As Filed with the Securities and Exchange Commission on December 8, 1998
Registration No. 333-66195
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
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
(510) 273-8750
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Approximate date of commencement of proposed sale to the public:
From time to time 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. [ ]
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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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. The shares consist of shares which may be issued under currently
outstanding warrants and convertible promissory notes held by the selling
shareholders.
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 December ___, 1998, the OTC Bulletin Board reported that
the bid price per share was $________ and the asked price per share was
$________.
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 3.
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 December ____, 1998.
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TABLE OF CONTENTS
ValueStar Corporation..........................................................3
Risk Factors...................................................................3
Important Factors Related To Forward-Looking
Statements and Associated Risks...............................................10
Use of Proceeds...............................................................10
Plan of Distribution..........................................................10
Selling Shareholders..........................................................13
Dividend Policy...............................................................15
Indemnification For Securities Act Liabilities................................15
Where You Can Find More Information...........................................15
Incorporation of Certain Documents by Reference...............................15
Legal Matters.................................................................16
Experts.......................................................................16
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VALUESTAR CORPORATION
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.
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.
ValueStar has a Short Operating History to Assess Future Potential
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.
History of Losses and Anticipation of Future Losses for the Foreseeable Future
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 Increases Investment Risk
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. This factor increases the risk to investors.
Future Capital Needs for the Next Twelve Months
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.
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Uncertainty of Obtaining Additional Financing to Continue Operations
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 for Advertising and Promotion Funds in Service Business Industry is
Intense
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 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.
Competition in Rating Services Expected to Develop
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.
Changes in Marketing and Consumer Information Communication Technologies Could
Adversely Affect ValueStar's Operations
Technological changes in the manner consumers select service businesses and the
way businesses communicate information to consumers could 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.
ValueStar is Dependent on Chief Executive Officer and Management Team; Loss of
Management Could Adversely Affect Operations
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.
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Unpredictability of Future Revenues Could Adversely Impact Future 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.
Fluctuations in Future Operating Results Could Adversely Affect Future Operating
Results
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.
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.
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ValueStar Relies on Third Parties for Important Services and Products, Including
Rating Audits, Internet Access and Printing and Distribution of CVR Reports
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.
ValueStar's Service Business Rating and Certification Format Is New and May Not
Achieve Adequate Market Acceptance or Growth
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 Places Demands on ValueStar Resources
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.
ValueStar Relies on Its 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
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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.
ValueStar May Have 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.
ValueStar's Business is Dependent 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
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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.
Government Regulation and Legal Uncertainties Related to Telemarketing Laws and
Regulations Could Impact Operations
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.
Sales of Stock By Selling Shareholders Could Depress Market Price of ValueStar
Common Stock
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.
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ValueStar's Common Stock is likely to Experience Considerable Price Volatility
and is Subject to the Risks Associated With NASD OTC Bulletin Board Stocks,
Small Capitalization Stocks and Penny Stocks
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.
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 May Make Third Party Acquisition More Difficult
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.
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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.
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
ValueStar.
The conversion of the selling shareholders' convertible promissory
notes in the aggregate principal amount of $525,000, and convertible into up to
623,815 shares of common stock, would reduce outstanding debt principal of
ValueStar by up to $525,000. ValueStar would receive proceeds of up to
$2,703,125 from the exercise of the selling shareholders' warrants currently
exercisable into up to 2,125,000 shares of common stock. 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 ValueStar). 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 ValueStar'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
We are registering all 2,748,815 of the shares of common stock offered by
this prospectus (the "Shares") on behalf of the selling shareholders, and will
receive no proceeds from this offering. The selling shareholders, or pledgees,
donees, transferees or other successors-in-interest selling Shares received from
a selling shareholder as a gift, partnership distribution or other non-sale
related transfer after the date of this prospectus are free to sell the Shares
from time to time. The selling shareholders will act independently of ValueStar
in making decisions with respect to the timing, manner and size of each sale.
The sales may be made in the national over-the-counter market or otherwise, at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions.
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The selling shareholders may effect such transactions by selling the Shares to
or through broker-dealers. The Shares may be sold by one or more of, or a
combination of, the following:
o block trade in which the broker-dealer so engaged will attempt to sell
the Shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus;
o an exchange distribution in accordance with the rules of such exchange;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o in privately negotiated transactions.
In effecting sales, broker-dealers engaged by the selling shareholders may
arrange for other broker-dealers to participate in the resales.
The selling shareholders may enter into hedging transactions with
broker-dealers in connection with distributions of the Shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the Shares in the
course of hedging the positions they assume with selling shareholders. The
selling shareholders also may sell Shares short and redeliver the Shares to
close out such short positions. The selling shareholders may enter into option
or other transactions with broker-dealers which require the delivery to the
broker-dealer of the Shares. The broker-dealer may then resell or otherwise
transfer such Shares pursuant to this prospectus. The selling shareholders also
may loan or pledge the Shares to a broker-dealer. The broker-dealer may sell the
Shares so loaned, or upon a default the broker-dealer may sell the pledged
shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholders.
Broker-dealers or agents may also receive compensation from the purchasers of
the Shares for whom they act as agents or to whom they sell as principals, or
both. Compensation as to a particular broker-dealer might be in excess of
customary commissions and will be in amounts to be negotiated in connection with
the sale. Brokers-dealers or agents and any other participating broker-dealers
or the selling shareholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933, in connection with sales
of the Shares. Accordingly, any such commission, discount or concession received
by them and any profit on the resale of the Shares purchased by them may be
deemed to be underwriting discounts or commissions under the Securities Act.
Because the 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 the prospectus delivery requirements of the Securities Act. In
addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 promulgated under the Securities Act may be sold under Rule
144 rather than pursuant to this prospectus. The selling shareholders have
advised us that they have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of the
Shares; nor is any underwriter or coordinating broker acting in connection with
the proposed sale of the Shares by the selling shareholders.
The Shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the Shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirements is available and is complied with.
11
<PAGE>
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market-making activities with respect to our common stock for a period of two
business days prior to the commencement of such distribution. In addition, each
Selling Shareholder will be subject to applicable provisions of the Exchange Act
and the associated rules and regulations under the Exchange Act, including
Regulation M, which provisions may limit the timing of purchases and sales of
shares of ValueStar common stock by the selling shareholders. ValueStar will
make copies of this prospectus available to the selling shareholders and has
informed them of the need for delivery of copies of this prospectus to
purchasers at or prior to the time of any sale of the Shares.
We will bear all costs, expenses and fees in connection with the
registration of the Shares. The selling shareholders will bear all commissions
and discounts, if any, attributable to the sales of the Shares. The selling
shareholders may agree to indemnify any broker-dealer or agent that participates
in transactions involving sales of the Shares against certain liabilities,
including liabilities arising under the Securities Act.
12
<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 ValueStar, and none of them has had a
material relationship with ValueStar:
<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> <C> <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
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
(1) Based upon a review of a shareholder transcript prepared by ValueStar 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 ValueStar 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 ValueStar 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 ValueStar 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 ValueStar. Share
ownership includes 3,000 shares held by his spouse and minor children.
14
<PAGE>
DIVIDEND POLICY
ValueStar has never declared or paid any cash dividends on its common
stock and does not currently intend to do so. ValueStar 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
ValueStar's Board of Directors and will be dependent upon ValueStar'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
ValueStar's certificate of incorporation provides broadly for the
indemnification of the directors and officers of ValueStar 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 ValueStar
pursuant to the foregoing provisions, ValueStar 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.
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 ValueStar Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1998, filed with the SEC on September 21, 1998.
2. The ValueStar Quarterly Report on Form 10-QSB for the fiscal quarter
ended September 30, 1998, filed with the SEC on November 12, 1998.
3. 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.
15
<PAGE>
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.
LEGAL MATTERS
The validity of the securities offered will be passed on for ValueStar
by Venture Counsel Associates, LLP, 1999 Harrison Street, Suite 1300, Oakland,
California 94612.
EXPERTS
The Consolidated Financial Statements of ValueStar 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 shareholders
have authorized anyone to provide
prospective investors with information
different from that contained in this
prospectus. This prospectus is not an Up to
offer to sell nor is it seeking an offer 2,748,815 Shares
to buy these securities in any of
jurisdiction where the offer or sale is Common Stock
not permitted. The information contained
in this prospectus is correct only as of offered by
the date of this prospectus, regardless
of the time of the delivery of this Selling Shareholders
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 VALUESTAR
possession of this prospectus in CORPORATION
jurisdictions outside the United States
and Canada are required to inform
themselves about and to observe any
restrictions as to this offering and the
distribution of this prospectus PROSPECTUS
applicable in that jurisdiction.
_________________, 1998
======================================== =======================================
<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 Registrant'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 ValueStar
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 Registrant's Certificate of Incorporation
provides that no director of the Registrant shall be personally liable to the
Registrant 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 Registrant 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 Registrant's Certificate of Incorporation also
provides that the Registrant 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 Registrant
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 Registrant or in all other cases his or her conduct was not
opposed to the Registrant'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 Registrant. the Registrant 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 Registrant 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 Registrant pursuant to the
foregoing provisions, the Registrant 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 Registrant presently has no directors and officers liability insurance.
If Colorado law and California law are in conflict with regard to the
Registrant'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
II-3
<PAGE>
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.
(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 December 7, 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 December 7, 1998
- -------------------------- and Director (principal executive officer)
James Stein
/s/ MICHAEL J. KELLY Controller December 7, 1998
- -------------------------- (principal accounting officer)
Michael J. Kelly
/s/ JAMES A. BARNES Treasurer, Secretary and Director December 7, 1998
- -------------------------- (principal financial officer)
James A. Barnes
/s/ JERRY E. POLIS Director December 7, 1998
- --------------------------
Jerry E. Polis
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER SEQUENTIAL DESCRIPTION
4.1 Form of Certificate evidencing common stock of the Registrant
filed as Exhibit 3.1 to the Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant'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
Registrant'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
Registrant'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 Registrant's Form 10-QSB for the quarter ended December
31, 1997.
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<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 Registrant'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 Registrant'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
Registrant'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
Registrant's Form 8-K dated May 21, 1998.
4.14 Stock Purchase warrant between the Registrant 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 Registrant's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1998.
4.15* Stock Purchase warrant between the Registrant 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.
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* Previously filed.
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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 ValueStar'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
December 4, 1998
