SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
VALUESTAR CORPORATION
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(Name of Registrant as Specified in Its Charter)
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[VALUESTAR LOGO]
VALUESTAR CORPORATION
1120A Ballena Blvd.
Alameda, California 94501-3683
510-814-7070
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on December 29, 1998
The Annual Meeting of Stockholders of VALUESTAR CORPORATION
("ValueStar") will be held on December 29, 1998 at 2:00 o'clock p.m. (Pacific
Standard Time) at the Executive Inn, 1755 Embarcadero Drive, Oakland, California
94606, to vote on the following:
1. Election of Directors. To elect three (3) Directors of ValueStar
to serve until the next Annual Meeting of Stockholders or until
their respective successors are elected and qualified;
2. Amendment to the 1997 Stock Option Plan. To increase the number of
shares that may be purchased under ValueStar's 1997 Stock Option
Plan;
3. Selection of Independent Auditors. To ratify the selection of Moss
Adams LLP as independent auditors of ValueStar for the fiscal year
ending June 30, 1999; and
4. To transact such other business as may properly come before the
meeting and any adjournment and postponement thereof.
The foregoing items of business are more fully described in the
accompanying Proxy Statement.
The Board of Directors recommends stockholders vote FOR the approval of
the foregoing items. Only stockholders of record at the close of business on
December 1, 1998 (Record Date) are entitled to vote at the Annual Meeting. The
stock transfer books of ValueStar will not be closed.
All stockholders are cordially invited to attend the meeting in person.
Please complete, date, sign and return the enclosed proxy promptly to ensure
your representation at the meeting. Even if you have given your proxy, you may
still vote in person at the meeting. Your proxy is revocable in accordance with
the procedures set forth in the Proxy Statement. If your shares are held by a
broker, bank or other nominee and you wish to vote at the meeting, you must
obtain a proxy issued in your name prepared by the record holder.
By Order of the Board of Directors
/s/ JAMES STEIN
James Stein
President
December 4, 1998
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VALUESTAR CORPORATION
1120A Ballena Blvd.
Alameda, California 94501-3683
510-814-7070
P R O X Y S T A T E M E N T
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors for the Annual Meeting of the Stockholders
of VALUESTAR CORPORATION, a Colorado corporation ("ValueStar"). The Annual
Meeting will be held on Tuesday, December 29, 1998 at the Executive Inn, 1755
Embarcadero Drive, Oakland, California 94606, at 2:00 p.m. (Pacific Standard
Time), or any and all postponements and adjournments thereof.
VOTING RIGHTS AND OUTSTANDING SHARES
The close of business on December 1, 1998 (the "Record Date") has been
fixed by the Board of Directors for determining stockholders entitled to vote at
the Annual Meeting. ValueStar had 8,682,496 shares of common stock, $.00025 par
value per share ("Common Stock" or "Common Shares") outstanding and entitled to
vote at the Record Date. No shares of Preferred Stock are outstanding.
The holders of 40% or more of the common stockholders on the Record
Date must be present at the Annual Meeting in order to constitute a quorum. They
may be present in person or by proxy. Each share of Common Stock carries one
vote on each proposal and on any other matters which may properly come before
the Annual Meeting. The affirmative vote of a majority of the votes cast at the
Annual Meeting is necessary to approve each proposal.
Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
However, broker non-votes are not counted for purposes of determining the number
of votes cast with respect to a particular proposal. In determining whether a
proposal has been approved or ratified, abstentions are counted as votes against
the proposal, and broker non-votes are not counted as votes for or against the
proposal.
All valid proxies received in time for the Annual Meeting will be voted
as specified. The shares represented by properly executed proxies will be voted
FOR the proposals unless otherwise indicated. Stockholders who execute proxies
may revoke them at any time before they are voted by (a) delivering a written
notice of revocation to Mr. James Stein, President of ValueStar, at the above
address, or (b) submitting a duly executed proxy bearing a later date, or (c)
attending the Annual Meeting and orally withdrawing the proxy. A Shareholders'
attendance at the Annual Meeting will not in itself revoke his or her proxy.
Management plans to mail this Proxy Statement and form of proxy to stockholders
on or about December 4, 1998.
SOLICITATION
ValueStar will pay the entire cost of solicitation of proxies. These
costs will include preparation, assembly, printing and mailing of this proxy
statement, the proxy and any additional information furnished to stockholders.
Copies of such materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by stockholders. They will be requested to forward the
materials to the beneficial owners. ValueStar may reimburse these persons for
their costs of forwarding materials to such beneficial owners. The solicitation
of proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of ValueStar. No
additional compensation will be paid to directors, officers or other regular
employees for such services.
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STOCKHOLDER PROPOSALS
Proposals of stockholders intended for presentation at ValueStar's 1999
Annual Meeting of Stockholders must be received by ValueStar by August 31, 1999
to be included in the proxy statement and proxy relating to the 1999 Annual
Meeting.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
ValueStar's bylaws provide for a board of three to seven directors as
the Board determines, and the Board of Directors has fixed the number of members
of the board at three. All directors are elected for one-year terms at the
annual meeting of stockholders. Directors are elected by plurality vote, meaning
that (should more than one nominee vie for the same seat on the Board) the
nominee who receives the most votes will be elected for the term nominated, even
if he receives less than a majority of the votes cast.
Mr. James Stein was elected to the Board of Directors by the other
directors in June of 1992, as permitted by Colorado law, at the time of
ValueStar's acquisition of certain assets of ValueStar, Inc. Mr. James A. Barnes
and Mr. Jerry E. Polis were elected directors at the 1995 annual meeting.
Directors continue in office until the next annual meeting of stockholders and
they are either re-elected or their respective successors are elected and duly
qualified. Messrs. Stein, Barnes and Polis have all been nominated by the Board
of Directors to stand for election to the Board. If elected, they will each
serve another one-year term or until their respective successors have been
elected and qualified.
Unless otherwise specified, all proxies received will be voted FOR the
election of all nominees. If any nominee should not stand for election for any
reason, your proxy will be voted for any person or persons designated by the
Board of Directors to replace such nominee.
The Board has no reason to expect that any of the nominees will not
stand for election or decline to serve if elected. There is no arrangement
between any of the directors, the nominees or executive officers and any other
person or persons, pursuant to which he was or is to be selected as a director,
nominee or executive officer. There is no blood relationship between or among
the nominees, directors or executive officers of ValueStar. Biographical
summaries, including the principal occupation and business experience,
concerning the nominees for the Board of Directors of ValueStar is set forth
below.
James Stein (age 40) has been a director and President and CEO of
ValueStar since 1992 and a director and executive officer of ValueStar,
Inc., ValueStar's predecessor and wholly-owned subsidiary, since its
inception in September, 1991. Mr. Stein served as President and CEO
from 1983 to 1990 of Direct Language, Inc., a San Francisco based
publisher of Asian and Hispanic Yellow Pages and El Mensajero, a
Spanish-language weekly newspaper.
James A. Barnes (age 44) was elected as a director and appointed
Secretary/Treasurer in July 1995. In March 1997 he resigned as
Secretary but was re-appointed in August 1998. Since 1984, he has been
President of Sunrise Capital, Inc., a venture investment and consulting
firm. He previously practiced as a certified public accountant and
management consultant with Ernst & Ernst (1976-1977), Touche Ross & Co.
(1977-1980) and as a principal in J. McDonald & Co. Ltd., Phoenix,
Arizona (1980-1984). He graduated from the University of Nebraska with
a B.A. Degree in Business Administration in 1976. Mr. Barnes devotes
only part-time services to ValueStar.
Jerry E. Polis (age 66) was elected as a director in July 1995. Since
1963 he has been self-employed primarily in real estate investments,
and since 1964 he has owned and operated Polis Realty. From 1968 to
sale of his ownership in January, 1997, he was active as 50% owner of
the Taco Bell franchises for the State of Nevada (operated under
privately-owned Las Cal Corporation). In 1994, he co-founded
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Commercial Bank of Nevada (CBN), an unlisted publicly owned bank
located in Las Vegas, Nevada which was sold through a merger in June
1998. He was a director of CBN from 1994 and Chairman from May, 1996
until its sale. Mr. Polis graduated from Penn State University with a
B.A. Degree in Commerce in 1953.
Mr. Stein and Mr. Barnes serve as the Compensation Committee for the
1996 and 1997 Stock Option Plans. ValueStar does not have any standing audit,
nominating or other compensation committees of the Board of Directors. During
the fiscal year ended June 30, 1998, four formal meetings of the Board of
Directors were held which were attended by all directors. The Board of Directors
took action on three occasions by means of unanimous written consent in lieu of
a meeting after informal discussions, as permitted by law.
No director of ValueStar has resigned or declined to stand for
re-election to the Board of Directors because of disagreement with ValueStar on
any matters relating to ValueStar's operations, policies or practices, since the
date of the last meeting of stockholders.
Recommendation and Vote - The Board of Directors
recommends a vote in favor of all the nominees for
the Board of Directors.
PROPOSAL NUMBER 2
TO INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED
UNDER VALUESTAR'S 1997 STOCK OPTION PLAN
Proposed Amendment to Increase the Number of Shares that may be Purchased Under
the 1997 Stock Option Plan
ValueStar is seeking shareholder approval to increase the number of
shares that may be issued under the 1997 Stock Option Plan (the "1997 Plan")
from 200,000 common shares to 500,000 common shares. This is an increase of
300,000 common shares.
Approval of the amendment requires the affirmative vote of a majority
of the shares of common stock represented in person or by proxy and eligible to
vote at the Annual Meeting.
The Board of Directors has deemed it in the best interests of ValueStar
to amend the 1997 Stock Plan to increase the authorized shares in order to
provide the means for ValueStar to further its efforts to induce persons of
outstanding ability and potential to join and remain with ValueStar and to
promote its future growth and success.
General Description of Stock Option and Stock Compensation Plans
The Board of Directors and stockholders have adopted and approved the
1992 Incentive Stock Option Plan as amended, (the "1992 ISO Plan") and the 1992
Non-Statutory Stock Option Plan as amended (the "1992 NSO Plan"). Both plans
expire on May 29, 2002. ValueStar has reserved a maximum of 485,000 common
shares to be issued upon the exercise of options under these plans. At September
30, 1998, ValueStar had 243,333 options outstanding pursuant to the 1992 ISO
Plan exercisable at prices ranging from $0.40 to $0.50 per share expiring
beginning 1999 through 2000. ValueStar also had 235,000 options outstanding
pursuant to the 1992 NSO Plan exercisable at prices ranging from $0.40 to $0.50
per share expiring beginning 1999 through 2001.
The Board of Directors and stockholders have adopted and approved the
1996 Stock Option Plan, as Amended and Restated (the "1996 Plan") covering an
aggregate of 300,000 shares of ValueStar's common stock reserved for issuance
upon exercise of non-qualified options only. At September 30, 1998 ValueStar had
275,000 options outstanding pursuant to the 1996 Plan exercisable at prices
ranging from $0.50 to $1.00 per share expiring beginning 1998 through 2003.
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The Board of Directors and the stockholders have adopted and approved
the 1997 Plan covering an aggregate of 200,000 shares of ValueStar's common
stock. On March 31, 1998, the Board of Directors approved an amendment to the
1997 Plan increasing the aggregate number of shares authorized for issuance from
200,000 to 500,000 shares, subject to shareholder approval. At September 30,
1998, ValueStar had 126,050 options outstanding pursuant to the 1997 Plan
exercisable at prices ranging from $0.75 to $1.00 per share expiring beginning
1998 through 2003. The terms of the 1997 Plan provides that all options granted
in excess of 200,000 shares prior to approval by the stockholders will be voided
if approval is not obtained by March 31, 1999.
The 1996 Plan and the 1997 Plan have substantially the same terms and
provisions except that the 1996 Plan is available for non-qualified option
grants only.
Material Provisions of the 1997 Plan
The following is a summary of the material provisions of the 1997 Plan.
The 1997 Plan is intended to qualify for the granting of either (a) "incentive
stock options" as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") ("ISO Options") or (b) non-qualified stock options ("NQO
Options"). Unless the context clearly indicates to the contrary, the term
"option" used herein shall mean either an incentive stock option or a
non-statutory stock option and the term "optionee" shall mean any person holding
an option granted under the 1997 Plan. The following summary is qualified in its
entirety by express reference to the text of the 1997 Plan, a copy of each which
will be furnished to any stockholder upon request.
Administration - The 1997 Plan provides for its administration by a
committee ("Committee"). The members of the Committee are appointed from time to
time by the Board of Directors of ValueStar ("Board") and consist of not less
than two (2) directors. The Committee has discretionary authority to determine
the individuals to whom and the times at which stock options will be granted,
whether a stock option is an ISO Option or a NQO Option, the number of shares
subject to such options and the option period. The Committee may interpret the
1997 Plan and may adopt such rules and regulations for carrying out the purposes
of the Plan. The Board may (subject to certain limitations) make changes in or
additions to the 1997 Plan as it may deem proper and in the best interests of
ValueStar and its stockholders and may also suspend or terminate the Plan.
Eligibility - ISO Options shall be granted only to elected or appointed
officers or other key employees of ValueStar (as determined by the Committee),
whether full-time or part-time, including members of the Board who are also
officers or key employees at the time of grant. NQO Options may be granted to
employees (including officers) and directors of and consultants to ValueStar.
Ceiling of Incentive Stock Option Grants - The aggregate fair market
value (determined at the time the option is granted) of the shares of common
stock for which ISO Options may be exercisable for the first time by any
employee during any calendar year (under all incentive stock options plans of
ValueStar) may not exceed $100,000. Should it be determined that any incentive
stock option granted pursuant to the 1997 Stock Plan exceeds such maximum, such
incentive stock option shall be considered a non-qualified stock option and not
qualify for treatment as an incentive stock option under Section 422 of the Code
to the extent, but only to the extent, of such excess.
Option Price - The option price of the common shares subject to an ISO
Option may not be less than the fair market value of the shares on the date the
option is granted. In the case of an optionee who owns more than 10% of the
outstanding shares of ValueStar of all classes or any parent or subsidiary
thereof, the option price of the shares may not be less than 110% of the fair
market value of ValueStar's shares on the date of grant. The option price of
common shares subject to an NQO Option may not be less than 85% of the fair
market value of ValueStar's shares on the date of grant. If the common shares
are not then quoted on any exchange or quotation medium at the time the option
is granted, then the Board of Directors or compensation committee will use its
discretion in selecting a good faith value believed to represent fair market
value.
Option Term - No option shall be exercisable after the expiration of
ten years from the date it was granted. Incentive stock options granted to any
employee owning more than 10% of the combined voting power of all classes of
stock of ValueStar will expire five years from the date such option is granted.
However, the Committee may designate shorter terms for individual options.
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Termination of Option - Options granted under the 1997 Plan are
contingent upon continued employment by ValueStar or an affiliate of ValueStar
or continued relationship as a director or consultant; however, if the
employment or other relationship is terminated then the optionee has the right
to exercise his or her option at any time within a six (6) month period after
such termination, but only to the extent that the optionee was otherwise
entitled to exercise the option immediately prior to such termination. If the
optionee dies, the option may be exercised at any time within fifteen (15)
months following death by the estate or by person or persons to whom rights
under the option pass by law but only to the extent that such option was
exercisable by the optionee on the date of death.
General Matters - If options granted under the 1997 Plan expire for any
reason without having been exercised in full, the unpurchased shares underlying
such options will be added to the other shares available for the grant of
options under the Plan. Options granted under the 1997 Plan are non-transferable
except by will or the laws of descent and distribution, so that during an
optionee's life only he or she may exercise the options.
Neither the grant of an option nor the existence of an option agreement
with ValueStar shall impose upon ValueStar (or any subsidiary or parent thereof)
an obligation to retain the services of the optionee for any stated period of
time. Further, the grant, holding and exercise of each option shall be subject
to such requirements as may, in the opinion of the Committee, be necessary or
advisable for the purpose of complying with applicable laws, rules and
regulations (including securities laws and regulations) and the rules of any
stock exchange upon which the shares of ValueStar may then be traded.
Amendment; Suspension and Termination of the 1997 Plan - The Board may
amend the 1997 Plan at any time or from time to time or may suspend or terminate
the 1997 Plan without approval of the stockholders; provided, however, that
stockholder approval is required for any amendment to the 1997 Plan for which
stockholder approval would be required under applicable law, as in effect at the
time. Any amendment, suspension or termination of the 1997 Plan, including the
Amendment to be voted upon at the Annual Meeting, shall not affect options
already granted, and such options shall remain in full force and effect, unless
mutually agreed otherwise in writing between the optionee and the 1997 Plan
Committee. The Board may accelerate any option or waive any condition or
restriction pertaining to such option at any time. The Board may also substitute
new stock options for previously granted stock options, including previously
granted stock options having higher option prices, and may reduce the exercise
price of any option to the then current fair market value, if the fair market
value of the Common Stock covered by such option shall have declined since the
date the option was granted. In any event, the 1997 Plan shall terminate in
January 2006. Any options outstanding under the 1997 Plan at the time of its
termination shall remain outstanding until they expire by their terms.
Federal Income Tax Consequences - Federal income tax laws have
frequently been revised and may be changed again in the future. For federal
income tax purposes, an optionee will not realize any taxable income, and
ValueStar will not be entitled to a deduction, at the time an ISO Option is
granted. Further, there is no taxable income to the optionee and no deduction to
ValueStar at the time the ISO is exercised to purchase shares.
With respect to shares purchased upon exercise of an ISO Option,
(a) If the shares are not disposed of within two years after
the date an ISO Option is granted or within 1 year after the shares are
purchased upon exercise of the ISO, the optionee will realize a capital
gain (or loss) equal to the difference between the ISO exercise price
and the amount realized upon sale of the shares, and ValueStar will not
be entitled to any deduction.
(b) If however, such shares are disposed of within two years
after the date the ISO Option is granted or within 1 year after the
shares are purchased upon exercise of the ISO, then the optionee will
recognize ordinary income in the year of disposition (and ValueStar
will be entitled to a corresponding deduction as a compensation
expense) equal to the amount by which the fair market value of the
shares at the time of purchase exceeded the ISO exercise price, or if
less (and the sale is to an unaffiliated purchaser), the amount
realized on the disposition over the ISO exercise price.
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Upon exercise of an ISO Option, certain optionees may become subject to
the federal "alternative minimum tax." The amount, if any, by which the fair
market value of shares purchased upon exercise of an ISO exceeds the ISO
exercise price will constitute an item of tax preference subject to the
alternative minimum tax in the year of exercise. The item of tax preference is
eliminated if the shares are disposed of in a "disqualifying disposition" - that
is, within 1 year of purchasing the shares or 2 years from the date the ISO was
granted. The Code also provides that, for purposes of determining alternative
minimum taxable income, the gain recognized upon a sale or exchange of ISO
shares will be limited to the excess of the amount received in the sale or
exchange over the fair market value of the shares at the time the ISO was
exercised.
If ISO shares are not disposed of in a disqualifying disposition, the
optionee's tax basis will be the ISO exercise price paid for the shares. If
disposed of in a disqualifying disposition, the tax basis will be the fair
market value of the shares on the date purchased. Alternative minimum tax
incurred by reason of exercise of an ISO does not result (for regular income tax
purposes) in an increase in the tax basis of the shares acquired upon exercise.
However, the Code provides that alternative minimum tax attributable to the
exercise of an ISO may be applied as a credit against regular income tax
liability in a subsequent year, subject to certain limitations.
With respect to shares purchased upon exercise of an NQO Option, an
optionee does not recognize taxable income as a result of the grant unless the
option has a readily ascertainable fair market value. Upon the grant of a NQO
Option at fair market value or higher, ValueStar believes that no income will be
recognized by the optionee and ValueStar will not be entitled to a deduction.
This is because such options are not transferable and the fair market value of
the option is not easily ascertainable. The optionee, however, may recognize
ordinary income (subject to tax withholding) upon exercise of the option in an
amount equal to the difference between the fair market value of the common
shares acquired on the date of exercise and the exercise price.
The optionee's tax basis in shares purchased will generally be equal to
the fair market value of the shares purchased (the exercise price of the option
plus the amount included in gross income of the optionee as a result of
exercising the option). Upon disposition of those shares, the optionee will
realize a capital gain (or loss) equal to the difference between the tax basis
and the amount realized upon disposition. The sale of such shares will not
result in any further tax consequences to ValueStar. Exercise of a compensatory
option or sale of shares thus acquired will not subject the optionee to the
federal alternative minimum tax.
So long as the option price is at least equal to the fair market value
of the underlying shares on the date of grant, ValueStar will not be entitled to
a deduction for compensation expenses or otherwise either upon the grant of a
NQO Option or at the time of NQO Option exercise. However, since the Stock Plans
allow the granting of NQO Options with up to a 15% discount from fair market
value, should the Committee grant options exercisable at less than fair market
value, then ValueStar may be entitled to a compensation deduction for the
difference and the optionee may be subject to ordinary income in a like amount.
Any changes in the law concerning the tax treatment of options are
beyond the control of ValueStar and the stockholders and are not subject to
stockholder approval. The foregoing summary of federal income tax aspects is
based upon existing law and interpretations, regulations and rulings, which are
subject to change.
The foregoing summary of material features of the 1997 Plan is not
complete. The complete text of the 1997 Plan will be available for inspection at
the annual meeting and a copy will be furnished to any stockholder upon request.
Amended Plan Benefits - ValueStar cannot now determine the number of
options to be granted in the future under the 1997 Plan, as proposed to be
amended, to its executive officers, directors or employees. No stock options
have been granted to date under the 1997 Plan to any of ValueStar's executive
officers or directors. A total of 126,050 options have been granted to date
under the 1997 Plan to non-officer employees.
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Recommendation and Vote - The Board of Directors
recommends stockholders vote to approve the
amendment to increase the number of shares that may
be issued under ValueStar's 1997 Stock Option Plan.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Moss Adams LLP as ValueStar's
independent auditors for the fiscal year ending June 30, 1999 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Moss Adams LLP has
audited ValueStar's financial statements since 1997. A representative of Moss
Adams LLP is not expected to be present at the Annual Meeting.
Stockholder ratification of the selection of Moss Adams LLP is not
required by ValueStar's Bylaws or otherwise. However, the Board is submitting
the selection of Moss Adams LLP to the stockholders for ratification as a matter
of good corporate practice. If the stockholders fail to ratify the selection,
the Board will consider whether or not to retain that firm. Even if the
selection is ratified, the Board in its discretion may direct the appointment of
different independent auditors at any time during the year if it determines that
such a change would be in the best interest of ValueStar and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of Moss Adams LLP.
Recommendation and Vote - The Board of Directors
recommends a vote in favor of Proposal 3.
ADDITIONAL INFORMATION
Management
The following table lists the current directors and officers of
ValueStar:
Name Age Position and Offices
James Stein 40 Director, President and CEO
James A. Barnes 44 Director, Secretary and Treasurer
Jerry E. Polis 66 Director
Robert J. Muller 44 Chief Information Officer
Michael J. Kelly 28 Controller
See Proposal 1 above for information on director nominees, Messrs.
Stein, Barnes and Polis.
Robert J. Muller was appointed Chief Information Officer in August
1998. From July 1995 to August 1998 he was founder and a partner in Poesys
Associates, a San Francisco systems and software consultancy company. Also from
September 1997 to August 1998 he served as Senior Software Engineer and
Engineering Project Manager for Aurigin Systems Inc., an intellectual property
management company. From July 1993 to July 1995 he served as Product Development
Manager and Technical Documentation Manager for Blyth Software, Inc. Mr.
Muller's prior experience includes positions as Engineering Manager for Symantec
Corporation, Product Manager and Customer Service Representative for Oracle
Corporation and Statistical Computing Consultant for the Massachusetts Institute
of Technology. Mr. Muller has an A.B. in Political Science from the University
of California, Berkeley (1976) and an S.M. in Political Science (1978) and a
Ph.D. in Political Science (1983) from the
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Massachusetts Institute of Technology. He is also the author or co-author of
seven books and other publications on Oracle and other database systems and
project management.
Michael J. Kelly was appointed controller in August 1998. From October
1995 to August 1998 he was Operations Manager and Network Administrator for
Silicon Valley Shelving, San Jose, California, a privately held distributor of
material handling equipment and static control products. From October 1994 to
October 1995 he was a sales representative for Innerspace Engineering of San
Mateo, California and from June 1992 to October 1994 he was Operations Manager
and Controller for James A. Old & Son of Hayward, California, both companies
being distributors of material handling equipment. Mr. Kelly obtained a B.A. in
Economics and a B.A. in Russian Studies from the University of Notre Dame in
1992.
Advisory Board
In 1993, ValueStar established an advisory board to provide guidance to
management on ValueStar's program for consumers and businesses. The following
advisory board members have served since 1993. They are:
Commissioner Jessie Knight - is one of the five commissioners of the
California Public Utilities Commission. He is responsible for setting policy and
tariffs for utilities and telecommunications industries in California. His
background includes positions as Vice President of the San Francisco Chamber of
Commerce and Vice President of Marketing at the San Francisco Newspaper Agency
(Chronicle and Examiner newspapers). He was formerly a Marketing Director at
Dole Foods Co. He is experienced in marketing, finance and strategic planning.
L.M. Ashmore - is a Senior Vice President of the consulting firm Omega
Performance. Ms. Ashmore was formerly Director, Corporate Service Quality for
Charles Schwab, Co. and Director of Service Quality for Citibank CA. She has
extensive experience in human resources, ethics, customer satisfaction, service
quality and customer loyalty.
Jack McSorley - has extensive business experience in the broadcast
industry. As a partner in BayCom Partners he was active in the acquisition,
finance and management of broadcast properties. He is experienced in marketing,
media, finance and corporate issues.
Advisory board members are compensated in the form of stock options
from time to time as determined by the Board. There is no schedule for meetings,
management confers individually with the members from time to time.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth, as of the Record Date, the Common Stock
ownership of each nominee for director, the Named Executive officer of ValueStar
(as defined below under the heading "Executive Compensation Compensation of
Executive Officers"), all executive officers and directors of ValueStar as a
group, and each person known by ValueStar to be a beneficial owner of 5% or more
of its Common Stock. Except as otherwise noted, each person listed below is the
sole beneficial owner of the shares and has sole investment and voting power as
to such shares.
<CAPTION>
Name and Address Amount & Nature
of Beneficial of Beneficial Percent
Owner Ownership (1) of Class (1)
----- ------------- ------------
<S> <C> <C>
James Stein 1,719,276 (2) 18.8%
1120A Ballena Blvd.
Alameda, California 94501
James A. Barnes 1,327,198 (3) 14.9%
9029 Opus Drive
Las Vegas, Nevada 89117
8
<PAGE>
Jerry E. Polis 880,417 (4) 9.8%
925 E. Desert Inn Road
Las Vegas, Nevada 89109
Bryant I. Pickering 554,496 (5) 6.4%
9012 Opus Drive
Las Vegas, Nevada 89117
Robert M. Brennan 1,333,333 (6) 15.4%
6446 Shearwater Ct.
Avila Beach, California
Canusa Trading Ltd. 778,172 (7) 8.7%
37 Reid Street
Hamilton, Bermuda
All directors & officers 3,926,891 (8) 40.5%
as a group (5 persons)
<FN>
(1) Number of shares and percentage ownership include shares issuable
pursuant to stock options and warrants held by the person in
question exercisable within 60 days after the Record Date.
Percentages are based on 8,682,496 shares outstanding as of the
Record Date.
(2) Includes 415,000 common shares issuable upon the exercise of
outstanding stock options and 62,500 common shares issuable upon
the exercise of a stock purchase warrant. Includes 3,000 common
shares held by his wife and minor children.
(3) Represents 363,510 shares held of record by Sunrise Capital, Inc.
("SCI"), 605,225 shares held of record by Tiffany Investments
("TI"), 97,629 shares held of record by Tiffany Investments Limited
Partnership ("TILP"), 13,334 shares held of record by Sunrise
Management, Inc. Profit Sharing Plan ("SMIPS"), 165,000 shares
issuable upon the exercise of outstanding stock options and 82,500
common shares issuable upon the exercise of stock purchase
warrants. Mr. Barnes is President and owner of SCI, General Partner
of TI and TILP and Trustee of SMIPS and has investment and voting
power over these shares.
(4) Includes 371,667 shares held of record by the Jerry E. Polis
Family Trust and 150,000 shares held by record by Davric
Corporation over which Mr. Polis exercises voting and investment
power. Includes 5,000 shares held by his spouse over which he
shares voting and investment power. Also includes 150,000 shares
issuable upon the exercise of outstanding stock options and 127,500
common shares issuable upon the exercise of stock purchase
warrants.
(5) Includes 544,496 shares held by Odne Limited Partnership of which
Dr. Pickering is the General Partner. Dr. Pickering exercises
voting and investment power with respect to all of such shares.
(6) As reported to ValueStar by Mr. Brennan who has represented to
ValueStar that he has sole voting and investment power with respect
to 1,263,333 shares and shares voting and investment power with his
spouse with respect to 70,000 shares.
(7) As reported to ValueStar by Canusa Trading Ltd. Includes 295,000
common shares issuable upon the exercise of stock purchase
warrants.
(8) See footnotes 2 through 7. Includes 2,924,391 shares issued and
outstanding, 730,000 shares issuable upon exercise of stock options
and 272,500 shares issuable upon the exercise of stock purchase
warrants.
</FN>
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires ValueStar's officers,
directors and persons who own more than 10% of a class of ValueStar's securities
registered under Section 12(g) of the Exchange Act to file reports of ownership
and changes in ownership with the Securities and Exchange Commission ("SEC").
Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish ValueStar with copies of all Section 16(a) forms they
file.
Based solely on a review of copies of such reports furnished to
ValueStar and written representations that no other reports were required during
the fiscal year ended June 30, 1998, ValueStar believes that all persons subject
to the reporting requirements pursuant to Section 16(a) filed the required
reports on a timely basis with the SEC, except as follows: (a) Mr. Polis
inadvertently filed a late Form 4 reporting one market purchase transaction
effected in June 1998, (b) Mr. Barnes amended and filed in January 1998 a Form 4
previously filed in December 1997 to report two previously unreported purchase
transactions from ValueStar effected in December 1997, and (c) ValueStar does
not believe Robert M. Brennan has filed a Form 3 in connection with his greater
than 10% ownership.
9
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors
ValueStar has no standard arrangements for direct or indirect
remuneration to the directors in their capacity as directors other than the
granting of stock options from time to time. No direct or indirect remuneration
other than in the form of reimbursement of expenses of attending directors'
meetings was paid to directors for their services as directors during the fiscal
year ended June 30, 1998, other than the grant in March 1998 of a five year
stock option on 50,000 common shares exercisable at $1.00 per share, which was
equal or greater than the per share price of ValueStar's Common Stock on the
date of grant, to each of ValueStar's three directors. It is anticipated that
during the next twelve months ValueStar will not pay any direct or indirect
remuneration to any directors of ValueStar in their capacity as directors other
than in the form of reimbursement of expenses of attending directors' or
committee meetings and the granting of stock options from time to time.
Compensation of Executive Officers
There is shown below information concerning the compensation of
ValueStar's chief executive officer (the Named Officer) for the fiscal years
ended June 30, 1998, 1997 and 1996. No other executive officer's salary and
bonus exceeded $100,000 during the fiscal year ended June 30, 1998.
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term
Annual Compensation Compensation
_________________________________________________ ______________________________
Name and Fiscal Other Options All Other
Principal Position Year Salary Bonus Annual (# of Shares) Compensation
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James Stein, Chief Executive 1998 $90,000 -0- -0- 50,000 -0-
Officer and President 1997 $90,000 -0- -0- -0- -0-
1996 $90,000 -0- -0- 15,000 -0-
</TABLE>
Option Grants
Shown below is further information on grants of stock options to the
Named Officer reflected in the Summary Compensation Table shown above for the
fiscal year ended June 30, 1998.
<TABLE>
Option Grants Table for Fiscal Year Ended June 30, 1998
<CAPTION>
Percent of Total
Number of Securities Options Granted Exercise Expiration
Name Underlying Options Granted to Employees in Fiscal Year Price Date
---- -------------------------- --------------------------- ----- ----
<S> <C> <C> <C> <C>
James Stein 50,000 26.2% $1.00 3/3/2003
</TABLE>
Aggregated Option Exercises and Fiscal Year-End Values
There were no options exercised by the Named Officer during the fiscal
year ended June 30, 1998. The following table provides information on
unexercised options at June 30, 1998:
Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised
Unexercised Options Held At In-The-Money Options At
June 30, 1998 June 30, 1998 (1)
------------- -----------------
Name Exercisable Exercisable
---- ----------- -----------
James Stein 315,000 $66,406
(1) Calculated on the basis of the closing sale price of the Common
Stock of $0.65625 per share on June 30, 1998 as reported on the
over-the-counter market on the National Association of Securities
Dealers OTC Electronic Bulletin Board.
ValueStar does not have any stock appreciation rights plans in effect
and has no long-term incentive plans, as those terms are defined in Securities
and Exchange Commission regulations. During the fiscal year ended June 30,
10
<PAGE>
1998, ValueStar did not adjust or amend the exercise price of any stock options
awarded to the Named Officer or any other persons, and ValueStar has no defined
benefit or actuarial plans covering any person.
Employment Agreement
Mr. Stein is employed and compensated through ValueStar's subsidiary
pursuant to a contract with ValueStar. Effective July 1, 1998, ValueStar entered
into a new employment agreement with Mr. Stein for a term of three years. The
terms of the agreement include Mr. Stein serving as President and CEO and
includes termination, confidentiality, indemnification and non-competition
clauses customary in such agreements. The contract provides for compensation of
$10,000 per month with bonuses and increases at the discretion of the Board of
Directors. ValueStar may terminate the employment with or without good cause (as
defined), but termination without good cause (other than disability or death)
results in a severance payment equal to twelve months of the then monthly base
salary and prorated earned bonus payable in one lump sum. Likewise, upon a
change in control, as defined in the agreement, Mr. Stein may elect to terminate
employment and obtain a payment equal to the remaining months of the agreement
multiplied by the base salary and any earned but unpaid bonus payable in one
lump sum.
Exclusion of Director Liability
Pursuant to the Colorado Business Corporation Act, ValueStar's Articles
of Incorporation exclude personal liability on the part of its directors to
ValueStar or its stockholders for monetary damages based upon any violation of
their fiduciary duties as directors, except as to liability for any breach of
the duty of loyalty to ValueStar or its stockholders, acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, acts in violation of Section 7-5-114 of the Colorado Business Corporation
Act, as it now exists or may hereafter be amended, or transactions from which
the director derives an improper personal benefit.
CERTAIN TRANSACTIONS
During the last two fiscal years there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
ValueStar was or is to be a party in which the amount involved exceeds $60,000
and in which any director, executive officer or holder of more than 5% of the
common stock of ValueStar had or will have a direct or indirect material
interest other than (a) compensation arrangements that are described above in
this Proxy Statement under the heading "Executive Compensation" and (b) the
transactions described below.
Certain of ValueStar's stockholders, including officers and directors,
have from time to time, provided short-term interest bearing advances to
ValueStar. At June 30, 1998, no such advances were outstanding. On December 9,
1997 ValueStar granted Stock Purchase Warrants to four persons for a bank
guarantee of ValueStar's $250,000 credit line. The Stock Purchase Warrants are
exercisable into an aggregate of 250,000 common shares at $1.25 per share until
September 30, 2002 (62,500 shares to each individual). Among the four guarantors
were officers/directors James Stein and James A. Barnes and director Jerry E.
Polis. ValueStar believes it would have been unable to obtain the line of credit
without the inducement of the personal guarantees by such officers and
directors.
On March 31, 1998, ValueStar issued 91,250 shares for services in
connection with ValueStar's debt financing valued at $88,398. A total of 76,250
of these shares were issued to Mr. Polis, a director, and 5,000 shares issued to
Mr. Barnes, an officer and director.
In July 1998, in connection with a new three year employment agreement,
ValueStar granted Mr. Stein options to purchase 100,000 shares of Common Stock
at $1.25 per share, which become vested and exercisable after January 7, 1999
and then only upon the achievement of certain future common share prices
commencing at $2.50 per share. In July 1998, directors Polis and Barnes were
each granted similar options to purchase 50,000 common shares each, as
directors.
In July 1998, ValueStar restructured the maturity date on $100,000 of
12% notes due on September 30, 1998 and extended the date to March 31, 2001. In
consideration for the extension, ValueStar granted the two noteholders
11
<PAGE>
an aggregate of 50,000 non-detachable warrants to purchase common stock at $1.25
per share. One holder of a $50,000 note and 25,000 warrants is the spouse of Mr.
Polis, a director of ValueStar.
In August 1998, ValueStar obtained an $85,000 five year term loan
secured by certain equipment and software from a company affiliated with Mr.
Polis, a director. The term loan bears interest at 15% per annum and is payable
in equal monthly installments of principal and interest of $2,022. ValueStar
believes the terms of the loan are comparable to those that could have been
obtained from an independent party.
Certain conflicts of interest may arise between ValueStar and its
directors due to the fact that they have other employment or business interests
to which they devote attention, and they are expected to continue to do so.
ValueStar has not established policies or procedures for the resolution of
current or potential conflicts of interest between ValueStar and its management
or management-affiliated entities. There can be no assurance that members of
management will resolve all conflicts of interest in ValueStar's favor. The
officers and directors are accountable to ValueStar as fiduciaries, which means
that they are legally obligated to exercise good faith and integrity in handling
ValueStar's affairs. Failure by them to conduct ValueStar's business in its best
interests may result in liability to them. ValueStar's Articles of Incorporation
provide that directors have the right to contract with ValueStar if any
financial interest is disclosed or the transaction is fair or reasonable to
ValueStar.
FINANCIAL AND OTHER INFORMATION
ValueStar is subject to the reporting requirements of Section 15(d) or
13 of the Securities Exchange Act of 1934 and files annual, quarterly and other
reports with the Securities and Exchange Commission. ValueStar's Annual Report
on Form 10-KSB and Quarterly Report for the first fiscal quarter ended September
30, 1998 accompany this Proxy Statement.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. However, if any matters other than those referred to herein
should properly come before the Annual Meeting, it is the intention of the proxy
holders to vote such proxy in accordance with his or her best judgment.
By Order of the Board of Directors
/s/ JAMES STEIN
James Stein
December 4, 1998 President
12
<PAGE>
<TABLE>
<CAPTION>
Appendix A
<S> <C> <C>
PROXY PROXY
VALUESTAR CORPORATION
THIS PROXY RELATES TO the ANNUAL MEETING OF THE STOCKHOLDERS
TO BE HELD DECEMBER 29, 1998
The undersigned hereby appoints JAMES STEIN and JAMES A. BARNES or either of them, with full power of
substitution, as attorneys and proxies to vote all shares of Common Stock which the undersigned is entitled to
vote, with all powers which the undersigned would possess if personally present, at the Annual Meeting of
Stockholders of VALUESTAR CORPORATION ("ValueStar") to be held at 2:00 p.m. (Pacific Standard Time) at the
Executive Inn, 1755 Embarcadero Drive, Oakland, California 94606, on Tuesday, December 29, 1998, and any
postponements and adjournments thereof, as follows:
1. TO ELECT THE BOARD OF DIRECTORS.
_____ FOR all nominees listed below _____ WITHHOLD AUTHORITY
(except as marked to the contrary below) (to vote for the nominees listed below)
(INSTRUCTION: To withhold authority to vote for any individual nominee write that nominee's name on the line)
_______________________________________
James Stein, James A. Barnes, Jerry E. Polis
2. PROPOSAL TO INCREASE THE NUMBER OF SHARES AUTHORIZED TO BE ISSUED PURSUANT TO VALUESTAR'S 1997
STOCK OPTION PLAN.
_____ FOR _____ AGAINST _____ ABSTAIN
3. TO RATIFY THE SELECTION OF MOSS ADAMS LLP AS INDEPENDENT AUDITORS OF VALUESTAR FOR ITS FISCAL YEAR
ENDING JUNE 30, 1999.
_____ FOR _____ AGAINST _____ ABSTAIN
This proxy has not been solicited by or for the benefit of the Board of Directors of ValueStar. I
understand that I may revoke this proxy only by written instructions to that effect, signed and dated by me,
which must be actually received by ValueStar prior to commencement of the Annual Meeting.
DATED: _________________, 1998 Signature(s) X _____________________________________
Print Name _____________________________________
(Please date and sign exactly as name or names appear on your stock certificate(s). When signing as
attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation,
please sign in full the corporate name by President or other authorized officer. If a partnership, please sign
in the partnership name by authorized person. IF THE STOCK IS HELD JOINTLY, BOTH OWNERS MUST SIGN.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS SPECIFIED THIS PROXY
WILL BE VOTED FOR THE PROPOSALS NOTED ABOVE AND, AS TO ANY OTHER BUSINESS CONSIDERED AT THE ANNUAL MEETING, IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXIES.
Mail or Deliver this Proxy to:
VALUESTAR CORPORATION
1120A Ballena Blvd.
Alameda, California 94501
</TABLE>
