted hereunder shall (a) confer upon Participant any right to continue
in the employ of or contract with the Company or any of its subsidiaries, (b)
affect the right of the Company and each of its subsidiaries to terminate the
employment or contract of Participant, with or without cause, or (c) confer upon
Participant any right to participate in any employee welfare or benefit plan or
other program of the Company or any of its subsidiaries other than the Plan.
Participant hereby acknowledges and agrees that the Company and each of its
subsidiaries may terminate the employment or contract of Participant at any time
and for any reason, or for no reason, unless Participant and the Company or such
subsidiary are party to a written employment, consulting or other agreement that
expressly provides otherwise.
12. Governing Law. This Agreement and the Option granted hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of California without reference to choice or conflict of law principles.
IN WITNESS WHEREOF, the Company and Participant have duly executed this
Agreement as of the Date of Grant.
VALUESTAR CORPORATION
By
Title:
PARTICIPANT
Signature
Street Address
City, State and Zip Code
Social Security Number
3
EXHIBIT 6.8
VALUESTAR CORPORATION
1997 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of this 1997 Stock Option Plan ("Plan") of ValueStar Corporation, a
Colorado corporation ("Company") is to provide the Company with a means of
attracting and retaining the services of selected employees, directors and
consultants. The Plan is intended to advance the interests of the Company by
affording to selected employees, directors and consultants, upon whose skill,
judgment, initiative and efforts the Company is largely dependent for the
successful conduct of its business, an opportunity for investment in the Company
and the incentives inherent in stock ownership in the Company. For purposes of
this Plan, the term Company shall include subsidiaries, if any, of the Company.
2. Legal Compliance.
It is the intent of the Plan that all options granted under it ("Options") shall
be either "Incentive Stock Options" ("ISOs"), as such term is defined in Section
422 of the Internal Revenue Code of 1986, as amended ("Code"), or non-qualified
stock options ("NQOs"); provided, however, ISOs shall be granted only to
employees of the Company. An Option shall be identified as an ISO or an NQO in
writing in the document or documents evidencing the grant of the Option. All
Options that are not so identified as ISOs are intended to be NQOs. It is the
further intent of the Plan that it conform in all respects with the requirements
of Rule 16b-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"). To the extent that any aspect
of the Plan or its administration shall at any time be viewed as inconsistent
with the requirements of Rule 16b-3 or, in connection with ISOs, the Code, as
the same shall be amended from time to time, such aspect shall be deemed to be
modified, deleted, or otherwise changed as necessary to ensure continued
compliance with such provisions. Failure to conform with the requirements of
Rule 16b-3 or the Code, shall not invalidate this Plan or any options granted
pursuant hereto.
3. Administration of the Plan.
3.1 Plan Committee.
The Plan shall be administered by a committee ("Committee"). The members of the
Committee shall be appointed from time to time by the Board of Directors of the
Company ("Board") and shall consist of not less than two (2) directors. All of
the members of the Committee shall be disinterested persons. The term
"disinterested person," as used in this Plan, shall mean a director: (i) who was
not during the one (1) year prior to service as an administrator of the Plan
granted or awarded equity securities pursuant to the Plan or any other plan of
the Company or any of its Affiliates entitling the participants therein to
acquire equity securities of the Company or any of its Affiliates except as
permitted by Rule 16b-3(c)(2)(i) ("16b-3(c)(2)(i)") promulgated under the
Securities Exchange Act of 1934, as amended; or (ii) who is otherwise considered
to be a "disinterested person" in accordance with Rule 16b-3(c)(2)(i), or any
other applicable rules, regulations or interpretations of the Securities and
Exchange Commission. Any such persons shall otherwise comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act. Should the Board
not appoint a Committee or for any other reason should a Committee not be
properly appointed or in existence, then the entire Board of Directors shall
constitute the Committee for the purposes of administration of this Plan.
3.2 Grants of Options by the Committee.
In accordance with the provisions of the Plan, the Committee, by resolution,
shall select those eligible persons to whom Options shall be granted
("Optionees"); shall determine the time or times at which each Option shall be
granted, whether an Option is an ISO or an NQO and the number of shares to be
subject to each Option; and shall fix the time and manner in which the Option
may be exercised, the Option exercise price, and the Option period. The
Committee shall determine the form of option agreement to evidence the foregoing
terms and conditions of each Option, which need not be identical, in the form
provided for in Section 7. Such option agreement may include such other
provisions as the Committee may deem necessary or desirable consistent with the
Plan, the Code and Rule 16b-3.
All options granted under this Plan are subject to, and may not be exercised
before, the approval of this Plan by the holders of a majority of the Company's
outstanding shares on or before the expiration of twelve months from the date of
adoption of this Plan by the Board, and if such approval is not obtained, all
Options previously granted shall be void.
3.3 Committee Procedures.
The Committee from time to time may adopt such rules and regulations for
carrying out the purposes of the Plan as it may deem proper and in the best
interests of the Company. The Committee shall keep minutes of its meetings and
records of its actions. A majority of the members of the Committee shall
constitute a quorum for the transaction of any business by the Committee. The
Committee may act at any time by an affirmative vote of a majority of those
members voting. Such vote may be taken at a meeting (which may be conducted in
person or by any telecommunication medium) or by written consent of Committee
members without a meeting.
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3.4 Finality of Committee Action.
The Committee shall resolve all questions arising under the Plan and option
agreements entered into pursuant to the Plan. Each determination,
interpretation, or other action made or taken by the Committee shall be final
and conclusive and binding on all persons, including, without limitation, the
Company, its shareholders, the Committee and each of the members of the
Committee, and the directors, officers, and employees of the Company, including
Optionees and their respective successors in interest.
3.5 Non-Liability of Committee Members and Others.
No Committee member, Board member or employee, consultant or advisor of the
Company shall be liable for any action or determination made by him in good
faith with respect to the Plan or any Option granted under it.
4. Board Power to Amend, Suspend, or Terminate the Plan.
The Board may, from time to time, make such changes in or additions to the Plan
as it may deem proper and in the best interests of the Company and its
shareholders. The Board may also suspend or terminate the Plan at any time,
without notice, and in its sole discretion.
Notwithstanding the foregoing, no such change, addition, suspension, or
termination by the Board shall (i) materially impair any option previously
granted under the Plan without the express written consent of the optionee; or
(ii) materially increase the number of shares subject to the Plan, materially
increase the benefits accruing to options under the Plan, materially modify the
requirements as to eligibility to participate in the Plan or alter the method of
determining the option exercise price described in Section 8, without
shareholder approval.
5. Shares Subject to the Plan.
For purposes of the Plan, the Committee is authorized to grant Options to
purchase not more than two hundred thousand (200,000) shares of the Company's
common stock, $.00025 par value per share ("Common Stock"), either treasury or
authorized but unissued shares, or the number and kind of shares of stock or
other securities which, in accordance with Section 13, shall be substituted for
such shares of Common Stock or to which such shares shall be adjusted. The
Committee is authorized to grant Options under the Plan with respect to such
shares. Any or all unsold shares subject to an Option which for any reason
expires or otherwise terminates (excluding shares returned to the Company in
payment of the exercise price for additional shares) may again be made subject
to grant under the Plan.
6. Optionees.
ISOs shall be granted only to elected or appointed officers or other key
employees of the Company (as determined by the Committee), whether full-time or
part-time, including, without limitation, members of the Board who are also
officers or key employees at the time of grant. NQOs may be granted to employees
(including officers) and directors of and consultants to the Company. In no
event, however, may a member of the Committee be granted an Option under the
Plan. Any Optionee may hold more than one option to purchase Common Stock,
whether such option is an Option held pursuant to the Plan or otherwise.
7. Grants of Options.
The Committee shall have the sole discretion to grant Options under the Plan and
to determine whether any Option shall be an ISO or an NQO. The terms and
conditions of Options granted under the Plan may differ from one another as the
Committee, in its absolute discretion, shall determine as long as all Options
granted under the Plan satisfy the requirements of the Plan. Upon determination
by the Committee that an Option is to be granted to an Optionee, a written
option agreement evidencing such Option shall be given to the Optionee,
specifying the number of shares subject to the Option, the Option exercise
price, whether the Option is an ISO or an NQO, and the other individual terms
and conditions of such Option. Such option agreement may incorporate generally
applicable provisions from the Plan, a copy of which shall be provided to all
Optionees at the time of their initial grants under the Plan. The Option shall
be deemed granted as of the date specified in the grant resolution of the
Committee, and the option agreement shall be dated as of the date of such
resolution.
8. Option Exercise Price.
The price per share to be paid by the Optionee at the time an ISO is exercised
shall not be less than one hundred percent (100%) of the Fair Market Value (as
hereinafter defined) of one share of the optioned Common Stock on the date on
which the Option is granted. No ISO may be granted under the Plan to any person
who, at the time of such grant, owns (within the meaning of Section 424(d) of
the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any parent thereof,
unless the exercise price of such ISO is at least equal to one hundred and ten
percent (110%) of Fair Market Value on the date of grant. The price per share to
be paid by the Optionee at the time an NQO is exercised shall not be less than
eighty-five percent (85%) of the Fair Market Value on the date on which the NQO
is granted, as determined by the Committee.
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For purposes of the Plan, the "Fair Market Value" of a share of the Company's
Common Stock as of a given date shall be: (i) the closing price of a share of
the Company's Common Stock on the principal exchange on which shares of the
Company's Common Stock are then trading, if any, on such date, or, if shares
were not traded on such date, then on the next preceding trading day during
which a sale occurred; or (ii) if the Company's Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, (1) the last
sales price (if the Common Stock is then listed as a National Market Issue under
the NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Common Stock on
such date as reported by NASDAQ or such successor quotation system; or (iii) if
the Company's Common Stock is not publicly traded on an exchange and not quoted
on NASDAQ or a successor quotation system, the mean between the closing bid and
asked prices for the Common Stock on such date as determined in good faith by
the Committee; or (iv) if the Company's Common Stock is not publicly traded, the
fair market value established by the Committee acting in good faith. In
addition, with respect to any ISO, the Fair Market Value on any given date shall
be determined in a manner consistent with any regulations issued by the
Secretary of the Treasury for the purpose of determining fair market value of
securities subject to an ISO plan under the Code.
9. Ceiling of ISO Grants.
The aggregate Fair Market Value (determined at the time any ISO is granted) of
the Common Stock with respect to which an Optionee's ISOs, together with
incentive stock options granted under any other plan of the Company and any
parent, are exercisable for the first time by such Optionee during any calendar
year shall not exceed $100,000. In the event that an Optionee holds such
incentive stock options that become first exercisable (including as a result of
acceleration of exercisability under the Plan) in any one year for shares having
a Fair Market Value at the date of grant in excess of $100,000, then the most
recently granted of such ISOs, to the extent that they are exercisable for
shares having an aggregate Fair Market Value in excess of such limit, shall be
deemed to be NQOs.
10. Duration, Exercisability, and Termination of Options.
10.1 Option Period.
The option period shall be determined by the Committee with respect to each
Option granted. In no event, however, may the option period exceed ten (10)
years from the date on which the Option is granted, or Five (5) years in the
case of a grant of an ISO to an Optionee who is a ten percent (10%) shareholder
at the date on which the Option is granted as described in Section 8.
10.2 Exercisability of Options and Acceleration of Exercisability.
Each Option shall be exercisable in whole or in consecutive installments,
cumulative or otherwise, during its term as determined in the discretion of the
Committee.
10.3 Termination of Options.
An Option shall terminate six (6) months after termination of the Optionee's
employment or relationship as a consultant or director with the Company, unless
(i) such termination is due to such person's permanent and total disability,
within the meaning of Section 422(c)(6) of the Code, in which case the Option
may, but need not, provide that it may be exercised at any time within one (1)
year following such termination of employment or relationship as a consultant or
director; or (ii) the Optionee dies while in the employ of or while serving as a
consultant or director to the Company or within not more than six (6) months
after termination of such relationships, in which case the Option may, but need
not, provide that it may be exercised at any time within fifteen (15) months
following the death of the Optionee by the person or persons to whom the
Optionee's rights under such Option pass by will or by the laws of descent and
distribution; or (iii) the Option by its terms specifies either (A) that it
shall terminate sooner than six (6) months after termination of the Optionee's
employment or relationship as a consultant or director, or (B) that it may be
exercised more than six (6) months after termination of such relationship with
the Company. This Section 10.3 shall not be construed to extend the term of any
Option or to permit anyone to exercise the Option after expiration of its term,
nor shall it be construed to increase the number of shares as to which any
Option is exercisable from the amount exercisable on the date of termination of
the Optionee's employment or relationship as a consultant or director.
11. Manner of Option Exercise; Rights and Obligations of Optionees.
11.1 Written Notice of Exercise.
An Optionee may elect to exercise an Option in whole or in part, from time to
time, subject to the terms and conditions contained in the Plan and in the
agreement evidencing such Option, by giving written notice of exercise to the
Company, or made by bank wire transfer, at its principal executive office.
11.2 Cash Payment for Optioned Shares.
If an Option is exercised for cash, such notice shall be accompanied by a
cashier's check or personal check, or money order, made payable to the Company
for the full exercise price of the shares purchased.
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11.3 Stock Swap Feature.
At the time of the Option exercise, and subject to the discretion of the
Committee to accept payment in cash only, the Optionee may determine whether the
total purchase price of the shares to be purchased shall be paid solely in cash
or by transfer from the Optionee to the Company of previously acquired shares of
Common Stock, or by a combination thereof. In the event that the Optionee elects
to pay the total purchase price in whole or in part with previously acquired
shares of Common Stock, the value of such shares shall be equal to their Fair
Market Value on the date of exercise, determined by the Committee in the same
manner used for determining Fair Market Value at the time of grant for purposes
of Section 8.
11.4 Investment Representation for Non-Registered Shares and Legality of
Issuance.
The receipt of shares of Common Stock upon the exercise of an Option shall be
conditioned upon the Optionee (or any other person who exercises the Option on
his or her behalf as permitted by Section 14) providing to the Committee a
written representation that, at the time of such exercise, it is the intent of
such person(s) to acquire the shares for investment only and not with a view
toward distribution. The certificate for unregistered shares issued for
investment shall be restricted by the Company as to transfer unless the Company
receives an opinion of counsel satisfactory to the Company to the effect that
such restriction is not necessary under then pertaining law. The providing of
such representation and such restrictions on transfer shall not, however, be
required upon any person's receipt of shares of Common Stock under the Plan in
the event that, at the time of grant of the Option relating to such receipt or
upon such receipt, whichever is the appropriate measure under applicable federal
or state securities laws, the shares subject to the Option shall be (i) covered
by an effective and current registration statement under the Securities Act of
1933, as amended, and (ii) either qualified or exempt from qualification under
applicable state securities laws. The Company shall, however, under no
circumstances be required to sell or issue any shares under the Plan if, in the
opinion of the Committee, (i) the issuance of such shares would constitute a
violation by the Optionee or the Company of any applicable law or regulation of
any governmental authority, or (ii) the consent or approval of any governmental
body is necessary or desirable as a condition of, or in connection with, the
issuance of such shares.
11.5 Shareholder Rights of Optionee.
Upon exercise, the Optionee (or any other person who exercises the Option on his
behalf as permitted by Section 14) shall be recorded on the books of the Company
as the owner of the shares, and the Company shall deliver to such record owner
one or more duly issued stock certificates evidencing such ownership. No person
shall have any rights as a shareholder with respect to any shares of Common
Stock covered by an Option granted pursuant to the Plan until such person shall
have become the holder of record of such shares. Except as provided in Section
13, no adjustments shall be made for cash dividends or other distributions or
other rights as to which there is a record date preceding the date such person
becomes the holder of record of such shares.
11.6 Holding Periods for Tax Purposes.
The Plan does not provide that an Optionee must hold shares of Common Stock
acquired under the Plan for any minimum period of time. Optionees are urged to
consult with their own tax advisors with respect to the tax consequences to them
of their individual participation in the Plan.
12. Successive Grants and Substitution.
12.1. Successive Grants.
Successive grants of Options may be made to any Optionee under the Plan.
12.2 Options in Substitution for Other Options.
The Committee may, in its sole discretion, at any time during the term of this
Plan, grant new options to an employee under this Plan or any other stock option
plan of the Company on the condition that such employee shall surrender for
cancellation one or more outstanding options which represent the right to
purchase (after giving effect to any previous partial exercise thereof) a number
of shares, in relation to the number of shares to be covered by the new
conditional grant hereunder, determined by the Committee. If the Committee shall
have so determined to grant such new options on such a conditional basis ("New
Conditional Options"), no such New Conditional Option shall become exercisable
in the absence of such employee's consent to the condition and surrender and
cancellation as appropriate. New Conditional Options shall be treated in all
respects under this Plan as newly granted options. Options may be granted under
this Plan from time to time in substitution for similar rights held by employees
of other corporations who are about to become employees of the Company or an
Affiliated Corporation as a result of a merger or consolidation of the employing
corporation with the Company or an Affiliated Corporation, or the acquisition by
the Company or an Affiliated Corporation of the assets of the employing
corporation, or the acquisition by the Company or an Affiliated Corporation of
stock of the employing corporation as the result of which such other corporation
becomes an Affiliated Corporation.
13. Adjustments.
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If the outstanding Common Stock shall be hereafter increased or decreased, or
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation, by reason of a
recapitalization, reclassification, reorganization, merger, consolidation, share
exchange, or other business combination in which the Company is the surviving
parent corporation, stock split-up, combination of shares, or dividend or other
distribution payable in capital stock or rights to acquire capital stock,
appropriate adjustment shall be made by the Committee in the number and kind of
shares for which options may be granted under the Plan. In addition, the
Committee shall make appropriate adjustment in the number and kind of shares as
to which outstanding and unexercised options shall be exercisable, to the end
that the proportionate interest of the holder of the option shall, to the extent
practicable, be maintained as before the occurrence of such event. Such
adjustment in outstanding options shall be made without change in the total
price applicable to the unexercised portion of the option but with a
corresponding adjustment in the exercise price per share.
In the event of the dissolution or liquidation of the Company, any outstanding
and unexercised options shall terminate as of a future date to be fixed by the
Committee.
In the event of a Reorganization (as hereinafter defined), then,
a. If there is no plan or agreement with respect to the Reorganization
("Reorganization Agreement"), or if the Reorganization Agreement does
not specifically provide for the adjustment, change, conversion, or
exchange of the outstanding and unexercised options for cash or other
property or securities of another corporation, then any outstanding and
unexercised options shall terminate as of a future date to be fixed by
the Committee; or
b. If there is a Reorganization Agreement, and the Reorganization
Agreement specifically provides for the adjustment, change, conversion,
or exchange of the outstanding and unexercised options for cash or
other property or securities of another corporation, then the Committee
shall adjust the shares under such outstanding and unexercised options,
and shall adjust the shares remaining under the Plan which are then
available for the issuance of options under the Plan if the
Reorganization Agreement makes specific provisions therefor, in a
manner not inconsistent with the provisions of the Reorganization
Agreement for the adjustment, change, conversion, or exchange of such
options and shares.
The term "Reorganization" as used in this Section 13 shall mean any
reorganization, merger, consolidation, share exchange, or other business
combination pursuant to which the Company is not the surviving parent
corporation after the effective date of the Reorganization, or any sale or lease
of all or substantially all of the assets of the Company. Nothing herein shall
require the Company to adopt a Reorganization Agreement, or to make provision
for the adjustment, change, conversion, or exchange of any options, or the
shares subject thereto, in any Reorganization Agreement which it does adopt.
The Committee shall provide to each Optionee then holding an outstanding and
unexercised Option not less than thirty (30) calendar days' advanced written
notice of any date fixed by the Committee pursuant to this Section 13 and of the
terms of any Reorganization Agreement providing for the adjustment, change,
conversion, or exchange of outstanding and unexercised Options. Except as the
Committee may otherwise provide, each Optionee shall have the right during such
period to exercise his Option only to the extent that the Option was exercisable
on the date such notice was provided to the Optionee.
Any adjustment to any outstanding ISO pursuant to this Section 13, if made by
reason of a transaction described in Section 424(a) of the Code, shall be made
so as to conform to the requirements of that Section and the regulations
thereunder. If any other transaction described in Section 424(a) of the Code
affects the Common Stock subject to any unexercised ISO theretofore granted
under the Plan (hereinafter for purposes of this Section 13 referred to as the
"old options"), the Board of Directors of the Company or of any surviving or
acquiring corporation may take such action as it deems appropriate, in
conformity with the requirements of that Code Section and the regulations
thereunder, to substitute a new option for the old option, in order to make the
new option, as nearly as may be practicable, equivalent to the old option, or to
assume the old option.
No modification, extension, renewal, or other change in any option granted under
the Plan may be made, after the grant of such option, without the optionee's
consent, unless the same is permitted by the provisions of the Plan and the
option agreement. In the case of an ISO, optionees are hereby advised that
certain changes may disqualify the ISO from being considered as such under
Section 422 of the Code, or constitute a modification, extension, or renewal of
the ISO under Section 424(h) of the Code.
All adjustments and determinations under this Section 13 shall be made by the
Committee in good faith in its sole discretion.
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14. Non-Transferability of Options.
An Option shall be exercisable only by the Optionee, or in the event of his
disability, by his guardian(s), conservator(s), or other legal
representative(s), during the Optionee's lifetime. In the event of the death of
the Optionee, an Option shall be exercisable by his legal representative(s),
legatee(s), or heir(s), as the case may be, or by such person(s) as he may
designate as his beneficiary or beneficiaries in a signed statement included as
a part of the option agreement.
An ISO shall not be transferable by the Optionee, either voluntarily or
involuntarily, except by will or the laws of descent and distribution. An NQO
shall not be transferable by the Optionee, either voluntarily or involuntarily,
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. Any attempt to
exercise, transfer or otherwise dispose of an interest in an Option in
contravention of the terms and conditions of the Plan, or of the option
agreement for the Option, shall immediately void the Option.
15. Continued Employment.
As determined in the sole discretion of the Committee at the time of grant and
if so stated in a writing signed by the Company, each Option may have as a
condition the requirement of an Optionee who is an employee of the Company (an
"Employee Optionee") to remain in the employ of the Company, or of its
affiliates, and to render to it his or her service, at such compensation as may
be determined from time to time by it, for a period not to exceed the term of
the Option, except for earlier termination of employment by or with the express
written consent of the Company or on account of disability or death. The failure
of any Employee Optionee to abide by such agreement as to any Option under the
Plan may result in the termination of all of his or her then outstanding Options
granted pursuant to the Plan.
Neither the creation of the Plan nor the granting of Option(s) under it shall be
deemed to create a right in an Employee Optionee to continued employment with
the Company, and each such Employee Optionee shall be and shall remain subject
to discharge by the Company as though the Plan had never come into existence.
Except as specifically provided by the Committee in any particular case, the
loss of existing or potential profit in options granted under this Plan shall
not constitute an element of damages in the event of termination of the
employment of an employee even if the termination is in violation of an
obligation of the Company to the employee by contract or otherwise.
16. Tax Withholding.
The exercise of any option granted under the Plan is subject to the condition
that if at any time the Company shall determine, in its discretion, that the
satisfaction of withholding tax or other withholding liabilities under any
federal, state or local law is necessary or desirable as a condition of, or in
connection with, such exercise or a later lapsing of time or restrictions on or
disposition of the shares of Common Stock received upon such exercise, then in
such event, the exercise of the option shall not be effective unless such
withholding shall have been effected or obtained in a manner acceptable to the
Company.
17. Term of Plan.
17.1 Effective Date.
Subject to shareholder approval, as provided in Section 3.2, the Plan shall
become effective on January 19, 1996, the date of its adoption by the Board.
17.2 Termination Date.
Except as to options previously granted and outstanding under the Plan, the Plan
shall terminate at midnight on Janaury 18, 2006 and no Option shall be granted
after that time. Options then outstanding may continue to be exercised in
accordance with their terms. The Plan may be suspended or terminated at any
earlier time by the Board within the limitations set forth in Section 4.
18. Non-Exclusivity of the Plan.
Nothing contained in the Plan is intended to amend, modify, or rescind any
previously approved compensation plans, programs or options entered into by the
Company. This Plan shall be construed to be in addition to and independent of
any and all such other arrangements. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations on the power or
authority of the Board to adopt, with or without shareholder approval, such
additional or other compensation arrangements as the Board may from time to time
deem desirable.
19. Governing Law.
The Plan and all rights and obligations under it shall be construed and enforced
in accordance with the laws of the State of California.
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* * * *
By signature below, the undersigned officers of the Company hereby certify that
the foregoing is a true and correct copy of the 1996 Stock Option Plan of the
Company.
DATED: March 20, 1997
VALUESTAR CORPORATION
By /s/ JAMES STEIN
James Stein, President and CEO
By /s/ BENJAMIN PITTMAN
Benjamin Pittman, Secretary
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EXHIBIT 6.8.1
VALUESTAR CORPORATION
1997 STOCK OPTION PLAN
____________ STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as of the
Date of Grant indicated below by and between ValueStar Corporation, a Colorado
corporation (the "Company"), and the person named below as Employee or
Participant.
WHEREAS, Employee is an employee (director or consultant) of the Company and/or
one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's 1997 Stock Option Plan (the "Plan"), the
committee of the Board of Directors of the Company administering the Plan (the
"Committee") has approved the grant to Employee (Participant) of an option to
purchase shares of the common stock, $0.00025 par value, of the Company (the
"Common Stock" or "Shares"), on the terms and conditions set forth herein,
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set
forth herein, the parties hereto hereby agree as follows:
1. Grant of Option: Certain Terms and Conditions. The Company hereby grants to
Employee (Participant), and Employee (Participant) hereby accepts, as of the
Date of Grant, an option to purchase the number of shares of Common Stock
indicated below (the "Option Shares") at the Exercise Price per share indicated
below, which option shall expire at 5:00 o'clock p.m., California time, on the
Expiration Date indicated below and shall be subject to all of the terms and
conditions set forth in this Agreement (the "Option"). The Option shall become
exercisable to purchase, and shall vest with respect to, that number of Option
Shares as provided in the Vesting Schedule provided below.
Employee (Participant): ________________
Date of Grant: ________________
Number of shares purchasable: ________________
Exercise Price per share: ________________
Expiration Date: ________________
Vesting Schedule: __________________________________
(If ISO Option)
The Option is intended to qualify as an incentive stock option under Section 422
of the Internal Revenue Code (an "Incentive Stock Option") and consequently:
(a) the Expiration Date shall not be more than 10 years after the Date of Grant
and the Exercise Price per share shall not be less than the Fair Market Value
(as defined in the Plan) per share on the Date of Grant; provided. however, that
if, on the Date of Grant, Employee owns (after application of the family and
other attribution rules of Section 425(d) of the Internal Revenue Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporations, then the Expiration Date
shall not be more than five years after the Date of Grant and the Exercise Price
per share shall not be less than 110% of the Fair Market Value per share on the
Date of Grant; and
(b) the aggregate Fair Market Value (determined as of the date such options are
granted) of the shares of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by Employee during any calendar year
(under the Plan and all other stock option plans of the Company and its parent
and subsidiary corporations) shall not exceed $100,000.
2. Acceleration and Termination of Option.
(a) Termination of Employment.
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(i) Permanent Disability. If Participant's Employment is Terminated by reason of
Permanent Disability (within the meaning of Section 422(c)(6) of the Code) of
Participant, then (A) the portion of the Option that has not vested on or prior
to the date of such Termination of Employment shall terminate on such date and
(B) the remaining vested portion of the Option shall terminate upon the earlier
of the Expiration Date or the first anniversary of the date of such Termination
of Employment. Any determination by the Board that Participant does or does not
have a Permanent Disability shall be final and binding upon the Company and
Participant.
(ii) Death During Employment. If Participant's Employment is Terminated by
reason of death of Employee (Participant), then (A) the portion of the Option
that has not vested on or prior to the date of such Termination of Employment
shall terminate on such date and (B) the remaining vested portion of the Option
shall terminate upon the earlier of the Expiration Date or fifteen (15) months
after the date of such Termination of Employment.
(iii) Other Termination. If Participant's Employment is Terminated for no
reason, or for any reason other than Retirement, death or Permanent Disability,
and a Change of Control shall not have occurred within one year prior thereto,
then the Option shall terminate six months after such Termination of Employment.
(b) Death Following Termination of Employment. Notwithstanding anything to the
contrary in this Agreement, if Participant shall die within not more than six
months after the Termination of his or her Employment and prior to the
Expiration Date, then (i) the portion of the Option that has not vested on or
prior to the date of such death shall terminate on such date and (ii) the
remaining vested portion of the Option shall terminate on the earlier of the
Expiration Date or fifteen (15) months after the date of such death.
(c) Other Events Causing Acceleration of Option. The Committee, in its sole
discretion, may accelerate the exercisability of the Option at any time and for
any reason.
(d) Other Events Causing Termination of Option. Notwithstanding anything to the
contrary in this Agreement, the Option shall terminate upon the consummation of
any of the following events, or, if later, the thirtieth day following the first
date upon which such event shall have been approved by both the Board and the
shareholders of the Company:
(i) the dissolution or liquidation of the Company; or
(ii) a sale or lease of all or substantially all of the property and assets of
the Company, unless the term of such sale or lease shall provide otherwise.
3. Adjustments. In the event that the outstanding securities of the class then
subject to the Option are increased, decreased or exchanged for or converted
into cash, property and/or a different number or kind of securities, or cash,
property and/or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless such event shall cause the
option to terminate pursuant to Section 2(d) hereof, the Committee shall make
appropriate and proportionate adjustments in the number and type of shares or
other securities or cash or other property that may thereafter be acquired upon
the exercise of the Option; provided. however. that any such adjustments in the
Option shall be made without changing the aggregate Exercise Price of the then
unexercised portion of the Option.
4. Exercise.
(a) The Option shall be exercisable during a Participant's lifetime only by
Participant or by his or her guardian or legal representative, and after
Participant's death only by the person or entity entitled to do so under
Participant's last will and testament or applicable intestate law. The Option
may only be exercised by the delivery to the Company of a written notice of such
exercise, which notice shall specify the number of Option Shares to be purchased
(the "Purchased Shares") and the aggregate Exercise Price for such shares (the
"Exercise Notice"), together with payment in full of such aggregate Exercise
Price in cash or by cashier's or personal check or money order payable to the
Company; provided, however, that at the option of the Committee payment of such
aggregate Exercise Price may instead be made, in whole or in part, by the
delivery to the Company of a certificate or certificates representing shares of
Common Stock, duly endorsed or accompanied by a duly executed stock powers,
which delivery effectively transfers to the Company good and valid title to such
shares, free and clear of any pledge, commitment, lien, claim or other
encumbrance (such shares to be valued on the basis of the aggregate Fair Market
Value (as defined in the Plan) thereof on the date of such exercise), provided
that the Company is not then prohibited from purchasing or acquiring such shares
of Common Stock.
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5. Payment of Withholding Taxes. The exercise of any Option is subject to the
condition that if at any time the Company shall determine, in its discretion,
that the satisfaction of withholding tax or other withholding liabilities under
any federal, state or local law is necessary or desirable as a condition of, or
in connection with, such exercise or a later lapsing of time or restrictions on
or disposition of the shares of Common Stock received upon such exercise, then
in such event, the exercise of the Option shall not be effective unless such
withholding shall have been effected or obtained in a manner acceptable to the
Company.
6. Notices. All notices and other communications required or permitted to be
given pursuant to this Agreement shall be in writing and shall be deemed given
if delivered personally or five days after mailing by certified or registered
mail, postage prepaid, return receipt requested, to the Company at 1120A Ballena
Blvd., Alameda, California 95401, Attention: Jim Stein, or to Participant at the
address set forth beneath his or her signature on the signature page hereto, or
at such other addresses as they may designate by written notice in the manner
aforesaid.
7. Applicable Laws. Notwithstanding anything to the contrary in this Agreement,
no shares of stock purchased upon exercise of the Option, and no certificate
representing all or any part of such shares, shall be issued or delivered if in
the opinion of counsel to the Company, such issuance or delivery would cause the
Company to be in violation of or to incur liability under any federal, state or
other securities law, or any requirement of any stock exchange listing agreement
to which the Company is a party, or any other requirement of law or of any
administrative or regulatory body having jurisdiction over the Company. The
issuance of any unregistered Shares upon the exercise of an Option shall be
conditioned upon the Participant providing to the Committee a written
representation that, at the time of exercise, it is the intent of the
Participant to acquire the Shares for investment only and not with a view toward
distribution. Any unregistered Shares shall be restricted as to transfer by the
Company unless the Company receives an opinion of counsel satisfactory to the
Company to the effect that such restriction is not necessary.
8. Nontransferability. Neither the Option nor any interest therein may be sold,
assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in
any manner other than by will or the laws of descent and distribution.
9. Plan. The Option is granted pursuant to the Plan, as in effect on the Date of
Grant, and is subject to all the terms and conditions of the Plan, as the same
may be amended from time to time; provided, however, that no such amendment
shall deprive Participant, without his or her consent, of the Option or of any
of Participant's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Participant. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Participant or any other person or entity then entitled to exercise the Option.
10. Shareholder Rights. No person or entity shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of any Option Shares until the
Option shall have been duly exercised to purchase such Option Shares in
accordance with the provisions of this Agreement.
11. Unemployment or Contract Rights. No provision of this Agreement or of the
Option granted hereunder shall (a) confer upon Participant any right to continue
in the employ of or contract with the Company or any of its subsidiaries, (b)
affect the right of the Company and each of its subsidiaries to terminate the
employment or contract of Participant, with or without cause, or (c) confer upon
Participant any right to participate in any employee welfare or benefit plan or
other program of the Company or any of its subsidiaries other than the Plan.
Participant hereby acknowledges and agrees that the Company and each of its
subsidiaries may terminate the employment or contract of Participant at any time
and for any reason, or for no reason, unless Participant and the Company or such
subsidiary are party to a written employment, consulting or other agreement that
expressly provides otherwise.
12. Governing Law. This Agreement and the Option granted hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of California without reference to choice or conflict of law principles.
IN WITNESS WHEREOF, the Company and Participant have duly executed this
Agreement as of the Date of Grant.
VALUESTAR CORPORATION
By: James Stein
3
<PAGE>
Title: President and CEO
PARTICIPANT
Signature
Street Address
City, State and Zip Code
Social Security Number
4
EXHIBIT 6.9
1997 EMPLOYEE STOCK COMPENSATION PLAN
VALUESTAR CORPORATION
1. Purpose of the Plan.
This 1997 Employee Stock Compensation Plan ("Plan") is intended to further the
growth and advance the best interests of VALUESTAR CORPORATION, a Colorado
corporation (the "Company"), and Affiliated Corporations, by supporting and
increasing the Company's ability to attract, retain and compensate persons of
experience and ability and whose services are considered valuable, to encourage
the sense of proprietorship in such persons, and to stimulate the active
interest of such persons in the development and success of the Company and
Affiliate Corporations. This Plan provides for stock compensation through the
award of the Company's Common Stock.
2. Definitions.
Whenever used in this Plan, except where the context might clearly indicate
otherwise, the following terms shall have the meanings set forth in this
section:
a. "Act" means the U.S. Securities Act of 1933, as amended.
b. "Affiliated Corporation" means any Parent or Subsidiary of the Company.
c. "Award" or "grant" means any grant or sale of Common Stock made under this
Plan.
d. "Board of Directors" means the Board of Directors of the Company. The term
"Committee" is defined in Section 4 of this Plan.
e. "Code" means the Internal Revenue Code of 1986, as amended.
f. "Common Stock" or "Common Shares" means the common stock, $.00025 par value
per share, of the Company, or in the event that the outstanding Common Shares
are hereafter changed into or exchanged for different shares of securities of
the Company, such other shares or securities.
g. "Date of Grant" means the day the Committee authorizes the grant of Common
Stock or such later date as may be specified by the Committee as the date a
particular award will become effective.
h. "Employee" means any person or entity that renders bona fide services to the
Company, including, without limitation, a person employed by the Company or an
affiliated Corporation; but specifically excluding persons who are directors or
executive officers of the Company or any Affiliated Corporation.
i. "Parent" means any corporation owning 50% or more of the total combined
voting stock of all classes of the Company or of another corporation qualifying
as a Parent within this definition.
j. "Participant" means an Employee to whom an Award of Plan Shares has been
made.
k. "Plan Shares" means shares of Common Stock from time to time subject to this
Plan
l. "Subsidiary" means a corporation more than 50% of whose total combined
capital stock of all classes is held by the Company or by another corporation
qualifying as a Subsidiary within this definition.
3. Effective Date of the Plan.
The effective date of this Plan is March 14, 1997. No Plan shares may be issued
after June 30, 1997.
4. Administration of the Plan.
The Employee Stock Compensation Committee of the Board of Directors
("Committee"), and in default of the appointment or continued existence of such
Committee, the Board of Directors, will be responsible for the administration of
this Plan, and will have sole power to award Common Shares under this Plan.
Subject to the express provisions of this Plan, the Committee shall have full
authority and sole and absolute discretion to interpret this Plan, to prescribe,
amend and rescind rules and regulations relating to it, and to make all other
determinations which it believes to be necessary or advisable in administering
this Plan. The determination of those eligible to receive an award of Plan
Shares shall rest in the sole discretion of the Committee, subject to the
provisions of this Plan. Awards of Plan Shares may be made as compensation for
services rendered, directly or in lieu of other compensation payable, as a bonus
in recognition of past service or performance or may be sold to an Employee as
herein provided. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in this Plan in such manner and to such extent it
shall deem necessary to carry it into effect. Any decision made, or action
taken, by the Committee arising out of or in connection with the interpretation
and administration of this Plan shall be final and conclusive.
5. Stock Subject to the Plan.
The maximum number of Plan Shares which may be awarded under this Plan is 4,000
Common Shares.
1
<PAGE>
6. Persons Eligible to Receive Awards.
Awards may be granted only to Employees (as herein defined).
7. Grants or Awards of Plan Shares.
Except as otherwise provided herein, the Committee shall have complete
discretion to determine when and to which Employees Plan Shares are to be
granted, and the number of Plan Shares to be awarded to each Employee. A grant
to an Employee may be made for services rendered or other form of payment
constituting lawful consideration under applicable law; Plan Shares awarded
other than for services rendered shall be sold at not less than the fair value
thereof on the date of grant. No grant will be made if, in the judgment of the
Committee, such a grant would constitute a public distribution with the meaning
of the Act or the rules and regulations promulgated thereunder.
8. Delivery of Stock Certificates.
As promptly as practicable after authorizing an award of Plan Shares, the
Company shall deliver to the person who is the recipient of the award, a
certificate or certificates registered in that person's name, representing the
number of Plan Shares that were granted. Unless the Plan Shares have been
registered under the Act, each certificate evidencing Plan Shares shall bear a
legend to indicate that such shares represented by the certificate were issued
in a transaction which was not registered under the Act, and may only be sold or
transferred in a transaction that is registered under the Act or is exempt from
the registration requirements of the Act. In the absence of registration under
the Act, any person awarded Plan Shares may be required to execute and deliver
to the Company an investment letter, satisfactory in form and substance to the
Company, prior to issuance and delivery of the shares.
9. Assignability.
An award of Plan Shares may not be assigned. Plan Shares themselves may be
assigned only after such shares have been awarded, issued and delivered, and
only in accordance with law and any transfer restrictions imposed at the time of
award.
10. Employment not Conferred.
Nothing in this Plan or in the award of Plan Shares shall confer upon any
Employee the right to continue in the employ of the Company or Affiliated
Corporation nor shall it interfere with or restrict in any way the lawful rights
of the Company or any Affiliated Corporation to discharge any Employee at any
time for any reason whatsoever, with or without cause.
11. Laws and Regulations.
The obligation of the Company to issue and deliver Plan Shares following an
award under this Plan shall be subject to the condition that the Company be
satisfied that the sale and delivery thereof will not violate the Act or any
other applicable laws, rules or regulations.
12. Withholding of Taxes.
If subject to withholding tax, the Company or any Affiliated Corporation may
require that the Employee concurrently pay to the Company the entire amount or a
portion of any taxes which the Company or Affiliated Corporation is required to
withhold by reason of granting Plan Shares, in such amount as the Company or
Affiliated Corporation in its discretion may determine. In lieu of part or all
of any such payment, the Employee with the consent of the Committee may elect to
have the Company or Affiliated Corporation withhold from the Plan Shares issued
hereunder a sufficient number of shares to satisfy withholding obligations. If
the Company or Affiliated Corporation becomes required to pay withholding taxes
to any federal, state or other taxing authority as a result of the granting of
Plan Shares, and the Employee fails to provide the Company or Affiliated
Corporation with the funds with which to pay that withholding tax, the Company
or Affiliated Corporation may withhold up to 50% of each payment of salary or
bonus to the Employee (which will be in addition to any required or permitted
withholding), until the Company or Affiliated Corporation has been reimbursed
for the entire withholding tax it was required to pay in respect of the award of
Plan Shares.
13. Reservation of Shares.
The stock subject to this Plan shall at all times, consist of authorized but
unissued Common Shares, or previously issued shares of Common Stock reacquired
or held by the Company or an Affiliated Corporation equal to the maximum number
of shares the Company may be required to issue as stated in Section 5 of this
Plan, and such number of Common Shares hereby is reserved for such purpose. The
Committee may decrease the number of shares subject to this Plan, but only the
Board of Directors may increase such number, except as a consequence of a stock
split or other reorganization or recapitalization affecting all Common Shares.
2
<PAGE>
14. Amendment and Termination of the Plan.
The Committee may suspend or terminate this Plan at any time or from time to
time but no such action shall adversely affect the rights of a person granted an
Award under this Plan prior to that date. Otherwise, this Plan shall terminate
on the earlier of the terminal date stated in Section 3 of this Plan or the date
when all Plan Shares have been issued. The Committee shall have absolute
discretion to amend this Plan, subject only to those limitations expressly set
forth herein; however, the Committee shall have no authority to extend the term
of this Plan, to increase the number of Plan Shares subject to award under this
Plan or to amend the definition of "Employee" to include executive officers or
directors of the Company or any Affiliated Corporation.
15. Delivery of Plan.
A copy or synopsis (for which copy the prospectus will serve) or description of
this Plan shall be delivered to every person to whom an award of Plan Shares is
made. The Secretary of the Company may, but is not required to, also deliver a
copy of the resolution or resolutions of the Committee authorizing the award.
16. Liability.
No member of the Board of Directors, the Committee or any other committee of
directors, or officers, employees or agents of the Company or any Affiliated
Corporation shall be personally liable for any action, omission or determination
made in good faith in connection with this Plan.
17. Miscellaneous Provisions.
The place of administration of this Plan shall be in the State of California (or
subsequently, wherever the Company's principal executive offices are located),
and the validity, construction, interpretation and effect of this Plan and of
its rules, regulations and rights relating to it, shall be determined solely in
accordance with the laws of the State of California. All expenses of
administering this Plan and issuing Plan Shares shall be borne by the Company.
18. Reorganizations and Recapitalizations of the Company.
(a) The shares of Common Stock subject to this Plan are shares of the Common
Stock of the Company as currently constituted. If, and whenever, the Company
shall effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a Common Stock dividend, a stock split, combination
of shares (reverse stock split) or recapitalization or other increase or
reduction of the number of shares of the Common Stock outstanding without
receiving compensation therefor in money, services or property, then the number
of shares of Common Stock subject to this Plan shall (i) in the event of an
increase in the number of outstanding shares, be proportionately increased; and
(ii) in the event of a reduction in the number of outstanding shares, be
proportionately reduced.
(b) Except as expressly provided above, the Company's issuance of shares of
Common Stock of any class, or securities convertible into shares of Common Stock
of any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into or
exchangeable for shares of Common Stock or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to this Plan.
By signature below, the undersigned officers of the Company hereby certify that
the foregoing is a true and correct copy of the 1997 Employee Stock Compensation
Plan of the Company.
DATED: March 14, 1997
VALUESTAR CORPORATION
By /s/ JAMES STEIN
James Stein
President and CEO
ATTEST:
BY /s/ BENJAMIN PITTMAN
Benjamin Pittman
Secretary
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Audited
Financial Statements for fiscal year ended June 30, 1996 and interim financial
statements for 9 months ended March 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> MAR-31-1997 JUN-30-1996
<CASH> 163,854 454,809
<SECURITIES> 0 0
<RECEIVABLES> 213,366 99,803
<ALLOWANCES> 9,372 6,793
<INVENTORY> 39,037 15,330
<CURRENT-ASSETS> 418,517 573,167
<PP&E> 63,831 54,434
<DEPRECIATION> 5,915 8,087
<TOTAL-ASSETS> 725,909 752,680
<CURRENT-LIABILITIES> 585,728 295,486
<BONDS> 100,000 0
<COMMON> 2,018 1,757
0 0
0 0
<OTHER-SE> 3,131,165 2,306,355
<TOTAL-LIABILITY-AND-EQUITY> 725,909 752,680
<SALES> 0 0
<TOTAL-REVENUES> 578,175 410,269
<CGS> 0 0
<TOTAL-COSTS> 268,905 186,592
<OTHER-EXPENSES> 1,546,354 978,906
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,000 4,099
<INCOME-PRETAX> (1,242,084) (759,328)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,242,084) (759,328)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,242,084) (759,328)
<EPS-PRIMARY> (0.18) (0.14)
<EPS-DILUTED> (0.18) (0.14)
</TABLE>
