As Filed with the Securities and Exchange Commission on October 27, 1998
Registration No. 333-______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VALUESTAR CORPORATION
(Name of Small Business Issuer in its charter)
Colorado 84-1202005
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1120A Ballena Blvd.
Alameda, California 94501
(510) 814-7070
(Address and telephone number of principal executive offices)
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James Stein, President
VALUESTAR CORPORATION
1120A Ballena Blvd.
Alameda, California 94501
(510) 814-7070
(Name, address and telephone number of agent for service)
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Copy to:
Bruce P. Johnson, Esq.
VENTURE COUNSEL ASSOCIATES, LLP
1999 Harrison Street, Suite 1300
Oakland, California 94612
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
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If the only securities registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to rule 415 under the securities act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- --------------------------------------------- ---------------------- -------------------- ---------------------- ------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Share Price(1) Registration Fee
- --------------------------------------------- ---------------------- -------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Common Stock, $.00025 par value 2,748,815 shares $0.78125 $2,147,512 $598.00
===================================================================================================================================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1993 based on the average
of the bid and asked prices for the Common Stock on October 26, 1998, as
reported by the OTC Bulletin Board.
</FN>
</TABLE>
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED _________________, 1998
VALUESTAR CORPORATION
UP TO 2,748,815 SHARES OF COMMON STOCK
This is a public offering of up to 2,748,815 shares of common stock of
ValueStar Corporation. All of these shares are being offered by the selling
shareholders identified in this prospectus. ValueStar will not receive any
proceeds from the sale of the shares in this offering. The shares offered in
this prospectus may be sold from time to time by the selling shareholders in the
national over-the-counter market at their prevailing prices, or in negotiated
transactions.
ValueStar's common stock is traded on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board ("OTC Bulletin Board") under
the symbol "VSTR." On October ___, 1998, the OTC Bulletin Board reported that
the bid price per share was $________ and the asked price per share was
$________.
The shares of common stock offered by this prospectus consist of shares
which may be issued under currently outstanding warrants and convertible
promissory notes held by the selling shareholders. The warrants may be exercised
for up to 2,125,000 shares of common stock, and the promissory notes may be
converted into up to 623,815 shares of common stock. However, the number of
shares issuable under the promissory notes could be less, depending on the
actual dates of conversion. The selling shareholders will likely not convert the
notes or exercise any warrants into shares covered by this prospectus unless and
until the market price of the common stock exceeds the conversion or exercise
prices, which range from $0.75 to $2.00 per share.
This investment involves a high degree of risk. You should purchase shares
only if you can afford a complete loss. See "Risk Factors" beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The shares of common stock offered by this prospectus have not been
registered under the blue sky or securities laws of any jurisdiction, and any
broker or dealer should assure itself of the existence of an exemption from
registration or the effect of such registration in connection with the offer and
sale of such shares.
Prospectus dated __________, 1998.
<PAGE>
TABLE OF CONTENTS
The Company..................................................................4
Risk Factors.................................................................6
Use of Proceeds.............................................................14
Plan of Distribution........................................................14
Selling Shareholders........................................................15
Dividend Policy.............................................................16
Indemnification For Securities Act Liabilities..............................16
Legal Matters...............................................................16
Experts.....................................................................16
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WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission ("SEC"). We also file annual, quarterly and
special reports and other information with the SEC. You may read and copy any
document we file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices in New York and
Chicago. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. You may also examine our SEC filings through the SEC's
web site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until the selling shareholders have sold all the shares
offered by this prospectus.
1. The Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998, filed with the SEC on September 21, 1998.
2. The description of ValueStar's common stock contained in the
Registration Statement on Form 10-SB filed with the SEC on May 29,
1997, together with all amendments or reports filed for the purpose of
updating such description.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
James Stein, President,
ValueStar Corporation
1120A Ballena Blvd., Alameda, California, 94501
Telephone: 510-814-7070.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We are not making an offer of
the shares of common stock in any state where the offer is not permitted. You
should not assume that the information in his prospectus or any supplement is
accurate as of any date other than the date on the front of those documents.
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THE COMPANY
We are a consumer research and rating company that has designed a new
rating system and a certification mark, ValueStar Certified(R), for service
businesses. Our rating system is designed to enable consumers to determine
quickly and easily those local service businesses that have attained the highest
level of consumer satisfaction. We generate our recurring revenues through the
following activities:
o Conducting customer satisfaction research on local service companies in
150 industries (including auto, home health, personal and
professional).
o Licensing our certification mark to highly rated businesses.
o Selling brochures and related materials to business licensees.
Our strategy is to use consumers' experience with product ratings to market
our rating and certification services to consumer service providers. We research
and measure prior customer satisfaction to rate and certify providers of
consumer services. We believe our ratings service reduces the guesswork involved
in selecting a service business among those businesses making competing and
often unsubstantiated claims. We have operated to date primarily in Northern
California, and have recently begun to expand into the Los Angeles area.
To increase consumer awareness of our branded ratings and to identify
highly rated services for consumers we:
o License our ValueStar Certified(R) certification mark to businesses for use
in their marketing activities.
o Publish and distribute free to consumers the Consumer ValueStar Report
("CVR"). The CVR contains a listing of highly-rated service businesses and
consumer information and is distributed every six months in market regions
served by ValueStar.
o Provide free listings of highly-rated businesses on the Internet at the
www.valuestar.com site on the World Wide Web. Our goal is to make
interactive shopping for services easier for consumers in the growing
Internet shopping market.
o Promote ValueStar benefits to consumers and the meaning of our branded
ratings through public relations activities, paid commercial advertising
and cooperative advertising with licensees. ValueStar brand awareness is
also promoted to consumers by its extensive use by licensees in their own
sales and marketing communications.
We were originally incorporated in Colorado on January 28, 1987 as Carson
Capital Corporation. On September 21, 1992, our name was changed to ValueStar
Corporation. We commenced operations in June 1992, when we purchased ValueStar,
Inc., a California corporation, from James Stein (our President, Chief Executive
Officer and a Director). Our operations are conducted through ValueStar, Inc.,
which was incorporated on September 5, 1991.
During late 1990 and 1991, James Stein developed the basic operating
concept of the ValueStar Certified mark which indicates high consumer
satisfaction. 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. He also commissioned a service
business feasibility study to determine the potential market for ValueStar
Certified among service businesses in the San Francisco 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.
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Based on the information from those studies and research and using Mr.
Stein's own research and prior experience in the Yellow Page publishing
industry, during late 1991 we developed initial marketing and support materials.
We also engaged The Public Research Institute, an auxiliary unit of SFSU, to
perform or audit surveys of each ValueStar business applicant's former customers
to provide a confidential, unbiased and scientific survey of customer
satisfaction.
Our sales and licensing activities commenced in the greater San Francisco,
California area in 1992. In mid-1994, we introduced the Consumer ValueStar
Report. In January 1996, we launched our Internet strategy and established a
World Wide Web site at www.valuestar.com. In July 1996, we expanded to the
greater Sacramento, California area, and in the first half of 1998, we expanded
to two additional Northern California counties. At June 30, 1998, we were rating
businesses in 17 counties in Northern California, which we consider to be one
market region. In July 1998, we commenced initial marketing to service
businesses in our second market region, the greater Los Angeles area.
At September 30, 1998, we had 1,250 active licensees in California.
Renewal rates for the prior two fiscal years have exceeded 70%.
As the creator of this new rating category of consumer services businesses,
our objective is to leverage our leading position in Northern California to
become the leading national rating brand of local service companies. Our goals
are to:
o expand into additional regions in the United States.
o maintain high business renewal rates.
o increase ValueStar Certified brand recognition.
o develop incremental revenue opportunities in new and existing markets.
We will need to draw on significant management and financial resources to
effect this expansion. The planned growth will also require additional financing
and management resources. We cannot guarantee that we will be able to obtain
adequate financing or management to effect these expansion plans.
Our principal executive office is located at 1120A Ballena Blvd., Alameda,
California 94501, and our telephone number is (510) 814-7070. Our web site on
the Internet is at www.valuestar.com.
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RISK FACTORS
The securities which are offered hereby involve a high degree of risk. You
should consider carefully the following factors and other information in this
prospectus, before deciding to invest in shares of common stock.
Limited Operating History; History of Losses and Anticipation of Future Losses
ValueStar commenced sales and licensing activities in 1992 and launched its
Internet strategy in 1996. ValueStar's business of rating and certifying local
services businesses is in its early stage of development. ValueStar has had
limited financial results upon which you may base an assessment of our
potential. In addition, ValueStar has recorded net losses each year since its
inception and expects to continue to incur significant losses for the
foreseeable future, due partly to its expansion efforts into new regions.
ValueStar incurred a net loss of $1,577,181 in fiscal 1998 and $1,497,812 in
fiscal 1997, and as of June 30, 1998, had an accumulated deficit of
approximately $5,419,000. If ValueStar is to become and remain profitable, it
will need to, among other things, increase revenues from sales and licensing
efforts in current and new market regions. Should ValueStar continue to expand
to new regions, it will incur operating losses due to start up and other costs.
ValueStar may not be able to become or remain profitable.
Possible Inability to Continue as a Going Concern
ValueStar has suffered recurring losses from operations. It has also relied upon
debt and equity financing to fund these losses and cash flow deficits. Cash
flows from future operations may not be sufficient to enable ValueStar to become
profitable, or to meet its debts as they come due. As a result, ValueStar may
not be able to continue as a going concern. If ValueStar is to remain as a going
concern, it will need to become and remain profitable and will also need
significant additional financing. It may also need to cut back on its growth.
ValueStar may not be successful in obtaining new financing or in achieving
profitability.
Future Capital Needs; Uncertainty of Additional Financing
ValueStar needs substantial working capital to fund its operating losses.
ValueStar believes that it will require a minimum of $750,000 to finance planned
operations during the next twelve months. This estimate is based on anticipated
renewal revenues, sales levels, licensee growth and operating costs. However,
actual results could differ significantly from these estimates, and ValueStar
may need substantially more financing than it has estimated. Any funds raised
through equity issuances may significantly dilute our existing shareholders.
ValueStar may be unable to obtain adequate financing on acceptable terms when
needed. If ValueStar can not raise funds when needed, it may be required to
curtail or scale back marketing expenditures, general operations and new growth
efforts and to focus on more highly profitable renewals. These actions could
have a material adverse effect on ValueStar's business and results of
operations. ValueStar may not be able to scale back operations successfully and
continue as a going concern.
Competition and Technological Change Could Adversely Affect Operations
Although ValueStar does not know of a directly competitive mark or rating
service targeted to a broad range of service industries, it expects competition
to develop in the future. ValueStar currently competes for the limited
advertising and promotion budgets of service and professional businesses.
Current and potential competition includes Yellow Page publishers, newspapers
and periodicals, radio and television stations, Internet directories and other
forms of advertising used in the consumer services marketplace. Referral
agencies, telephone services, complaint agencies, service guide publishers, and
industry-specific
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certification marks are also competitors. The competition for service business
advertising and promotional funds is intense. There are many competing firms and
a wide variety of product offerings. Most of these firms are much larger and
have greater financial resources than ValueStar. ValueStar may not be able to
compete successfully in its chosen markets.
A business rating service and certification mark similar to ValueStar's may be
developed, and future competitors may try to duplicate ValueStar's concept.
ValueStar could face head-on competition from vastly larger and better financed
companies.
Technological changes in the manner consumers select service businesses and the
way businesses communicate information to consumers could also have a negative
impact on ValueStar's business. As a provider of consumer information through
the Internet and various media, we will need to adapt to new and changing
technologies. ValueStar's services may not remain viable or competitive in the
face of intense competition or technological change.
Dependence on Key Personnel
ValueStar believes that its success is substantially dependent upon the
continued employment of its senior management team led by James Stein, its
President and Chief Executive Officer. If Mr. Stein or other members of
ValueStar's management team leave ValueStar, ValueStar's business and financial
results could be materially adversely affected, especially since it may not have
the funds to hire management personnel with the requisite expertise. ValueStar
has a $2 million key-man life insurance policy on Mr. Stein. ValueStar will also
need to attract and retain highly qualified sales, marketing, and technical
personnel and management. Competition for such personnel is intense, and
ValueStar may not be able to retain its key management and personnel or to
attract or retain additional qualified personnel and management in the future.
Unpredictability of Future Revenues; Fluctuations in Operating Results
As a result of ValueStar's limited operating history and the emerging nature of
its new rating system, ValueStar is not able to accurately forecast its
revenues. However, a significant portion of ValueStar's expenses such as rent,
personnel, occupancy costs, selling and other costs, are relatively fixed in
advance, based largely on ValueStar's estimate of future revenues. If revenues
are below expectations in any given period, the adverse effect of this shortfall
could be magnified by ValueStar's inability to adjust spending to compensate.
ValueStar also intends to increase its operating expenses to expand its service
in new markets, to fund increased sales and marketing and to develop its
technology infrastructure. These increased expenses will cause increased net
losses in the future if ValueStar's revenues do not increase.
ValueStar expects its future operating results to fluctuate due to many factors,
many of which are outside of ValueStar's control. Factors that may affect
ValueStar's operating results include, but are not limited to, the following:
o The availability and cost of funds to finance operations.
o The timing and amount of rating and certification payments from ValueStar's
customers.
o ValueStar's ability to retain existing business customers through renewals,
to attract new business customers at a steady rate and to maintain customer
satisfaction.
o The amount of resources expended by ValueStar for marketing and promotion.
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o The timing and number of new business being rated.
o ValueStar's capacity to perform business ratings, and the level of consumer
acceptance of ValueStar's ratings.
o The announcement or introduction of new or enhanced services by ValueStar
or its competitors.
o The amount of traffic on ValueStar's web site.
o The amount of expenditures for marketing and promotion by ValueStar's
business customers.
o ValueStar's ability to upgrade and develop its systems and attract
personnel in a timely and effective manner.
o The amount and timing of operating costs and capital expenditures to expand
ValueStar's business and infrastructure.
o General economic conditions, and political or economic events affecting the
market regions in which ValueStar operates.
Unfavorable changes in any of the above or other factors could adversely affect
ValueStar's revenues, margins and results of operations in future periods.
Finally, ValueStar's annual or quarterly results of operations may be below the
expectations of public market analysts or investors, which could materially and
adversely affect the market price of the common stock.
Reliance on Third Parties for Important Services and Products
ValueStar's operations depend on a number of third parties. ValueStar has
limited control over these third parties and in general has no long-term
relationships with them. ValueStar has a contract with the Public Research
Institute of San Francisco State University to audit its ratings and provide
other services. The termination of this arrangement could adversely effect
operations.
ValueStar relies on an Internet service provider to connect its web site to the
Internet. Disruption, temporary or prolonged, of its web site could have an
adverse effect on ValueStar's business.
ValueStar also depends on third parties to print and distribute its CVR report.
Any problems that ValueStar may experience with the quality, pricing or
allocation of the services and products it purchases from these third parties
could adversely affect ValueStar's services to its customers and therefore may
have a material adverse affect on its operating results.
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Developing Market; Uncertain Acceptance and Risks Associated with Roll-Out to
New Markets
ValueStar's business model of consumer services business rating and
certification is a new and evolving format, and market demand and acceptance are
highly uncertain. Although ValueStar believes that the market factors affecting
its growth in Northern California are similar throughout the United States,
ValueStar's business model may not be widely accepted in new regions.
ValueStar believes that the success of its business will depend in part on
increasing brand recognition. Development and awareness of ValueStar's rating
brand will depend on the co-operative or co-branding efforts of ValueStar and
licensees and the success in maintaining its position as a leader in the rating
of local service businesses.
ValueStar will need to introduce its rating and certification service in
additional market regions in the United States and internationally to grow its
business. The additional expenses required for expansion could strain
ValueStar's management, financial and operational resources. ValueStar may not
succeed in expanding its rating and certification service, and the service may
not be accepted in new regional markets entered by ValueStar. Failure to expand
into new markets in a timely and cost effective manner or the lack of market
acceptance of ValueStar's services would have a material adverse effect on
ValueStar's business, financial condition and results of operations.
Managing a Growing and Changing Business
Expansion of ValueStar's business and other factors have placed and are expected
to continue to place demands on its administrative, operational and financial
resources. ValueStar will need successfully to manage its growth and to adapt
its administrative, operational and financial control systems. The failure of
management to anticipate, respond to and manage changing business conditions
could have a material adverse effect on ValueStar's business and results of
operations. Future growth will also require additional qualified management.
ValueStar may not be able to attract appropriate personnel in the future to
manage a growing and changing business.
Reliance on and Protection of Trademarks and Intellectual Property
ValueStar regards its trademarks, copyrights, trade secrets and similar
intellectual property as critical to its success. ValueStar relies on a
combination of copyright and trademark laws, trade secret protection,
confidentiality and contractual provisions with certain employees and third
parties to establish and protect its proprietary rights. The measures taken by
ValueStar to establish and protect its trademarks and other proprietary rights
may be inadequate to prevent imitation or unauthorized use of its products and
services by others or to prevent others from claiming violations of their
trademarks and proprietary rights. Any misappropriation by competitors or
unauthorized use by service businesses of the trademark "ValueStar" or the
"ValueStar Certified" certification mark could have a material adverse impact on
ValueStar's operations.
A number of companies claim proprietary rights to certain aspects of Internet
operations. Although ValueStar is not aware of any aspect of its Internet
operations that may infringe on the rights of other companies, claims may be
made against ValueStar in the future.
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Potential Liability for Internet Content
As a distributor of proprietary Internet content, ValueStar faces potential
liability for negligence, copyright, patent, trademark, defamation, indecency
and other claims based on the materials that it makes available to Internet
users. Although ValueStar maintains general liability insurance, ValueStar's
insurance may not cover potential claims of this type or may not be adequate to
cover all liability that may be imposed. Although ValueStar generally requires
its licensees to indemnify ValueStar for certain aspects of such liability, such
indemnification may be inadequate. Any liability imposed that is not covered by
insurance, is in excess of insurance coverage or is not covered by an
indemnification by licensees could have a material adverse effect on ValueStar's
business and financial condition.
Dependence on Continued Growth of the Internet
The rapid growth in use of the Internet is a recent phenomenon and may not
continue. ValueStar will need a sufficient base of Internet users to benefit its
business. Because global commerce and on-line exchange of information on the
Internet is new and evolving, it is unclear whether the Internet will prove to
be a viable commercial marketplace. Although ValueStar's business is not
currently dependent on the Internet, ValueStar expects that future revenues from
new Internet-based services and products will depend on the widespread
acceptance and use of electronic commerce over the Internet for service
businesses. If use of the Internet does not continue to grow or grows more
slowly than expected, or if the Internet infrastructure does not effectively
support the growth that may occur, ValueStar's future business, results of
operations and financial condition could be adversely affected.
Year 2000 Computer Software Problem Could Adversely Impact Operations
ValueStar is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. ValueStar, like most owners of computer software, will be
required to modify significant portions of its software so that it will function
properly in the Year 2000. Preliminary estimates of the total costs to be
incurred by ValueStar to resolve this problem range from $10,000 to $20,000.
ValueStar mainly uses third party "off-the-shelf" software, and it does not
anticipate a problem in resolving the Year 2000 problem in a timely manner.
ValueStar is currently taking steps to ensure that its computer systems and
services will continue to operate on and after January 1, 2000. However, there
can be no assurance that Year 2000 problems will not occur with respect to
ValueStar's computer systems.
The Year 2000 problem may impact other entities with which ValueStar transacts
business, and ValueStar cannot predict the effect of the Year 2000 problem on
such entities or the economy in general, or the resulting effect on ValueStar.
As a result, if preventative and/or corrective actions by ValueStar and those
companies with whom ValueStar does business are not made in a timely manner, the
Year 2000 issue could have a material adverse effect on ValueStar's business,
financial condition and results of operations. ValueStar has not yet developed a
contingency plan to operate in the event that any noncompliant critical systems
are not remedied by January 1, 2000, but it intends to develop such a plan in
the near future.
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Government Regulation and Legal Uncertainties
ValueStar is not currently subject to direct regulation, other than federal and
state regulation applicable to businesses generally. ValueStar may be subject to
claims by consumers for actions of its licensees or other claims incident to its
business operations. Although ValueStar maintains general liability insurance,
this insurance may not cover potential claims of this type or may not be
adequate to indemnify ValueStar for all liability that may be imposed. In
addition, although ValueStar requires its licensees to indemnify ValueStar for
such liabilities, such indemnification may not be adequate. Current or new laws
and regulations, legal uncertainties or legal claims may expose ValueStar to
significant liabilities or otherwise cause a material adverse effect on its
business, results of operations or financial condition.
ValueStar primarily uses telemarketing to conduct its consumer research.
ValueStar also uses telemarketing to market its program to service businesses.
ValueStar does not call consumers to sell any program or service but could still
be impacted by certain telemarketing regulations.
The telemarketing industry has become subject to an increasing amount of Federal
and state regulation as well as general public scrutiny in the past several
years. For example, the Federal Telephone Consumer Protection Act of 1991 limits
the hours during which telemarketers may call consumers and prohibits the use of
automated telephone dialing equipment to call certain telephone numbers.
Additionally, the Federal Telemarketing and Consumer Fraud and Abuse Prevention
Act of 1994 and Federal Trade Commission ("FTC") regulations promulgated
thereunder, prohibit deceptive, unfair or abusive practices in telemarketing
sales. Both the FTC and state attorneys general have authority to prevent
telemarketing activities deemed by them to be "unfair or deceptive acts or
practices." Further, some states have enacted laws and others are considering
enacting laws targeted directly at regulating telemarketing practices, and there
can be no assurance that any such laws, if enacted, will not adversely affect or
limit ValueStar's current or future operations.
Compliance with these regulations is generally the responsibility of ValueStar,
and ValueStar could be subject to a variety of enforcement or private actions
for any failure to comply with such regulations. The risk of noncompliance by
ValueStar with any rules and regulations enforced by a Federal or state consumer
protection authority may subject ValueStar or its management to fines or various
forms of civil or criminal prosecution, any of which could materially adversely
affect ValueStar's business, financial condition and results of operations.
Also, the media often publicizes perceived non-compliance with consumer
protection regulations and violations of notions of fair dealing with consumers
and small businesses. Any adverse media exposure could have a material negative
impact on ValueStar and its operations.
Possible Market Overhang of Stock Obtained on Conversion or Exercise
Should the market price of ValueStar's common stock appreciate and the selling
shareholders convert their convertible notes or exercise their warrants,
additional shares will be outstanding that are not subject to restrictions on
resale. Sales of substantial amounts of shares in the public market following
conversion or exercise, or the prospect of such sales, could adversely affect
the market price of the common stock.
Stock Trading Risks and Uncertainties
The OTC Electronic Bulletin Board is a screen-based trading system administered
by the NASD. Securities traded on the OTC 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 system or on a national securities exchange.
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Like securities of other small, growth-oriented companies, ValueStar's shares
are expected to experience future significant price and volume volatility,
increasing the risk of ownership to investors. Because ValueStar's common stock
is thinly traded, sales of substantial amounts of common stock in the public
market by one or more holders could adversely and dramatically affect its
prevailing market price.
The stock price may be affected by the following factors, among others:
o Future announcements concerning ValueStar or its competitors,
o quarterly variations in operating results,
o announcements of technological or service innovations,
o the introduction of new products or services,
o changes in pricing policies by ValueStar or competitors,
o litigation relating to services or other litigation,
o changes in performance estimates by analysts or others, or
o issuances of or registration of additional securities.
Other unforeseen factors could also 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.
ValueStar's common stock is currently defined as "penny stocks" under the
Securities Exchange Act of 1934 and rules of the Securities and Exchange
Commission. These rules generally impose additional sales practice and
disclosure requirements upon broker-dealers who sell ValueStar'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 disclosures
in penny stock transactions, including the actual sale or purchase price and
actual bid and offer quotations and the compensation to be received by the
broker-dealer and certain associated persons, and must deliver certain
disclosures required by the Securities and Exchange Commission. These penny
stock rules may affect the ability of broker-dealers to make a market in or
trade ValueStar's shares and may also affect the ability of purchasers of shares
to resell those shares in the public markets.
Anti-Takeover Provisions
ValueStar is authorized to issue up to 5,000,000 shares of preferred stock
without shareholder approval. Such issuance could make it more difficult for a
third party to acquire ValueStar.
12
<PAGE>
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Certain statement made in this prospectus and in the documents incorporated by
reference are forward-looking statements within the meaning of the Private
Securities Litigation Act of 1995 (the "Reform Act"). These statement are
subject to the safe harbors of the Reform Act. These forward-looking statements
include, without limitation, the plans, objectives and estimates of ValueStar
relating to its future operations, products and economic performance, statements
about potential competition, and statements regarding potential markets for
ValueStar's products. ValueStar has based these forward-looking statements upon
current expectations that involve a number of risks and uncertainties. ValueStar
has made assumptions with respect to, among other things, future economic,
competitive and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of ValueStar. Any of the assumptions could prove inaccurate, and the
results contemplated in forward-looking information may not be realized. The
business and operations of ValueStar are subject to substantial risks, including
risks described above in "Risk Factors," which increase the uncertainty inherent
in such forward-looking statements. Any of these factors could cause actual
results to vary materially from the results contemplated in the forward-looking
statements. You should not assume that the forward-looking statements in this
prospectus means that the objectives or plans of ValueStar will be achieved or
that ValueStar's estimates will prove to be accurate.
As used in this prospectus (this "Prospectus"), unless the context requires
otherwise, (i) "ValueStar" or the "Company" means ValueStar Corporation and its
predecessors and consolidated subsidiary; (ii) "Common Stock" means the common
stock, $.00025 par value per share, of ValueStar; (iii) "Offering" means the
offering of Common Stock contemplated by this Prospectus; (iv) "Selling
Stockholders" means the selling stockholders listed in this Prospectus under the
heading "Selling Stockholders;" (v) "Convertible Notes" means the convertible
promissory notes in the aggregate principal amount of $525,000, and convertible
into up to 623,815 shares of Common Stock, held by Selling Stockholders; (vi)
"Warrants" means the warrants currently exercisable into up to 2,125,000 shares
of Common Stock, held by Selling Stockholders; (vii) "Securities Act" means the
Securities Act of 1933, as amended; and (viii) "Exchange Act" means the
Securities Exchange Act of 1934, as amended.
13
<PAGE>
USE OF PROCEEDS
All proceeds from any sale of shares of Common Stock offered by the Selling
Shareholders will be received by the Selling Shareholders and not by the
Company.
The conversion of the Convertible Notes would reduce outstanding debt principal
of the Company by up to $525,000. The Company would receive proceeds from the
exercise of the Warrants of up to $2,703,125. Any proceeds from the exercise of
the Warrants will be used for general corporate purposes. A total of 400,000 of
the Warrants (proceeds of up to $350,000) have a net issuance provision
providing for cashless exercise (which would result in no cash proceeds to the
Company). The conversion price of the Convertible Notes and the exercise price
of substantially all of the Warrants is in excess of the current market price
for the Company's shares of Common Stock and, accordingly, the Selling
Shareholders would likely choose not to convert the Convertible Notes or
exercise the Warrants in the future. If no Convertible Notes or Warrants are
converted or exercised, none of the shares registered in this Offering would
become available for sale.
PLAN OF DISTRIBUTION
Each Selling Shareholder is free to offer and sell his or her shares of Common
Stock at such times, in such manner and at such prices as he or she shall
determine. The Selling Shareholders have advised the Company that sales of
shares of Common Stock may be effected from time to time in one or more types of
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through the writing of options on the Common
Stock or a combination of such methods of sale, at market prices prevailing at
the time of sale, or at negotiated prices. Such transactions may or may not
involve brokers, dealers or cash transactions. The Selling Shareholders have
advised the Company that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities, nor is there an underwriter or coordinating broker
acting in connection with the proposed sale of shares by the Selling
Shareholders. The Selling Shareholders may effect such transactions by selling
Common Stock directly to purchasers or to or through broker-dealers which may
act as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions, or commissions from the Selling Shareholders
and/or the purchasers of Common Stock for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
Selling Shareholders and any broker-dealers that act in connection with the sale
of the Common Stock might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by them and
any profit on the resale of the shares of Common Stock as principal might be
deemed to be underwriting discounts and commissions under the Securities Act.
The Selling Shareholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares of
Common Stock against certain liabilities including liabilities arising under the
Securities Act.
Because Selling Shareholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the Selling Shareholders will be
subject to prospectus delivery requirements under the Securities Act. Selling
Shareholders also may use Rule 144 under the Securities Act to sell such
securities, if they meet the criteria and conform to the requirements of such
Rule.
The Selling Shareholders are not restricted as to the price or prices at which
they may sell their shares of Common Stock. Sales of shares at less than market
prices may depress the market price of the Company's Common Stock. Moreover, the
Selling Shareholders are not restricted as to the number of shares which may be
sold at any one time, and it is possible that a significant number of shares
could be sold at the same time.
14
<PAGE>
SELLING SHAREHOLDERS
<TABLE>
The following table sets forth certain information with respect to the Selling
Shareholders. Except as set forth below, none of the Selling Shareholders is
currently an affiliate of the Company, and none of them has had a material
relationship with the Company:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Common Common
Shares Shares
Beneficially Beneficially
Owned Maximum Common Shares Maximum Owned
Before Issuable to Holders of Number After
Offering (1) ---------------------------- of Shares Offering (5)
----------------- Convertible Offered ---------------------
Selling Shareholder Number % Notes (2) Warrants (3) For Sale (4) Number %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C> <C>
J.M. Hull Associates, L.P. 0 0.0% 297,055 250,000 547,055 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Duck Partners, L.P. 0 0.0% 59,411 50,000 109,411 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Hull Overseas Ltd. 0 0.0% 237,644 200,000 437,644 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Long 0 0.0% 29,705 25,000 54,705 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Morrisett 50,000 0.6% 0 43,500 43,500 50,000 0.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Donald Wayne Brown 0 0.0% 0 43,500 43,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Robert T. Kirk 0 0.0% 0 43,500 43,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Marie S. Lima 0 0.0% 0 9,750 9,750 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Bert L. Gusrae 0 0.0% 0 9,750 9,750 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Tia Ltd. 194,946 2.2% 0 55,000 55,000 194,946 1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Neo Optics Ltd. 158,334 1.8% 0 130,000 130,000 158,334 1.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Canusa Trading Ltd. 478,172 5.5% 0 295,000 295,000 478,172 4.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Kaplan 0 0.0% 0 62,500 62,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Danielle Aach and Guy Aach 0 0.0% 0 25,000 25,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Fischer 1984 Trust 0 0.0% 0 25,000 25,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Gerald L. Ehrens 40,000 0.5% 0 12,500 12,500 40,000 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Amgest Ltd. Properties Nevada One Account 0 0.0% 0 17,500 17,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
David A. Polis 0 0.0% 0 6,250 6,250 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Mark E. Silvert 0 0.0% 0 12,500 12,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Harold S. Orchow, M.D. Profit Sharing Trust 0 0.0% 0 50,000 50,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
David Rosenblatt 0 0.0% 0 12,500 12,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Charles W. Zumpft, M.D. Ltd. Money Purchase Plan 0 0.0% 0 17,500 17,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Shirlee Ann Helton Trust 0 0.0% 0 25,000 25,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Dawayne Jacobs 50,000 0.6% 0 25,000 25,000 50,000 0.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Mike Silvert 0 0.0% 0 12,500 12,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Judith Buckingham Trust 0 0.0% 0 25,000 25,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
The Herbert Stein and Marlene Stein 1993 Living Trust 0 0.0% 0 6,250 6,250 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Eric M. Polis 25,000 0.3% 0 12,500 12,500 25,000 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Robyn B. Townsend or Randolph Townsend 0 0.0% 0 25,000 25,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
William Bannen 0 0.0% 0 12,500 12,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy Reynolds 0 0.0% 0 12,500 12,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Lana B. Carter 0 0.0% 0 25,000 25,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Dean P. Studer & Constance L. Studer Family Trust 0 0.0% 0 25,000 25,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas S. Fischer 0 0.0% 0 25,000 25,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Jonathan A. Berg 0 0.0% 0 50,000 50,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Viking Group, L.L.C. 0 0.0% 0 200,000 200,000 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Jerry E. Polis (6) 231,250 2.7% 0 62,500 62,500 231,250 2.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Jerry E. Polis Family Trust (6) 371,667 4.3% 0 27,500 27,500 371,667 3.3%
- ------------------------------------------------------------------------------------------------------------------------------------
The Polis Family LLC (6) 0 0.0% 0 12,500 12,500 0 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
James A. Barnes (7) 474,473 5.5% 0 62,500 62,500 474,473 4.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Tiffany Investments (7) 600,225 6.9% 0 20,000 20,000 600,225 5.3%
- ------------------------------------------------------------------------------------------------------------------------------------
James Stein (8) 1,241,776 14.3% 0 62,500 62,500 1,241,776 10.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Total 3,915,843 623,815 2,125,000 2,748,815 3,915,843
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Based upon a review of a shareholder transcript prepared by the Company as
of October 20, 1998 and information provided by certain Selling Shareholders.
There can be no assurance that Selling Shareholders do not beneficially own
shares in addition to those listed herein. This column excludes any shares
beneficially owned which are issuable upon exercise of the Warrants (as
described below) or conversion of the Convertible Notes or resulting from any
other options or warrants held by such Selling Shareholder.
(2) Represents shares of Common Stock issuable upon the conversion of $525,000
of the Convertible Notes beneficially owned by such persons assuming the fixed
exercise price of $1.00 per share, or 525,000 shares of Common Stock. Includes
up to 98,815 shares issuable as interest assuming the Convertible Notes are held
to the end of their term on June 30, 2001. The actual number of shares of Common
Stock issuable for interest may be less if conversion occurs prior to the due
date.
(3) Includes 262,500 shares of Common Stock issuable upon exercise of stock
purchase warrants at $1.25 per share and 262,500 shares of Common Stock issuable
upon exercise of stock purchase warrants at $2.00 per share, all issued in
connection with the sale of the Convertible Notes. Includes 500,000 common
shares issuable upon exercise of stock purchase warrants at an exercise price of
$1.25 per share issued in connection with the sale of $1,000,000 of 12%
Subordinated Promissory Notes due June 10, 2000. Includes 500,000 common shares
issuable upon exercise of stock purchase warrants at an exercise price of $1.25
per share issued in connection with the sale of common stock for cash of
$500,000. Also includes 600,000 common shares issuable upon exercise of stock
purchase warrants at an exercise prices ranging from $0.75 to $1.25 per share
issued for services and debt guarantees. All such stock purchase warrants are
described in this Prospectus as "Warrants."
(4) Includes the issuance of the maximum shares on conversion of the Convertible
Notes and exercise of the Warrants (see Notes 2 and 3).
(5) Assumes the issuance by the Company and sale of all shares of Common Stock
covered by this Prospectus. There can be no assurance that any of the Selling
Shareholders will exercise or convert the securities or sell any or all of the
shares of Common Stock offered by them hereunder.
(6) Jerry E. Polis is a director of the Company and exercises sole investment
and voting power over the shares owned by the Jerry E. Polis Family Trust and
the Polis Family LLC. Included in the shares under Mr. Polis' name are 150,000
held of record by Davric Corporation and 5,000 shares held by his spouse.
(7) James A. Barnes is a director and executive officer of the Company and as
General Partner of Tiffany Investments has investment and voting power over such
shares. Included under Mr. Barnes' name are 363,510 shares held by Sunrise
Capital, Inc., 97,629 shares held by Tiffany Investments Limited Partnership and
13, 334 shares held by Sunrise Management, Inc. Profit Sharing Plan. Mr. Barnes
has investment and voting power over these shares.
(8) James Stein is a director and executive officer of the Company. Share
ownership includes 3,000 shares held by his spouse and minor children.
</FN>
</TABLE>
15
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common Stock
and does not currently intend to do so. The Company intends to retain any future
earnings to support the development and growth of its business. Any future
determination to pay cash dividends will be at the discretion of the Company's
Board of Directors and will be dependent upon the Company's financial condition,
results of operations, cash requirements, plans for expansion, contractual
restrictions, if any, and other factors deemed relevant by the Board of
Directors.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's certificate of incorporation provides broadly for the
indemnification of the directors and officers of the Company for certain
liabilities and costs incurred by them in connection with the performance of
their duties. This indemnification may include indemnification for liabilities
arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the securities offered will be passed on for the Company by
Venture Counsel Associates, LLP, 1999 Harrison Street, Suite 1300, Oakland,
California 94612.
EXPERTS
The Consolidated Financial Statements of the Company for the years ended June
30, 1998 and June 30, 1997, respectively, have been audited by Moss Adams LLP,
independent auditors, as set forth in their report thereon included therein and
included herein by reference. Such financial statements are incorporated herein
by reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
16
<PAGE>
======================================= ========================================
Prospective investors may rely only on
the information contained in this
Prospectus. Neither ValueStar
Corporation nor the Selling Stockholders
have authorized anyone to provide
prospective investors with information Up to
different from that contained in this 2,748,815 Shares
Prospectus. This Prospectus is not an of
offer to sell nor is it seeking an offer Common Stock
to buy these securities in any
jurisdiction where the offer or sale is offered by
not permitted. The information contained
in this Prospectus is correct only as of Selling Shareholders
the date of this Prospectus, regardless
of the time of the delivery of this
Prospectus or any sale of these
securities.
No action is being taken in any
jurisdiction outside the United States
to permit a public offering of the
Common Stock or possession or
distribution of this Prospectus in any
such jurisdiction. Persons who come into
possession of this Prospectus in
jurisdictions outside the United States VALUESTAR
and Canada are required to inform CORPORATION
themselves about and to observe any
restrictions as to this Offering and the
distribution of this Prospectus
applicable in that jurisdiction.
PROSPECTUS
______________, 1998
======================================= ========================================
17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable in connection with the distribution of the securities being
registered (estimated except for the registration fee), all of which will be
borne by the Registrant, are as follows:
Registration Fee............................................. $ 598
Blue Sky Fees and Expenses................................... N/A
Legal Fees and Expenses...................................... 15,000
Accounting Fees and Expenses................................. 1,000
Miscellaneous Expenses....................................... 500
-------
Total............................................. $17,098
=======
Item 15. Indemnification of Directors and Officers.
ARTICLE VI of the Company's bylaws provides as follows:
"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."
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, 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.
II-1
<PAGE>
The full text of Article 7(c) of the Articles of Incorporation reads as follows:
"(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, 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.
II-2
<PAGE>
(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 procedure 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."
The Company presently has no directors and officers liability insurance.
If Colorado law and California law are in conflict with regard to the Company's
power or obligation to indemnify, and the issue were to be contested in Colorado
and/or California, the legal outcome is unpredictable.
Item 16. Exhibits.
The exhibits are listed in the Exhibit Index commencing at page II-6 hereof.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any facts or
events arising after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth
in this Registration Statement; and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
Provided however, that paragraphs (1)(i) and (1)(ii) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective amendment to this
Registration Statement any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the issuer's
Annual Report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Alameda, State of California on October 26, 1998.
VALUESTAR CORPORATION
By: /s/ James Stein
--------------------------------
JAMES STEIN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<CAPTION>
Name Position Date
<S> <C> <C>
/s/ JAMES STEIN President, Chief Executive Officer October 26, 1998
- -------------------- and Director (principal executive officer)
James Stein
/s/ MICHAEL J. KELLY Controller October 26, 1998
- -------------------- (principal accounting officer)
Michael J. Kelly
/s/ JAMES A. BARNES Treasurer, Secretary and Director October 26, 1998
- -------------------- (principal financial officer)
James A. Barnes
/s/ JERRY E. POLIS Director October 26, 1998
- --------------------
Jerry E. Polis
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER SEQUENTIAL DESCRIPTION
4.1 Form of Certificate evidencing Common Stock of the Company
filed as Exhibit 3.1 to the Company's Registration Statement
on Form 10-SB, as amended.
4.3 Form of 12% Promissory Note with Non-Detachable Stock Purchase
Warrants Due March 31, 2001 as amended and restated (aggregate
of $100,000 principal with two lenders) (individual agreements
differ as to payee) filed as Exhibit 4.3 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended June
30, 1998.
4.4 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) filed as
Exhibit 3.4 to the Company's Registration Statement on Form
10-SB, as amended.
4.5 Form of Stock Purchase Warrant dated June 30, 1997 granted to
three investors exercisable into an aggregate of 200,000
common shares at $1.25 per share until June 30, 2002 filed as
Exhibit 3.5 to the Company's Registration Statement on Form
10-SB, as amended.
4.6 Form of Stock Purchase Warrant dated October 27, 1997 granted
to two investors exercisable into an aggregate of 50,000
common shares at $1.25 per share until September 30, 2002
(individual warrants are for 25,000 shares each and differ as
to holder) filed as Exhibit 4.6 to the Company's Form 10-QSB
for the quarter ended December 31, 1997.
4.7 Form of Stock Purchase Warrant dated December 9, 1997 granted
to four persons for bank guarantee exercisable into an
aggregate of 250,000 common shares at $1.25 per share until
September 30, 2002 (individual warrants are for 62,500 shares
each and differ as to holder). Holders include
officers/directors James Stein and James A. Barnes and
director Jerry E. Polis. Filed as Exhibit 4.7 to the Company's
Form 10-QSB for the quarter ended December 31, 1997.
4.8 Form of Stock Purchase Warrant dated December 12, 1997 granted
to three investors exercisable into an aggregate of 200,000
common shares at $1.25 per share until December 31, 2002
(individual warrants differ as to number and holder).
Officer/director James A. Barnes is holder of a warrant on
20,000 of these shares. Filed as Exhibit 4.8 to the Company's
Form 10-QSB for the quarter ended December 31, 1997.
4.9 Form of unsecured 12% Subordinated Promissory Notes due June
30, 2000 granted to investors (individual notes differ as to
date, principal amount and holder). Filed as Exhibit 4.9 to
the Company's Form 10-QSB for the quarter ended December 31,
1997.
II-6
<PAGE>
4.10 Form of Stock Purchase Warrant granted to 12% Subordinated
Promissory Note holders (at the rate of warrants on 500 common
shares for each $1,000 of notes) exercisable at $1.25 per
common share until December 31, 2000 (each individual warrant
differs as to number of shares, date and holder). Filed as
Exhibit 4.10 to the Company's Form 10-QSB for the quarter
ended December 31, 1997.
4.11 Form of unsecured 6% Convertible Subordinated Promissory Notes
due June 30, 2001 (individual notes aggregating $525,000 were
granted to four investors and differ as to principal amount
and holder). Filed as Exhibit 4.11 to the Company's Form 8-K
dated May 21, 1998.
4.12 Form of Stock Purchase Warrant granted to 6% Convertible
Subordinated Promissory Note holders (on an aggregate of
262,500 common shares) exercisable at $1.25 per common share
until April 30, 2003 (each individual warrant differs as to
number of shares and holder). Filed as Exhibit 4.12 to the
Company's Form 8-K dated May 21, 1998.
4.13 Form of Stock Purchase Warrant granted to 6% Convertible
Subordinated Promissory Note holders (on an aggregate of
262,500 common shares) exercisable at $2.00 per common share
until April 30, 2003 (each individual warrant differs as to
number of shares and holder). Filed as Exhibit 4.13 to the
Company's Form 8-K dated May 21, 1998.
4.14 Stock Purchase Warrant between the Company and Jackson
Strategic, Inc. dated May 18, 1998 (for 50,000 shares
exercisable at $1.75 per share) and filed as Exhibit 4.14 to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1998.
4.15* Stock Purchase Warrant between the Company and Viking Group,
L.L.C., dated October 20, 1998 (for 200,000 shares exercisable
at $0.75 per share).
5.1* Opinion of Venture Counsel Associates, LLP.
23.1* Consent of Venture Counsel Associates, LLP, included in
Exhibit 5.1.
23.2* Consent of Moss Adams LLP.
- --------------------------
* Each exhibit marked with an asterisk is filed concurrently herewith. Each
exhibit not marked with an asterisk is incorporated by reference to an exhibit
previously filed by the Company as indicated above.
II-7
EXHIBIT 4.15
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.
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE 200,000 SHARES OF COMMON STOCK
THIS CERTIFIES THAT Viking Group, L.L.C. and all registered and permitted
assigns ("Holder") is entitled to purchase, on or before October 20, 2003, TWO
HUNDRED THOUSAND (200,000) shares of the common stock ("Common Stock" or
"Shares") of VALUESTAR CORPORATION (the "Corporation") upon exercise of this
Warrant along with presentation of the full purchase price as provided herein.
The purchase price of the common stock upon exercise (the "Warrant Shares") is
equal to Seventy-Five Cents ($0.75) per share (the "Exercise Price").
1. Exercise.
(a) This Warrant may be exercised one time, in whole or minimum increments of
50,000 shares, on any business day on or before the expiration date listed above
by presentation and surrender hereof to the Corporation at its principal office
of a written exercise request and the Exercise Price in lawful money of the
United States of America in the form of a wire transfer or check, subject to
collection, for the Warrant Shares specified in the exercise request. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder hereof to purchase the balance of the Warrant Shares purchasable
hereunder. Upon receipt by the Corporation of an exercise request and
representations, together with proper payment of the Exercise Price, at such
office, the Holder shall be deemed to be the holder of record of the Warrant
Shares, notwithstanding that the stock transfer books of the Corporation shall
then be closed or that certificates representing such Warrant Shares shall not
then be actually delivered to the Holder. The Corporation 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.
(b) At any time during the period from issuance to expiration (the "Exercise
Period"), the Holder may, at its option, exchange this Warrant, in whole or
minimum increments of 50,000 shares (a "Warrant Exchange"), into the number of
Warrant Shares determined in accordance with this Section (1)(b), by
surrendering this Warrant at the principal office of the Company, accompanied by
a written notice stating such Holder's intent to effect such exchange, the
number of Warrant Shares to be exchanged and the date on which the Holder
requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date the Notice of Exchange is received
by the Company or such later date as may be specified in the Notice of Exchange
(the "Exchange Date"). Certificates for the shares issuable upon such Warrant
Exchange and, if applicable, a new Warrant of like tenor evidencing the balance
of the shares remaining subject to this Warrant, shall be issued as of the
Exchange Date and delivered to the Holder within ten (10) days following the
Exchange Date. In connection with any Warrant Exchange, this Warrant shall
represent the right to subscribe for and acquire the number of Warrant Shares
(rounded to the next highest integer) equal to (i) the number of Warrant Shares
specified by the Holder in its Notice of Exchange (the "Total Number") less (ii)
the number of Warrant Shares equal to the quotient obtained by dividing (A) the
product of the Total Number and the existing Exercise Price by (B) the current
market value of a share of Common Stock. Current market value shall be the
average closing trading price for the 5 trading day period prior to the Exchange
Date.
1
<PAGE>
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 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.
(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 included 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.
2
<PAGE>
3. Restrictions on Transfer.
Holder has been advised and understands that the Warrants and the Warrant 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 Warrant Shares will bear the following or
comparable 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 under such Act."
The Holder understands that the Company may place, and may instruct any transfer
agent or depository for the Warrant Shares to place, a stop transfer notation in
the securities records in respect of the Warrant Shares.
4. Registration Rights.
Holder shall have the right, at any time and from time to time until October 20,
2003, 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 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, in the sole judgment of the
Company, 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.
Each Holder of Warrants and Warrant Shares to be sold pursuant to any
Registration Statement (each, a "Distributing Holder") shall severally, and not
jointly, indemnify and hold harmless the Company, its officers and directors,
each underwriter and each person, if any, who controls the Company and such
underwriter, against any loss, claim, damage, expense or liability, joint or
several, as incurred, to which any of them may become subject under the
Securities Act or any other statute or at common law, in so far as such loss,
claim, damage, expense or liability (or actions in respect thereof) arises out
of or is based upon any untrue statement or alleged untrue statement of any
material fact contained in any such Registration Statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Distributing Holder specifically for use therein. Such Distributing Holder shall
reimburse the Company, such underwriter and each such officer, director or
controlling person for any legal or other expenses reasonably incurred by any of
them in connection with investigating or defending any such liability, as
incurred. Notwithstanding the foregoing, such indemnity with respect to such
preliminary prospectus or such final prospectus shall not inure to the benefit
of the Company, its officers or directors, or such underwriter (or such
controlling person of the Company or the underwriter) if the person asserting
any such loss, claim, damage, expense or liability purchased the securities that
are the subject thereof and did not receive a copy of the final prospectus (or
the final prospectus as then amended, revised or supplemented) at or prior to
the time such furnishing is required by the Securities Act in any case where any
such untrue statement or omission of a material fact contained in the
preliminary prospectus was corrected in the final prospectus (or, if contained
in the final prospectus, was subsequently corrected by amendment, revision or
supplement).
3
<PAGE>
5. Public Offering Lock-Up.
In connection with any public registration of this Company's securities, the
Holder (and any transferee of Holder) agrees, upon the request of the Company or
the underwriter(s) managing such underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of this Warrant, any of the shares of Common
Stock issuable upon exercise of this Warrant or any other securities of the
Company heretofore or hereafter acquired by Holder (other than those included in
the registration) without the prior written consent of the Company and such
underwriter(s), as the case may be, for a period of time not to exceed one
hundred eighty (180) days from the effective date of the registration. Upon
request by the Company, Holder (and any transferee of Holder) agrees to enter
into any further agreement in writing in a form reasonably satisfactory to the
Company and such underwriter(s). The Company may impose stop-transfer
instructions with respect to the securities subject to the foregoing
restrictions until the end of said 180-day period. Any shares issued upon
exercise of this Warrant shall bear an appropriate legend referencing this
lock-up provision.
6. 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.
7. 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.
The Holder shall not have any rights as a shareholder of the Company with regard
to the Warrant Shares prior to actual exercise resulting in the purchase of the
Warrant Shares.
8. 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
20th day of October, 1998.
VALUESTAR CORPORATION
/s/ JAMES STEIN
James Stein, President and CEO
/s/ JAMES A. BARNES
James A. Barnes, Secretary
4
EXHIBIT 5.1
VENTURE COUNSEL ASSOCIATES, LLP
Attorneys at Law
Lake Merritt Plaza Building
1999 Harrison Street, Suite 1300
Oakland, California 94612
Telephone (510) 273-8750
Facsimile (510) 834-7440
October 26, 1998
ValueStar Corporation
1120A Ballena Blvd.
Alameda, CA 94501
Re: Registration Statement on Form S-3
Gentlemen:
As outside counsel to ValueStar Corporation, a Colorado corporation
(the "Company"), we have been asked by the Company to review the Registration
Statement on Form S-3 to be filed by the Company with the Securities and
Exchange Commission on, or about, October 27, 1998 (the "Registration
Statement"). This is in connection with the registration under the Securities
Act of 1933, as amended, of up to two million seven hundred forty-eight thousand
eight hundred fifteen (2,748,815) shares of the Company's common stock, $0.00025
par value per share (the "Common Stock"), which may be issued by the Corporation
under currently issued and outstanding warrants and convertible promissory notes
held by selling shareholders identified in the Form S-3.
As your outside counsel, we have examined the proceedings and such
other documents as we have deemed necessary relating to the issuance of the
warrants described in the Registration Statement ("Warrants") which may be
exercised for up to 2,125,000 shares of Common Stock (the "Warrant Shares"), and
the convertible promissory notes described in the Registration Statement
("Notes") which may be converted into up to 623,815 shares of Common Stock (the
"Note Shares").
In rendering this opinion, we have assumed, without investigation, the
genuineness of all signatures; the correctness of all certificates; the
authenticity of all documents submitted to us as originals; the conformity to
original documents of all documents submitted to us as certified, photostatic or
facsimile copies and the authenticity of the originals of such copies; and the
accuracy and completeness of all records made available to us by, or on behalf
of, the Company.
<PAGE>
ValueStar Corporation
October 26, 1998
Page 2
Re: Registration Statement on Form S-3
In addition, we have assumed, without investigation, the accuracy of the
representations and statements as to factual matters made by the Company, its
officers and employees, and public officials. Nothing has come to our attention,
however, which would lead us to question the accuracy or completeness of such
representations, warranties or statements.
In rendering the opinion hereinafter expressed, we have examined and
relied upon such documents and instruments as we have deemed necessary and
appropriate. It is our opinion that (i) the Warrant Shares, when subsequently
issued upon exercise and full payment of the exercise price therefor in
accordance with the terms of each respective Warrant, and (ii) the Note Shares,
when subsequently issued upon conversion and full payment of the conversion
price therefor in accordance with the terms of each respective Note, will be
validly issued, fully paid and nonassessable.
We are admitted to practice law only in the State of California, and we
express no opinion concerning any law other than the law of the State of
California. This opinion is intended solely for your benefit and is not to be
relied upon by any other person, firm, or entity without our prior written
consent.
We consent to the use of this opinion as an Exhibit to the Registration
Statement, and further consent to all references to this Firm in the
Registration Statement and any amendments thereto.
Very truly yours,
/s/ Venture Counsel Associates, LLP
VENTURE COUNSEL ASSOCIATES, LLP
EXHIBIT 23.2
CONSENT OF
INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of our report, dated August 20, 1998, on our audits of the consolidated
financial statements of ValueStar Corporation as of June 30, 1998, and for each
of the two years ended June 30, 1998, which report is included in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1998. We also consent
to the reference to our Firm under the caption "Experts" in the Prospectus.
/s/ Moss Adams LLP
Santa Rosa, California
October 26, 1998
