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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 14, 1999 (March 31,
1999)
VALUESTAR CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 0-22619 84-1202005
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(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation) Number) Identification No.)
1120A Ballena Blvd., Alameda, California 94501
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(Address of principal executive offices) (Zip Code)
(510) 814-7070
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
On March 31, 1999 ValueStar Corporation (the "Company") and its wholly-owned
subsidiary (ValueStar, Inc.) completed the private offering and sale for cash of
an aggregate of $2,450,000 of Senior 8% Secured Notes ("Senior Notes") with
detachable stock warrants ("Warrants") to three institutional investors
("Holders"). The Senior Notes, which are secured by substantially all assets of
the Company and its subsidiary, including a key person life insurance policy,
bear interest at 8% payable monthly. Principal on the Senior Notes is due in 16
quarterly installments of $153,125 commencing in March 2002, with the final
payment scheduled in December 2005. Certain events, including the loss of Jim
Stein as President, may result in certain prepayment penalties and the
acceleration of payment under the Senior Notes. The Senior Notes also contain
various financial covenants, primarily relating to minimum net worth, maximum
debt, capital additions and net income or loss.
The Holders were granted warrants to purchase an aggregate of 1,527,250 shares
of Common Stock of the Company at an exercise price of $1.00 per share ("A
Warrants"), warrants to purchase an aggregate of 527,514 shares of Common Stock
at a nominal per share exercise price of $0.00025 ("B Warrants") and warrants to
purchase an aggregate of 231,132 shares of Common Stock at an exercise price of
$1.00 per share ("C Warrants"). The C Warrants or underlying shares of Common
Stock may be repurchased by the Company at $6.00 per share (less any unpaid
exercise price) on an all or none basis until March 31, 2004 as long as the
Company is not in default with respect to the Senior Note or related agreements.
The Warrants expire on the earlier of six years from the date the Senior Notes
are paid in full or March 31, 2009. The Warrants may be exercised by payment of
cash, cancellation of debt or on a cashless basis.
The Holders of the Warrants were granted antidilution provisions, registration
rights and certain equity and debt preemptive rights. Prior to a qualifying
public offering (proceeds of $15 million at a price of at least $5.00 per share
and a valuation of at least $40 million), qualified sale (valuation of at least
$40 million and minimum proceeds of $5.00 to $7.00 per share to Holders) or a
qualifying stock market listing (Nasdaq National Market or New York Stock
Exchange and minimum price and trading volume), in the event of a sale or
disposition of the Company or substantially all of its assets, the number of
shares of Common Stock for which the Warrants may be exercised may be increased,
without a corresponding increase in the aggregate consideration, to provide
additional consideration to the Holders based on a revenue based valuation. A
sale may also be initiated by the Holders in certain instances as described
below.
The Company's three directors, Jim Stein, James A. Barnes and Jerry E. Polis
(the "Shareholders"), have pledged an aggregate of 2,861,557 shares of Common
Stock of the Company to secure obligations related to the issuance of the
securities. The agreements entered into by the Shareholders limit resale of
their shares in the open market and grant certain first refusal and co-sale
rights to the Holders. The Shareholders are also obligated to vote their shares
of Common Stock to elect one director each for the two largest Holders if so
designated by them. These provisions generally terminate upon completion of a
qualifying public offering by the Company, a qualifying stock market listing or
the sale of 80% of the Holders shares of Common Stock underlying the warrants.
The Board of Directors has set the authorized number of directors at five with
the Company currently having three directors.
The Holders were also granted certain "Drag Along Rights". Until a qualifying
public offering or sale is completed by the Company or a qualifying market
listing is achieved, then upon either (i) a change in control (the Shareholders
owning less than 20% of the Company on a fully diluted basis),
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or (ii) the loss of Mr. Stein as President without a replacement acceptable to
the Holders, or (iii) a non-qualifying public offering, or (iv) certain defaults
under the Senior Notes, and (v) at any time between April 2004 and April 2009
(unless the rights are earlier terminated), the Holders may seek a buyer for the
Company or its assets and the Company and the Shareholders are obligated to
cooperate and take such actions to complete a sale, consistent with their
fiduciary duties. Upon such a sale, the Warrants may be exercised for additional
shares of Common Stock as described above resulting in additional dilution to
existing shareholders of the Company. This dilution could be material should the
Drag Along Rights become exercisable and subsequently exercised by the Holders.
These securities were offered and sold without registration under the Securities
Act of 1933, as amended (the "Act"), in reliance upon the exemption provided by
Section 4(2) thereunder and appropriate legends were placed on the Senior Notes
and the Warrants and will be placed on the shares of Common Stock issuable upon
exercise of the Warrants unless registered under the Act prior to issuance.
While the securities were sold by the Company without an underwriter, the
Company issued to two finders warrants to purchase an aggregate of 152,728
shares of Common Stock at an exercise price of $1.375 until March 31, 2004.
These warrants may be exercised on a cashless basis until September 30, 1999
into 76,364 shares of Common Stock.
The Company incurred cash costs of approximately $140,000 in connection with the
offering resulting in net proceeds of $2,310,000. Approximately $504,000 of the
net proceeds were used to payoff the Company's bank line of credit and
approximately $200,000 was applied to repay short-term bridge notes including
$47,000 due to a company affiliated with a director of the Company. The balance
of proceeds are intended to supplement working capital and provide funds to
expand the Company's branded rating and licensing program to additional market
territories. There can be no assurance the Company can successfully expand its
business to new markets or that the proceeds will be sufficient for such
purpose.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
None
(b) Pro forma financial information.
None
(c) Exhibits
4.17 Note Purchase Agreement between the Company's wholly-owned subsidiary
(ValueStar, Inc.) and three institutional investors dated March 31,
1999
4.18 Form of 8% Senior Note dated March 31, 1999 between ValueStar, Inc. and
three institutional investors for an aggregate of $2.45 million
(individual notes differ as to holder and amount)
4.19 Shareholder Agreement between the Company, three institutional
investors and certain stockholders of the Company dated March 31, 1999
4.20 Warrant Purchase Agreement between the Company, three institutional
investors and certain stockholders of the Company dated March 31, 1999
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4.21 Form of A, B and C Warrants issued by the Company to three
institutional investors dated March 31, 1999 (individual warrants
differ as to holder and number)
4.22 Security Agreement dated March 31, 1999 between ValueStar, Inc. and
three insitutional investors
4.23 Trademark Security Agreement dated March 31, 1999 between ValueStar,
Inc. and three insitutional investors
4.24 Form of Stock Purchase Warrant dated March 31, 1999 issued to two
individuals by the Company for an aggregate of 152,728 shares of Common
Stock at an exercise price of $1.375 (individual warrants differ as to
holder)
10.13 Press release issued by the Company on April 1, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VALUESTAR CORPORATION
Date: April 14, 1999 By: /s/ JAMES A. BARNES
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James A. Barnes
Treasurer and Secretary
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EXHIBIT 4.17
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement"), dated as of March 31,
1999, is by and among VALueStar, INC., a California corporation (the "Company"),
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP, a Delaware limited partnership
("Seacoast"), and PACIFIC MEZZANINE FUND, L.P., a California limited
partnership, ("Pacific") and Tangent GROWTH FUND, L.P., a California limited
partnership ("Tangent"). Seacoast, Pacific and Tangent are sometimes
individually or collectively referred to as the ("Purchaser"). Capitalized terms
used in this Agreement are defined in Section 11.1.
To induce Purchaser to purchase the Senior Note from the Company, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows.
I. DESCRIPTION OF SENIOR NOTE AND COMMITMENT
1.1 Description of Senior Note. The Company will authorize the issuance
and sale of its Senior Note which shall be dated as of the Closing Date, shall
be in the aggregate original principal amount of Two Million Four Hundred Fifty
Thousand and No/100 Dollars ($2,450,000), and shall bear interest at the fixed
rate of 8% per annum; provided, however, that any Senior Obligations payable
under Section 2.4 hereof shall bear interest from the due date thereof at a rate
of thirteen percent (13%) per annum, and upon the occurrence of any Potential
Default under Section 8.1(a) hereof or Event of Default, and during the
continuation thereof, the unpaid principal amount, and the past due interest, if
any, of the Senior Note shall bear interest at the rate of thirteen percent
(13%) per annum. Interest on the Senior Note and on any other Senior Obligations
shall be computed on the basis of the actual number of days elapsed over a three
hundred-sixty (360) day year. Each Senior Note shall be substantially in the
form attached hereto as Exhibit A.
1.2 Commitment; Issuance and Sale of Senior Note. Subject to the terms
and conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to each Purchaser,
and each Purchaser severally, but not jointly, agrees to purchase from the
Company, a Senior Note in the principal amount set forth beneath the name of
such Purchaser on Annex I of this Agreement. Each Senior Note will be delivered
to each respective Purchaser in fully registered form, and shall be issued in
such Purchaser's name or the name of its respective nominee.
1.3 Closing Fee. The Company shall pay to each Purchaser a closing fee
of two percent (2%) of the face amount of such Purchaser's Senior Note, in
immediately available funds, on the Closing Date, which closing fee shall be
deemed fully earned and nonrefundable on the Closing Date. Each Purchaser may,
at its option, deduct the amount of the closing fee from the purchase price of
such Purchaser's Senior Note.
1.4 Use of Proceeds. The proceeds from the sale of each Senior Note
shall be used solely to (a) refinance a portion of the Company's existing
Indebtedness, including repayment of (i) up to Five Hundred Thousand Dollars
($500,000) extended by Civic Bank of Commerce and (ii) up to Two Hundred
Thousand Dollars ($200,000) of temporary bridge loans extended by shareholders
of the Company since January 1, 1999, (b) finance the expansion of the Company,
(c) to pay all fees, costs and expenses payable pursuant to this Agreement, (d)
to provide working capital for the Company and (e) prior to such proceeds being
used for the purposes set forth in the preceding clauses (a), (b) and (c), for
Permitted Investments on a temporary basis.
II. PAYMENT AND PREPAYMENT OF SENIOR OBLIGATIONS
2.1 Principal and Interest Payments. Principal and interest on the
Senior Note shall be due and payable as follows:
(a) Unless otherwise accelerated pursuant to the terms hereof,
principal shall be due and payable as follows:
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(i) on March 31, 2002 and on each March 31, June 30,
September 30 and December 31 thereafter, to and including
September 30, 2005, following the Closing Date, fifteen (15)
equal quarterly payments of $153,125 in the aggregate shall be
paid to Purchaser; and
(ii) on the Termination Date the remaining unpaid
principal balance of the Senior Note shall be due and payable.
(b) Interest shall be due and payable (i) monthly in arrears
on the last Business Day of each month, commencing April 30, 1999, and (ii) on
the Termination Date.
2.2 Optional Prepayments.
(a) At the Company's option, upon notice given as provided
below, the Company may, at any time and from time to time, prepay all or any
part of the principal of the Senior Note, by payment to Purchaser of an amount
equal to (a) the principal amount to be prepaid, plus (b) accrued unpaid
interest on the principal amount so prepaid, plus (c) any expenses and/or
damages for which Purchaser may be entitled to receive payment or reimbursement
hereunder or, if the Senior Note is being prepaid in full, the aggregate amount
of all other Senior Obligations, plus (d) a premium equal to the percentage of
the principal amount so prepaid which is applicable in accordance with the
following table based on the date on which such prepayment is made (a
"Prepayment Fee"):
Prepayment Date Premium
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Closing Date through March 31, 2000 5%
April 1, 2000 through March 31, 2001 4%
April 1, 2001 through March 31, 2002 3%
No Prepayment Fee shall be due if prepayment occurs after the third anniversary
of the Closing Date.
(b) Each prepayment under this Section 2.2 shall be applied
first to accrued interest on the principal amount prepaid, second to any
applicable Prepayment Fee, third to installments of principal in the inverse
order of their maturities, and fourth to any expenses and/or damages to which
Purchaser may be entitled. The amount of any such prepayment may not be
reborrowed by the Company. The Company shall give notice of any optional
prepayment to Purchaser not less than thirty (30) days nor more than sixty (60)
days before the date for prepayment, specifying in each such notice the date
upon which prepayment is to be made and the principal amount (together with
accrued interest and any applicable Prepayment Fee) to be prepaid on such date.
Notice of prepayment having been so given, the applicable prepayment amount
shall become due and payable on the specified prepayment date. The Company shall
have no right to prepay the Senior Note except as provided in this Section 2.2
or in Section 2.3.
2.3 Mandatory Prepayments. Any prepayment under this Section 2.3
shall be applied first to accrued interest, second to any applicable Prepayment
Fee, third to installments of principal in the inverse order of their maturities
and fourth to any expenses and/or damages for which Purchaser may be entitled.
The amount of any such mandatory prepayment may not be reborrowed by the
Company. The Company shall make mandatory prepayments in each of the following
circumstances:
(a) In the event of any Public Offering by the Company or any
of its Subsidiaries of any of the Company's or any of its Subsidiaries' debt
securities, the Company shall prepay the Senior Obligations in an amount equal
to the lesser of the (i) net proceeds of any such Public Offering received by
the Company or (ii) the aggregate amount of all Senior Obligations. Any such
prepayment to be made within five (5) Business Days of receipt of such net
proceeds. No Prepayment Fee shall be payable with respect to a mandatory
prepayment under this Section 2.3(a) as a result of the occurrence of a Public
Offering or a Qualified Liquidation Event.
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(b) If the Company or any of its Subsidiaries shall sell or
otherwise dispose of (other than as permitted by Section 6.8 or Section 7.3) any
property or properties in the aggregate amount exceeding $25,000, then the
Company shall prepay the Senior Obligations in an amount equal to the lesser of
(i) the aggregate net cash proceeds of such sales or other dispositions or (ii)
the aggregate amount of all Senior Obligations (including any applicable
Prepayment Fee), such prepayment to be made on the date of the closing of such
transaction.
(c) In the event of any sale or other disposition of all or
substantially all of the stock or assets of the Company or any of its
Subsidiaries in a single transaction or series of transactions, the Company
shall prepay the Senior Obligations in an amount equal to the lesser of (i) the
aggregate net cash proceeds of such sales or dispositions or (ii) the aggregate
amount of all Senior Obligations (including any applicable Prepayment Fee), any
such prepayment to be made on the date of the closing of such transaction. No
Prepayment Fee shall be payable with respect to a mandatory prepayment under
this Section 2.3(c) as a result of the occurrence of a Qualified Liquidation
Event.
(d) In the event of any Change in Control, the Company shall
prepay the Senior Obligations in an amount equal to the aggregate amount of all
Senior Obligations, such prepayment to be made on the date of the occurrence of
such Change of Control.
(e) In the event the Company or any of its Subsidiaries
becomes a party to any acquisition, merger or consolidation, the Company shall
prepay the Senior Note in an amount equal to the aggregate amount of all Senior
Obligations, such prepayment to be made within five (5) Business Days of the
date of any such acquisition, merger or consolidation.
(f) In the event James Stein is no longer the President or
Chief Executive Officer of the Company and there is no replacement reasonably
satisfactory to Purchaser within (90) days of such event (except that until a
Purchaser's Senior Note has been paid in full, such replacement must be
reasonably satisfactory to such Purchaser), the Company shall repay the Senior
Note in an amount equal to the aggregate amount of all Senior Obligations, such
prepayment to be made within five (5) Business Days of the end of such ninety
(90) day period.
2.4 Payments. Unless otherwise provided herein or in the Other
Agreements, all Senior Obligations, other than principal and interest on the
Senior Note, shall be payable by the Company to the Holder thereof, on demand,
and shall bear interest from the date of demand until paid at the rate of
interest then applicable under Section 1.1. Payment of fees and expenses due and
payable on the Closing Date to Purchaser and Purchasers' legal counsel shall be
paid in full on the Closing Date. All payments of principal, interest and fees
shall be made pro rata to each Purchaser based on the aggregate amount of Senior
Obligations owing to each such Purchaser on each payment date. Any other
payments due to the Purchasers or Holders hereunder, or to any other Person,
including expenses and indemnification payments, shall be paid to the person to
which such payment is due.
2.5 Direct Payment. The Company will pay all sums becoming due
hereunder and on the Senior Note to each Purchaser at the address specified for
each Purchaser on Annex I hereto, by wire transfer in U.S. Dollars of Federal
Reserve Funds or other immediately available funds, to the account specified for
each such Purchaser on Annex I, or at such other address or in such other form
as each such Purchaser shall have designated by notice to the Company at least
five Business Days prior to the date of any payment, in each case without
presentment and without notations being made thereon. All payments by the
Company shall be made without set-off or counterclaim. Any wire transfer shall
identify such payment as "ValueStar, Inc., 8% Senior Note" and shall identify
the payment as principal, premium, interest, and/or reimbursement of costs,
expenses or indemnification amounts, together with the applicable date or period
to which it relates.
2.6 Payments Payable on Business Days. Payments of all amounts due
hereunder or under the Senior Note shall be made on a Business Day. Any payment
due on a day that is not a Business Day shall be made on the next Business Day.
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2.7 Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or any Other Agreement, the Company shall not be
required to pay, and Purchaser shall not be permitted to contract for, take,
reserve, charge or receive, any compensation which constitutes interest under
applicable law in excess of the maximum amount of interest permitted by law
("Excess Interest"). If any Excess Interest is provided for or determined by a
court of competent jurisdiction to have been provided for in this Agreement or
in any Other Agreement or otherwise contracted for, taken, reserved, charged or
received, then in such event: (a) the provisions of this Section 2.7 shall
govern and control; (b) the Company shall not be obligated to pay any Excess
Interest; (c) any Excess Interest that Purchaser may have contracted for, taken,
reserved, charged or received hereunder shall be, at Purchaser's option, (i)
applied as a credit against the outstanding principal balance of the Senior
Obligations or accrued and unpaid interest (not to exceed the maximum amount
permitted by law), (ii) refunded to the payor thereof, or (iii) any combination
of the foregoing; (d) the interest provided for shall be automatically reduced
to the maximum lawful rate allowed from time to time under applicable law (the
"Maximum Rate"), and this Agreement and the Other Agreements shall be deemed to
have been, and shall be, reformed and modified to reflect such reduction; and
(e) the Company shall have no action against Purchaser for any damages arising
due to any Excess Interest. Notwithstanding the foregoing, if for any period of
time interest on any Senior Obligations is calculated at the Maximum Rate rather
than the applicable rate under this Agreement, and thereafter such applicable
rate becomes less than the Maximum Rate, the rate of interest payable on such
Senior Obligations shall remain at the Maximum Rate until Purchaser shall have
received the amount of interest which Purchaser would have received during such
period on such Senior Obligations had the rate of interest not been limited to
the Maximum Rate during such period. All sums paid or agreed to be paid
hereunder or under the Other Agreements for the use, forbearance or detention of
sums due shall, to the extent permitted by applicable law, be amortized,
pro-rated, allocated and spread throughout the full term of the Senior
Obligations until payment in full so that the rate or amounts of interest on
account of the Senior Obligations does not exceed the Maximum Rate. The terms of
this Section 2.7 shall be deemed incorporated into each Other Agreement and any
other document or instrument between the Company and Purchaser or directed to
the Company by Purchaser, whether or not specific reference to this Section 2.7
is made.
2.8 Security.
(a) Payment of the Senior Note and the other Senior Obligations,
and the performance of the covenants set forth herein and in the Other
Agreements, will be secured by a perfected security interest, mortgage,
assignment or Lien, as the case may be (subject only to the security interest,
mortgage, assignment or Lien in favor of the holders of the Permitted Future
Debt), in favor of Purchaser, in and upon the Collateral. The Company shall
execute, acknowledge and deliver, and/or cause to be executed, acknowledged and
delivered, to Purchaser such certificates, stock powers, instruments, security
agreements, pledges, statements, assignments, consents, Lien waivers, financing
statements or amendments thereof, guarantees and other documents, in form and
substance reasonably acceptable to Purchaser, as in Purchaser's good faith
belief may be required to grant, enforce, perfect and protect such security
interest, assignments, Liens and mortgages, including, without limitation, the
Security Documents.
(b) The Holders or Purchasers of a majority-in-interest of the
Senior Obligations may appoint any Purchaser as their bailee and agent for the
perfection of the security interest in any Collateral granted to the Purchasers
under any Security Document, to the extent that perfection is accomplished by
possession of such Collateral, including, but not limited to, any shares of
stock held as Collateral by the Purchasers. As of the Closing Date, the
Purchasers hereby appoint Seacoast as their bailee and agent for the perfection
of the security interest in such Collateral granted under the Security
Documents. The Purchasers hereby acknowledge and agree that Seacoast shall
retain possession of such Collateral as bailee and agent for itself and for each
Purchaser; provided, however, that Seacoast shall deliver such certificates to
any other Purchaser appointed by the Holders or Purchasers of a
majority-in-interest of the Senior Obligations as such bailee and agent
hereunder, which Purchaser shall, after such appointment, thereafter retain
possession of the such Collateral as bailee and agent for all of the Purchasers
hereunder.
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III. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
Each Purchaser severally, and not jointly, represents and warrants to
the Company as follows:
3.1 Existence. It is a limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization.
3.2 Authority. It has the right and power and authority to enter
into, execute, deliver and perform its obligations under this Agreement, and its
partners, officers or agents executing and delivering this Agreement are duly
authorized to do so. This Agreement has been duly and validly executed and
delivered and constitutes the legal, valid and binding obligation of such
Purchaser, enforceable in accordance with its terms.
3.3 Investor Status. It (i) is an "accredited investor", as that
term is defined in Regulation D under the Securities Act of 1933, as amended,
and (ii) has such knowledge, skill, sophistication and experience in business
and financial matters, based on actual participation, that it is capable of
evaluating the merits and risks of the purchase of the Senior Note from the
Company and the suitability thereof for such Purchaser.
3.4 Investment for own Account. Except as otherwise contemplated
by this Agreement, it is acquiring its Senior Note for investment for its own
account and not with a view to any distribution thereof in violation of
applicable securities laws.
3.5 Legend on Note. It agrees that the Senior Note will bear the
appropriate legends referencing restrictions on transfer and will not be
offered, sold or transferred in the absence of registration or exemption under
applicable securities laws.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce Purchaser to enter into this Agreement, the Company
represents and warrants to Purchaser that the following statements are, true,
correct and complete:
4.1. Corporate Existence and Authority.
(a) The Company (i) is a corporation duly organized,
validly existing, and in good standing under the laws of California; (ii) has
all requisite corporate power and authority to own its assets and carry on its
business as now conducted; and (iii) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
The Company has the corporate power and authority to execute, deliver, and
perform its obligations under this Agreement and all Other Agreements to which
it is, or in connection with the transactions contemplated hereby, may become, a
party.
(b) The Parent (i) is a corporation duly organized,
validly existing, and in good standing under the laws of Colorado; (ii) has all
requisite corporate power and authority to own its assets and carry on its
business as now conducted; and (iii) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
The Parent has the corporate power and authority to execute, deliver, and
perform its obligations under this Agreement and all Other Agreements to which
it is, or in connection with the transactions contemplated hereby, may become, a
party.
4.2 Financial Statements. The Parent has delivered to each
Purchaser (a) audited consolidated financial statements of the Parent as at and
for the fiscal year ended June 30, 1998, (b) unaudited financial statements of
the Parent for the six month period ended December 31, 1998 and for the one
month period ended January 31, 1999, and (c) cash flow projections and analyses
of the Parent for the five-year period following the Closing Date, together with
a written statement of the assumptions underlying them as set forth on Schedule
4.2. The financial statements referred to in clauses (a) and (b) of this Section
4.2 are true and correct in all material
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respects, have been prepared in accordance with GAAP (except as otherwise noted
therein or on Schedule 11.1(a)), and fairly present both the financial condition
of the Parent and the Company on a consolidated basis as of the respective dates
indicated therein and the results of the Parent's and the Company's operations
for the respective periods indicated therein. The cash flow projections and
analyses referred to in clause (c) of this Section 4.2 fairly present the
Parent's and the Company's best estimate of the future cash flow position of the
Parent and the Company on a consolidated basis, based on the Parent's and the
Company's historical performance and the Parent's and the Company's knowledge of
their business plans and assumptions underlying them. It is the Parent's and the
Company's good faith belief that such cash flow projections are reasonably
achievable by them. At December 31, 1998, neither the Parent nor the Company has
any liabilities or obligations (absolute, accrued, contingent or otherwise) of a
nature required by GAAP to be reflected in such financial statements which are,
individually or in the aggregate, material to the condition, financial or
otherwise, or operations of the Parent or the Company as of that date which are
not reflected on such financial statements or disclosed on Schedule 11.1(a).
There has been no material adverse change in the condition, financial or
otherwise, or operations of the Parent or the Company since December 31, 1998,
nor has there otherwise occurred a Material Adverse Effect.
4.3 Default. Except as disclosed on Schedule 4.3, neither the
Company nor the Parent is in default under any loan agreement, indenture,
mortgage, security agreement, lease, franchise, permit, license or other
agreement or obligation to which it is a party or by which any of its properties
may be bound which default would cause a Material Adverse Effect. The Company is
paying its debts as they become due.
4.4 Authorization and Compliance with Laws and Material
Agreements. The execution, delivery and performance by the Company of this
Agreement and the Other Agreements to which it is or may in connection with the
transactions contemplated hereby become a party, have been or prior to the
consummation of such transactions will be duly authorized by all requisite
action on the part of the Company and do not and will not violate its Articles
of Incorporation or Bylaws or any law or any order of any court, governmental
authority or arbitrator, and do not and will not upon the consummation of the
transactions contemplated hereby conflict with, result in a breach of, or
constitute a default under, or result in the imposition of any Lien (except
Permitted Liens) upon any assets of the Company pursuant to the provisions of
any loan agreement, indenture, mortgage, security agreement, franchise, permit,
license or other instrument or agreement by which the Company or any of its
properties is bound. Except as set forth on Schedule 4.4, no authorization,
approval or consent of, and no filing or registration with, any court,
governmental authority or third Person is or will be necessary for the
execution, delivery or performance by the Company of this Agreement and the
Other Agreements to which it is a party or the validity or enforceability
thereof. All such authorizations, approvals, consents, filings and registrations
described in Schedule 4.4 have been obtained. The Company is not in violation of
any term of its Articles of Incorporation or Bylaws or any contract, agreement,
judgment or decree and is in full compliance with all applicable laws,
regulations and rules where such violation would cause a Material Adverse
Effect. All officers of the Company to the best of their knowledge have complied
with all material applicable laws, regulations and rules in the course and scope
of their employment with the Company.
4.5 Environmental Condition of the Property. Except as disclosed
on Schedule 4.5:
(a) The location, construction, occupancy, operation and
use of the Property do not violate any applicable law, statute, ordinance, rule,
regulation, order or determination of any governmental authority or other body
exercising similar functions, or any restrictive covenant or deed restriction
(recorded or otherwise) affecting the Property, including, without limitation,
all applicable zoning ordinances and building codes, flood disaster,
occupational health and safety laws and Environmental Laws and regulations (as
referred to in this Section 4.5, collectively, "applicable laws") where such
violation would cause a Material Adverse Effect;
(b) Without limitation of clause (a) of this Section
4.5, neither the Company, the Parent nor the Property is subject to any
existing, pending or threatened investigation or inquiry by any governmental
authority or subject to any remedial obligations due to violations of applicable
laws;
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(c) Neither the Company nor the Parent is subject to any
liability or obligation relating to (i) the environmental conditions on, under
or about the Property, including, without limitation, the soil and ground water
conditions at the Property, or (ii) the use, management, handling, transport,
treatment, generation, storage, disposal, release or discharge of any Polluting
Substance which would cause a Material Adverse Effect;
(d) There is no Polluting Substance or other substance
that may pose any risk to safety, health or the environment on, under or about
any Property which would cause a Material Adverse Effect;
(e) The Company and/or the Parent, whichever is
applicable, have taken reasonable steps to determine and hereby represents and
warrants that no Polluting Substances have been disposed of or otherwise
released on, onto, into, or from the Property by the Company or the Parent, and
the use which the Company and/or the Parent makes and intends to make of the
Property does not and will not result in the disposal or other release of any
Polluting Substances on, onto, into or from the Property; and
(f) The Company and/or the Parent, whichever is
applicable, have been issued all required federal, state and local licenses,
certificates or permits relating to, and the Property, the Company, the Parent
and the Company's and the Parent's facilities, business, assets, leaseholds and
equipment are all in compliance in all material respects with all applicable
federal, state and local laws, rules and regulations relating to, air emissions,
water discharge, noise emissions, solid or liquid waste disposal, Polluting
Substances, or other environmental, health or safety matters where
non-compliance would have a Material Adverse Effect.
4.6 RESERVED.
4.7 Litigation and Judgments. Except as disclosed on Schedule 4.7,
there is no action, suit, proceeding or investigation before any court,
governmental authority or arbitrator pending, or to the knowledge of the Company
threatened, against or affecting the Company, the Parent, this Agreement and/or
the Other Agreements. Except as disclosed on Schedule 4.7, there are no
outstanding judgments against the Company or the Parent. None of the matters
listed on Schedule 4.7 could reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect.
4.8 Rights in Properties; Liens. The Company and the Parent have
good and marketable title to all properties and assets reflected on their
balance sheets, and none of such properties or assets is subject to any Liens,
except Permitted Liens. The Company and the Parent enjoy peaceful and
undisturbed possession under all leases necessary for the operation of their
other properties, assets, and businesses and all such leases are valid and
subsisting and are in full force and effect. There exists no default under any
provision of any lease which would permit the lessor thereunder to terminate any
such lease or to exercise any rights under such lease which, individually or
together with all other such defaults, could have a Material Adverse Effect. The
Company and the Parent have the exclusive right to use all of the Intellectual
Property necessary to their business as presently conducted, and the Company's
and the Parent's use of the Intellectual Property does not infringe on the
rights of any other Person where such nonexclusivity or infringement would not
have a Material Adverse Effect. To the best of the Company's knowledge, no other
Person is infringing the rights of the Company or the Parent in any of the
Intellectual Property. Neither the Company nor the Parent owe any royalties,
honoraria or fees to any Person by reason of its use of the Intellectual
Property.
4.9 Enforceability. This Agreement and the Other Agreements to
which the Company and/or the Parent is a party, when delivered, shall constitute
the legal, valid and binding obligations of the Company or the Parent, whichever
is applicable, enforceable against the Company or the Parent, whichever is
applicable, in accordance with their respective terms.
4.10 Indebtedness. Except as disclosed on the financial statements
identified in Section 4.2 and on Schedule 11.1(a), neither the Company nor the
Parent have any Indebtedness, except Permitted Indebtedness. All Indebtedness
owed by the Company or the Parent to any Affiliate is set forth on Schedule
4.10. The instruments evidencing the Subordinate Debt provide that such
Subordinate Debt is absolutely subordinate to the payment of
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the Senior Obligations and prohibit any payment under such Subordinate Debt
after the occurrence of an Event of Default hereunder. All Subordinate Debt is
unsecured.
4.11 Taxes. Except as set forth on Schedule 4.11, the Company and
the Parent have timely filed all tax returns (federal, state, and local)
required to be filed, including, without limitation, all income, franchise,
employment, property, and sales taxes, and have timely paid all of their tax
liabilities, other than immaterial amounts and taxes that are being contested by
the Company or the Parent in good faith by appropriate actions or proceedings
diligently pursued, and for which adequate reserves in conformity with GAAP with
respect thereto have been established to the reasonable satisfaction of
Purchaser. Neither the Company nor the Parent know of any pending investigation
of the Company or the Parent by any taxing authority or pending but unassessed
tax liability of the Company or the Parent, except as disclosed on Schedule
4.11. The Company and the Parent have made no presently effective waiver of any
applicable statute of limitations or request for an extension of time to file a
tax return, and neither the Company nor the Parent are a party to any
tax-sharing agreement.
4.12 Use of Proceeds; Margin Securities. Neither the Company nor
the Parent are engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations T, U or X of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
extension of credit under this Agreement will be used to purchase or carry any
such margin stock or to extend credit to others for the purpose of purchasing or
carrying margin stock. Neither the Company, the Parent nor any Person acting on
their behalf has taken any action that might cause the transactions contemplated
by this Agreement or any Other Agreements to violate Regulations T, U or X or to
violate the Securities Exchange Act of 1934, as amended.
4.13 ERISA. All members of any Controlled Group have complied with
all applicable minimum funding requirements and all other applicable and
material requirements of ERISA and the Code, applicable to the Employee Benefit
Plans it or they sponsor or maintain, and there are no existing conditions that
would give rise to material liability thereunder. With respect to any Employee
Benefit Plan, all members of any Controlled Group have made all contributions or
payments to or under each Employee Benefit Plan required by law, by the terms of
such Employee Benefit Plan or the terms of any contract or agreement. No
Termination Event has occurred in connection with any Pension Plan, and there
are no unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA,
with respect to any Pension Plan which poses a risk of causing a Lien to be
created on the assets of the Company or which will result in the occurrence of a
Reportable Event. No member of any Controlled Group has been required to
contribute to a multiemployer plan, as defined in Section 4001(a)(3) of ERISA,
since September 2, 1974. No material liability to the Pension Benefit Guaranty
Corporation has been, or is expected to be, incurred by any member of a
Controlled Group. The term "liability," as referred to in this Section 4.13,
includes any joint and several liability. No prohibited transaction under ERISA
or the Code has occurred with respect to any Employee Benefit Plan which could
have a Material Adverse Effect or a material adverse effect on the condition,
financial or otherwise, of an Employee Benefit Plan.
4.14 RESERVED.
4.15 Disclosure. No representation or warranty made by the Company
in this Agreement or by the Company and/or the Parent in any Other Agreement to
which the Company or the Parent is a party contains any untrue fact or omits to
state any material fact necessary to make the statements herein or therein not
misleading. There is no fact known to the Company which the Company has
determined has a Material Adverse Effect, or which the Company has determined
could have a Material Adverse Effect, that has not been disclosed in writing to
Purchaser.
4.16 Subsidiaries and Capitalization. The Company has no
Subsidiaries except as otherwise set forth on Schedule 4.16 (a). The Parent has
no Subsidiaries, other than the Company. All the issued and outstanding shares
of capital stock of the Company are duly authorized, validly issued, fully paid
and nonassessable. The capitalization of the Company on the Closing Date is set
forth on Schedule 4.16 (b). No violation of any preemptive rights of
shareholders of the Company has occurred by virtue of the transactions
contemplated under this Agreement or any Other Agreement. There are no
outstanding contracts, options, warrants, instruments,
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documents or agreements binding upon the Company granting to any Person or group
of Persons any right to purchase or acquire shares of the Company's capital
stock.
4.17 Current Locations. Schedule 4.17 identifies (a) the Company's
principal place of business and chief executive office, (b) all the locations
where the Company maintains any books or records relating to any of its assets,
(c) all other locations where the Company has a place of business, and (d) each
address where any of the Company's assets are located. Schedule 4.17 accurately
indicates whether each such location is owned or leased, and, if leased,
identifies the owner of such location. No Person other than the Company has
possession of any material amount of the assets of the Company except as
disclosed on Schedule 4.17.
4.18 Investment Company Act. Neither the Company, the Parent nor
any company controlling the Company or the Parent is required to be registered
as an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
4.19 Public Utility Holding Company Act. Neither the Company nor
the Parent is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public utility" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
4.20 Securities Laws. Assuming the truthfulness and accuracy of
each Purchaser's representations and warranties in Section 3, the Company and
the Parent have complied with or is exempt from the registration and/or
qualification requirements of all federal and state securities or blue sky laws
applicable to the issuance or sale of the Senior Notes.
4.21 No Labor Disputes. Neither the Company nor the Parent is
involved in any labor dispute. The Company is not a party to any collective
bargaining agreement, and there are no strikes or walkouts or union organization
of any of the Company's or the Parent's employees threatened or in existence and
no labor contract is scheduled to expire during the term of this Agreement.
4.22 Brokers. Neither the Company nor any of its shareholders has
dealt with any broker, finder, commission agent or other Person in connection
with the transactions referenced in or contemplated by this Agreement, nor is
the Company or any of its shareholders under any obligation to pay any broker's
fee or commission in connection with such transactions, except as set forth on
Schedule 4.22.
4.23 Liens. Purchaser's Liens attaching to the Collateral will
constitute at all times valid, perfected and enforceable Liens, subject to no
prior or superior Liens, except Permitted Liens. Before purchase of the Senior
Note, the Company will have taken, or will have participated with Purchaser in
taking, all necessary action (including making all necessary filings) to provide
Purchaser with perfected Liens in the Collateral under the laws of all
applicable jurisdictions.
4.24 Insurance. The amount and types of insurance carried by the
Company and the Parent, and the terms and conditions thereof, are substantially
similar to the coverage maintained by companies in the same or similar business
as the Company and the Parent and similarly situated.
4.25 Conduct of Business. On the Closing Date, the Company and the
Parent are engaged only in businesses of the type described in Schedule 4.25.
4.26 Small Business Concern. The Company is a "small business
concern" as defined in Section 103(5) of the Act, which for purposes of size
eligibility meets the applicable criteria set forth in Section 121.301(c) of
Title 13 of the Code of Federal Regulations.
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V. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
Purchaser's obligations hereunder shall be subject to (a) the
performance by the Company of its obligations hereunder which by the terms
hereof are to be performed at or prior to delivery of each Senior Note, and (b)
the satisfaction of the following conditions on or before the Closing Date:
5.1 Portfolio Financing Report. The Company shall have provided
Purchaser with all information and documentation that Purchaser shall have
requested in connection with the preparation and completion of the Portfolio
Financing Report on SBA Form 1031.
5.2 No Litigation; Consummation of Transactions. No injunction,
preliminary injunction, or temporary restraining order shall be threatened or
shall exist which prohibits or may prohibit the transactions contemplated herein
or any other related transaction, and no litigation or similar proceeding
(including, without limitation, any litigation or other proceeding seeking
injunctive or similar relief) shall be threatened or shall exist with respect to
the transactions contemplated herein, which, if adversely determined, could in
the judgment of any Purchaser have a Material Adverse Effect.
5.3 Documents. Each Purchaser shall have received the following,
each in form and substance satisfactory to such Purchaser:
(a) Senior Note. The Senior Note issued in the name of
each Purchaser in the denomination specified on Annex I hereto, duly executed by
the Company;
(b) Warrant and Warrant Documents. The Warrant, duly
issued by the Parent to each Purchaser in the denomination specified on Annex I
hereto, along with the other fully executed Warrant Documents and all other
documents and instruments required pursuant thereto;
(c) Security Documents and Other Agreements. The
Security Documents and all Other Agreements, duly executed by the parties
thereto;
(d) Insurance. Certified copies of all insurance
policies and endorsements thereto required by Section 6.12;
(e) Approvals and Consents. Copies, certified by the
Company, of all consents, authorizations, filings, licenses and approvals, if
any, required in connection with the execution, delivery and performance by the
Company, or the validity and enforceability of, this Agreement, or the Other
Agreements to which the Company is a party;
(f) Opinion of Counsel to the Company and the Parent.
The written legal opinion of Bay Venture Counsel, LLP, legal counsel to the
Company and the Parent.
(g) General Certificate of the Company's Secretary. A
certificate of the Secretary of the Company together with true, correct and
complete copies of the following:
(i) Articles of Incorporation. The Articles of
Incorporation of the Company, including all amendments thereto,
certified by the Secretary of State of the state of its incorporation
and dated within thirty (30) days prior to the Closing Date;
(ii) Bylaws. The Bylaws of the Company, including
all amendments thereto;
(iii) Resolutions. The resolutions of the board of
directors of the Company authorizing the execution, delivery and
performance of this Agreement and the Other Agreements to which the
Company is a party;
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(iv) Existence and Good Standing Certificates.
Certificates of the appropriate government officials of the state of
incorporation of the Company as to its existence and good standing, and
certificates of the appropriate government officials in each state
where the Company does business and where failure to qualify as a
foreign corporation would have a Material Adverse Effect, as to its
good standing and due qualification to do business in such state, each
dated within thirty (30) days prior to the Closing Date; and
(v) Incumbency. The names of the officers of the
Company authorized to sign this Agreement and the Other Agreements to
be executed by the Company, together with a sample of the true
signature of each such officer;
(h) General Certificate of the Parent's Secretary. A
certificate of the Secretary of the Parent together with true, correct and
complete copies of the following:
(i) Certificate of Incorporation. The Articles
of Incorporation of the Parent, including all amendments thereto,
certified by the Secretary of State of the state of its incorporation
and dated within thirty (30) days prior to the Closing Date;
(ii) Bylaws. The Bylaws of the Parent, including
all amendments thereto;
(iii) Resolutions. The resolutions of the board of
directors of the Parent authorizing the execution, delivery and
performance of this Agreement, and the Other Agreements to which the
Parent is a party and authorizing the issuance of the Warrant;
(iv) Existence and Good Standing Certificates.
Certificates of the appropriate government officials of the state of
incorporation of the Parent as to its existence and good standing, and
certificates of the appropriate government officials in each state
where the Parent does business and where failure to qualify as a
foreign corporation would have a Material Adverse Effect, as to its
good standing and due qualification to do business in such state, each
dated within thirty (30) days prior to the Closing Date; and
(v) Incumbency. The names of the officers of the
Parent authorized to sign this Agreement and the Other Agreements to be
executed by the Parent, together with a sample of the true signature of
each such officer;
(i) Sources and Uses Certificate. A certificate executed
by the Chief Executive Officer and Chief Financial Officer of the Company,
setting forth in reasonable detail the sources and uses of funds in the
transactions contemplated herein, and in the Other Agreements;
(j) Communication with Accountants. Purchaser shall have
received a copy of a letter from the Company and the Parent addressed to its
accountants authorizing such accountants to disclose to Purchaser any and all
financial information concerning the Company and/or the Parent requested by
Purchaser in determining compliance with any of the financial covenants set
forth in Sections 7.8 and 7.9;
(k) Transaction Certificate. A certificate of the Chief
Executive Officer and the Chief Financial Officer of the Company that, to the
best of their knowledge after due investigation, all conditions precedent to the
effectiveness of this Agreement have been satisfied or waived;
(l) SBA Documentation. Originals executed by the Company
of each of (i) the SBA Letter, (ii) the Size Status Declaration on SBA Form 480,
and (iii) the Assurance of Compliance on SBA Form 652;
(m) Non-Compete Agreement. A copy of the Non-Compete
Agreement executed by Jim Stein, in form and substance satisfactory to
Purchaser;
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(n) Liens. Evidence satisfactory to Purchaser that as of
the Closing Date Purchaser has (other than with respect to Permitted Liens) a
first priority Lien on the Collateral;
(o) Additional Information, Other Documents and
Agreements. Such other information, documents, agreements, commitments and
undertakings as each Purchaser or such Purchaser's counsel shall reasonably
request.
(p) Blocked Account Agreement. The Company, Purchaser
and the Company's depository institution shall have entered into a blocked
account agreement, acceptable to each Purchaser.
(q) Stock Pledge Agreement. James Stein, James A. Barnes
and Jerry E. Polis shall each execute a stock pledge agreement in favor of
Purchaser upon terms acceptable to each Purchaser.
(r) Parent Security Agreement and Guaranty. The Parent
shall have executed a guaranty and security agreement upon terms acceptable to
each Purchaser.
(s) Subsidiary Guaranty Agreement. The Company shall
have executed a guaranty of the obligations of Parent to Purchaser upon terms
acceptable to each Purchaser.
5.4 Material Adverse Change. For the period from December 31,
1998, to the Closing Date, and except for the transactions contemplated by this
Agreement and the Other Agreements, there shall have been (a) no occurrence or
event which, in Purchaser's opinion, has or could have a Material Adverse
Effect, and (b) no occurrence or event which would lead the Company or Purchaser
to believe that the Company would fail to meet the cash flow projections
delivered to Purchaser pursuant to Section 4.2.
5.5 Fees. A closing fee in the amount set forth in Section 1.3
shall have been paid to Purchaser. All other fees then payable pursuant to this
Agreement (including the fees, expenses and disbursements of Purchaser's
counsel) shall have been paid to the appropriate Purchaser (or such counsel, as
applicable).
5.6 No Event of Default. No Event of Default or Potential Default
shall have occurred and be continuing.
5.7 Representations and Warranties. All representations and
warranties of each party (other than any Purchaser) contained in this Agreement
and the Other Agreements shall be true and correct on the Closing Date.
5.8 Key-Man Life Insurance. The Company will maintain and pay for
a key-man life insurance policy on the life of James Stein in the amount of
$3,000,000, of which the Company shall have a policy for the amount of
$2,500,000 as of the Closing Date and within ninety (90) days following the
Closing Date, the Company shall obtain an addition $500,000 of life insurance,
such life insurance shall be issued by a life insurance company satisfactory to
Purchaser and the first $2,000,000 of such policy or policies shall be
collaterally assigned to Purchaser in form and substance satisfactory to
Purchaser.
VI. AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until
the Senior Obligations have been finally and irrevocably paid in full in
accordance with the terms hereof and thereof:
6.1 Financial Statements. The Company will furnish to Purchaser:
(a) As soon as available, and in any event within ninety
(90) days after the end of each fiscal year of the Parent, beginning with the
fiscal year ending June 30, 1999, (i) a copy of the annual audit report of the
Parent for such fiscal year containing a balance sheet, statement of income,
statement of stockholders'
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equity, and statement of cash flow as at the end of such fiscal year and for the
fiscal year then ended, in each case setting forth in comparative form the
figures for the preceding fiscal year, all in reasonable detail and audited and
certified by independent certified public accountants of recognized standing
selected by the Parent and consented to by Purchaser (provided Purchaser's
consent shall not unreasonably be withheld) to the effect that such report has
been prepared in accordance with GAAP; (ii) a certificate delivered to Purchaser
by such independent certified public accountants confirming the calculations set
forth in the officers' certificate delivered to Purchaser simultaneously
therewith in accordance with Section 6.2(a); and (iii) a comparison of the
actual results during such fiscal year to those originally budgeted by the
Parent prior to the beginning of such fiscal year, together with a summary
analysis of variances prepared by the Parent's management. The Parent shall
deliver copies of all material reports and correspondence sent to the Company or
the Parent by its independent certified public accountants promptly upon receipt
thereof.
(b) As soon as available, and in any event within thirty
(30) days after the end of each calendar month, a copy of an unaudited
consolidated financial report of the Parent as of the end of such calendar month
and for the portion of the fiscal year then ended (with notes as to any
consolidating entries), containing consolidated balance sheets, statements of
income, and statements of cash flow, in each case setting forth in comparative
form the figures for the corresponding period of the preceding fiscal year,
together with a comparison of the actual results during such period to those
originally budgeted by the Parent for such period together with a written
summary analysis of variances prepared by the Company's management.
(c) As soon as available, and in any event within
forty-five (45) days after the end of each fiscal quarter, a copy of an
unaudited financial report of the Parent as of the end of such fiscal quarter
and for the portion of the fiscal year then ended, containing consolidated
balance sheets, statements of income, and statements of cash flow, (with notes
as to any consolidating entries), in each case setting forth in comparative form
the figures for the corresponding period of the preceding fiscal year, together
with a comparison of the actual results during such period to those originally
budgeted by the Parent for such period together with a written summary analysis
of variances prepared by the Parent's management.
(d) On or before thirty (30) days prior to the beginning
of each fiscal year of the Parent, an annual budget or business plan for such
fiscal year on a monthly basis, including projected consolidated balance sheets,
income statements, and cash flow statements for each month of such fiscal year
(with notes as to any consolidating entries), and, at the beginning of each
fiscal quarter, all revisions thereto approved by the board of directors of the
Parent.
6.2 Certificates; Other Information. The Company will furnish to
Purchaser all of the following:
(a) Concurrently with the delivery of each of the
financial statements referred to in Section 6.1(a) and Section 6.1(c), a
certificate of an authorized officer of the Company in the form of the officer's
certificate attached hereto as Exhibit B (i) stating that no Event of Default or
Potential Default has occurred and is continuing or, if such officer has
knowledge of an Event of Default or Potential Default, the nature thereof and
specifying the steps taken or proposed to remedy such matter, (ii) showing in
reasonable detail the calculations showing compliance with Sections 7.8 and 7.9,
(iii) stating that the financial statements attached have been prepared in
accordance with GAAP and fairly and accurately present (subject to year-end
audit adjustments, for the annual certificates) the financial condition and
results of operations of the Company at the date and for the period indicated
therein, (iv) containing summaries of accounts payable agings, and accounts
receivable agings, (v) containing a schedule of the outstanding Indebtedness for
borrowed money of the Company and its Subsidiaries describing in reasonable
detail each such debt issue or loan outstanding and the principal amount and
amount of accrued and unpaid interest with respect to each such debt issue or
loan, (vi) containing management's discussion and analysis of the business and
affairs of the Company which includes, but is not limited to, a discussion of
the results of operations compared to those originally budgeted for such period,
and (vii) a report detailing (A) all matters materially affecting the value,
enforceability or collectibility of any material portion of its assets
including, without limitation, the Company's reclamation or repossession of, or
the return to the Company of, a material amount of goods and material claims or
disputes asserted by any customer or other obligor, and (B) any material adverse
change in the relationship between the Company and any of its material suppliers
or customers.
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(b) As soon as available, (i) a copy of each financial
statement, report, notice or proxy statement sent by the Company to its
stockholders in their capacity as stockholders, (ii) a copy of each regular,
periodic or special report, registration statement, or prospectus filed by the
Company with any securities exchange or the Securities and Exchange Commission
or any successor agency, (iii) any material order issued by any court,
governmental authority, or arbitrator in any material proceeding to which the
Company is a party, (iv) copies of all press releases and other statements made
available generally by the Company to the public generally concerning material
developments in the Company's business.
(c) Promptly, such additional information concerning the
Company as Purchaser may reasonably request, including, but not limited to,
operating reports.
6.3 Books and Records. The Company will keep (a) proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its books from its
earnings allowances against doubtful receivables, advances and investments and
all other proper accruals (including, without limitation, by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied.
6.4 Financial Disclosure. The Company hereby irrevocably
authorizes and directs all accountants and auditors employed by it at any time
during the term of this Agreement to exhibit and deliver to each Purchaser
copies of any of the Company's financial statements, trial balances or other
accounting records of any sort in the accountant's or auditor's possession, and
to disclose to each Purchaser any information they may have concerning the
Company's financial status and business operations. The Company hereby
irrevocably authorizes all federal, state and municipal authorities to furnish
to each Purchaser copies of reports or examinations relating to the Company,
whether made by the Company or otherwise.
6.5 Disclosure of Material Matters. The Company will, immediately
upon learning thereof, report to each Purchaser (a) all matters materially
affecting the value, enforceability or collectibility of any material portion of
the Collateral or its other assets including, without limitation, changes to
significant contracts, schedules of equipment, changes of significant equipment
or real property, the reclamation or repossession of, or the return to the
Company of, a material amount of goods and material claims or disputes asserted
by any customer or other obligor, and (b) any material adverse change in the
relationship between the Company and any of its suppliers or customers.
6.6 Performance of Obligations. The Company will duly and
punctually pay and perform its obligations under this Agreement and the Other
Agreements to which it is a party.
6.7 Preservation of Existence and Conduct of Business. The Company
will preserve and maintain its corporate existence and all of its leases,
privileges, franchises, qualifications and rights that are necessary or useful
in the ordinary conduct of its business, and conduct its business as presently
conducted in an orderly and efficient manner in accordance with good business
practices.
6.8 Maintenance of Properties. The Company will operate and
maintain in good condition and repair (ordinary wear and tear excepted) and
replace as necessary, all of its assets and properties which are necessary or
useful in accordance with sound business practices in the proper conduct of its
business so that the value and operating efficiency of its assets and properties
are maintained and preserved. The Company will at all times maintain the
Intellectual Property in full force and effect, and will defend and protect the
Intellectual Property against all adverse claims where such failure to maintain
or defend would have a Material Adverse Effect on the Company.
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6.9 Payment of Taxes and Claims. The Company will pay or
discharge, at or before maturity or before becoming delinquent (a) all taxes,
levies, assessments, vault, water and sewer rents, rates, charges, levies,
permits, inspection and license fees and other governmental and
quasi-governmental charges and any penalties or interest for nonpayment thereof,
heretofore or hereafter imposed or which may become a Lien upon any property
owned by the Company or arising with respect to the occupancy, use, possession
or leasing thereof (collectively the "Impositions") and (b) all lawful claims
for labor, material, and supplies, which, if unpaid, might become a Lien upon
any of its property; provided, however, the Company will not be required to pay
or discharge any claim for labor, material, or supplies or any Imposition which
is being contested in good faith by appropriate actions or proceedings
diligently pursued, and for which adequate reserves in conformity with GAAP with
respect thereto have been established to the reasonable satisfaction of
Purchaser and no Lien may be entered against the Collateral.
6.10 Compliance with Laws. The Company will comply with all acts,
rules, regulations and orders of any legislative, administrative or judicial
body or official applicable to the operation of the Company's business if
noncompliance with such acts, rules, regulations or orders could have a Material
Adverse Effect; provided, however, the Company may contest or dispute any acts,
rules, regulations, orders and directions of those bodies or officials by
appropriate actions or proceedings diligently pursued, if adequate reserves in
conformity with GAAP with respect thereto are established to the reasonable
satisfaction of Purchaser and no Lien may be entered against the Collateral.
6.11 Payment of Leasehold Obligations. The Company will at all
times pay, when and as due, its rental obligations under all leases under which
it is a tenant or lessee, and shall otherwise comply, in all material respects,
with all other terms of such leases and keep them in full force and effect and,
at Purchaser's request, will provide evidence of its having done so; provided,
however, the Company may contest or dispute its obligations under such leases by
appropriate actions or proceedings diligently pursued if adequate reserves in
conformity with GAAP with respect thereto are established to the reasonable
satisfaction of Purchaser and there is no possibility that any material leases
may be terminated.
6.12 Insurance. The Company will maintain, with financially sound,
reputable and solvent companies, insurance policies acceptable to Purchaser (a)
insuring its assets against loss by fire, explosion, theft and other risks and
casualties as are customarily insured against by companies engaged in the same
or a similar business, (b) insuring it against liability for personal injury and
property damages relating to its assets, such policies to be in such amounts and
covering such risks as are usually insured against by companies engaged in the
same or a similar business, and insuring such other matters as may from time to
time be reasonably requested by Purchaser and (c) insuring the life of James
Stein in the amount of $3,000,000, of which the Company shall have a policy for
the amount of $2,500,000 as of the Closing Date and within ninety (90) days
following the Closing Date, the Company shall obtain an addition life insurance
in the amount of $500,000. In the event that any benefits are paid thereon, the
Purchaser shall first receive, in reduction of the Senior Obligations, an amount
equal to the lesser of the Senior Obligations or $2,000,000, and any other
benefits paid thereon shall be paid to the Company. All general liability
policies shall be endorsed in favor of each Purchaser as an additional insured,
and all casualty insurance policies shall name each Purchaser as loss payee, as
the interest may appear. The Company shall provide copies of all such insurance
policies to each Purchaser within ten (10) days following each Purchaser's
request for the same. The Company shall (i) pay, or cause to be paid, all
premiums for such insurance on or before such premiums become due, (ii) furnish
to each Purchaser satisfactory proof of the timely making of such payments,
(iii) deliver all renewal policies to each Purchaser at least five (5) days
before the date the expiration date of each expiring policy, (iv) cause such
policies to require the insurer to give notice to each Purchaser of termination
of any such policy at least thirty (30) days before such termination is to be
effective, and (v) immediately deliver written notice to each Purchaser of any
casualty loss affecting the Collateral. If the Company fails to provide and pay
for any such insurance, any Purchaser may, at its option, but shall not be
required to, pay the same and charge the Company therefor.
6.13 Inspection Rights. At any reasonable time and from time to
time, the Company will permit representatives of each Purchaser to examine and
make copies of the books and records of, and visit and inspect the properties
of, the Company, and to discuss the business, operations, and financial
condition of the Company with its respective officers and employees and with its
independent certified public accountants. Such examinations and
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inspections may include, but are not limited to, audits of the application of
proceeds from the Senior Notes. In accordance with the terms of Section 12.1
hereof, the Company will promptly reimburse each Purchaser for all expenses
incurred by representatives of such Purchaser in connection with such
inspections.
6.14 Notices. The Company will promptly, but in any event within
four (4) Business Days after first becoming aware thereof, notify each Purchaser
in writing of:
(a) the commencement of any event, including but not
limited to, any action, suit, or proceeding against the Company or the Parent,
that could have a Material Adverse Effect, which notice shall specify the nature
of such event and what action the Company or the Parent, whichever is
applicable, has taken or is taking or proposes to take with respect thereto;
(b) the occurrence of an event of default, or an event
which with the passage of time or giving of notice or both constitutes an event
of default under any instrument or agreement evidencing any other Indebtedness
of the Company or the Parent, which notice shall specify the nature of such
event, condition or default and what action the Company or the Parent, whichever
is applicable, has taken or is taking or proposes to take with respect thereto;
or
(c) the occurrence of an Event of Default or a Potential
Default, which notice shall specify the nature of such event, condition or
default and what action the Company has taken or is taking or proposes to take
with respect thereto.
Any notification required by this Section 6.14 shall be accompanied by a
certificate of the Chief Executive Officer or Chief Financial Officer setting
forth the details of the specified events and the action which the Company
proposes to take with respect thereto.
6.15 Further Assurances. The Company shall execute and deliver to
each Purchaser from time to time, upon demand, such supplemental agreements,
statements, assignments and transfers, or instructions or documents as any
Purchaser may reasonably request, in order that the full intent of this
Agreement and the Other Agreements may be carried into effect.
6.16 Compliance with ERISA and the Code. The Company will comply,
and will cause each other member of any Controlled Group to comply, with all
minimum funding requirements, and all other material requirements, of ERISA and
the Code, if applicable, to any Employee Benefit Plan it or they sponsor or
maintain, so as not to give rise to any liability thereunder. The Company will
pay and will cause each other member of any Controlled Group to pay when due any
amount payable by it to the Pension Benefit Guaranty Corporation. Promptly after
the filing thereof, the Company shall furnish to Purchaser with regard to each
Employee Benefit Plan, copies of each annual report required to be filed
pursuant to Section 104 of ERISA in connection with each such plan for each plan
year.
6.17 Compliance with Regulations T, U and X. Neither the Company
nor any Person acting on its behalf will take any action which might cause this
Agreement, the Senior Note, the Warrant Documents, or any Other Agreements to
violate, and the Company will take all actions necessary to cause compliance
with, Regulations T, U and X of the Board of Governors of the Federal Reserve
System and the Securities Exchange Act of 1934, in each case as now in effect or
as the same may hereafter be in effect.
6.18 Fiscal Year. The Company will cause its fiscal year to be the
twelve month period ending on June 30 of each year.
6.19 Board Observation. The Company will deliver to each Purchaser
a copy of the minutes of and all materials distributed at or prior to all
meetings of the board of directors (including the executive committee thereof)
or shareholders of the Company, certified as true and accurate by the Secretary
of the Company, promptly following each such meeting. The Company will (a)
permit Holders to designate three (3) persons to attend all meetings of the
Company's board of directors (including executive committee meetings) (so long
as Pacific,
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Tangent and Seacoast are Holders each of them shall be permitted to designate
one (1) person) (b) provide such designees not less than fourteen (14) calendar
days' actual notice of all regular meetings and of all special meetings of the
Company's board of directors (including the executive committee thereof) or
shareholders, (c) permit such designees to attend such meetings as an observer,
and (d) provide to such designees a copy of all materials distributed at such
meetings or otherwise to the board of directors of the Company. Such meetings
shall be held in person at least quarterly, and the Company will cause its board
of directors to call a meeting at any time upon the request of either Seacoast
or Pacific on not more than two (2) occasions per calendar year upon fourteen
(14) calendar days' actual notice to the Company. The Company agrees to
reimburse each individual referred to in Subsections (a) above for all
reasonable expenses incurred in traveling to and from such meetings and
attending such meetings. Notwithstanding the notice provisions set forth above,
all actions that may be taken at a duly called Board meeting likewise may be
taken by unanimous written consent of each Board member, which consent, if also
signed by Seacoast or Pacific either as a Board member or observer shall be
deemed effective upon such signing whether or not the relevant number of advance
days' notice has been given as required if a meeting had been held in lieu of
written consent.
6.20 Environmental Costs.
(a) The Company hereby indemnifies and holds each
Purchaser harmless from and against any liability, loss, damage, suit, action or
proceeding pertaining to solid or hazardous waste materials or other waste-like
or toxic substances, including, but not limited to, claims of any federal, state
or municipal government or quasi-governmental agency or any third person,
whether arising under any federal, state or municipal law or regulation, or
tort, contract or common law that relates to the Company, or its property or
operations.
(b) To the extent the laws of the United States or any
state in which property, leased or owned, of the Company provide that a Lien
upon the property of the Company may be obtained for the removal of Polluting
Substances which have been released, no later than sixty (60) days after notice
is given by Purchaser to the Company, the Company shall deliver to each
Purchaser a report issued by a qualified, third party environmental consultant
selected by the Company and approved by Purchaser as to the existence of any
Polluting Substances located upon or beneath the specified property, leased or
owned by the Company. To the extent any such Polluting Substance is located
therein or thereunder that either (i) subjects the property to Lien or (ii)
requires removal to safeguard the health of any Person, the Company shall
remove, or cause to be removed, such Lien and such Polluting Substance at the
Company's expense.
6.21 The Act. At the request of each Purchaser, the Company will
promptly correct any defect, error, or omission with respect to the Act which
may be discovered in the contents of this Agreement or the Other Agreements or
in the execution or acknowledgment thereof, and will execute, acknowledge and
deliver such further instruments and do such further acts as may be reasonably
necessary for this Agreement and the Other Agreements, and all transactions
contemplated thereby, to comply with the Act.
6.22 Non-Compete Agreement. Subject to any limitations or
prohibitions imposed under applicable law, the Company will at all times
maintain the Non-Compete Agreement in full force and effect, and will diligently
enforce the Non-Compete Agreement against any parties thereto who violate or
attempt to violate such Non-Compete Agreement.
VII. NEGATIVE COVENANTS
The Company covenants and agrees that from the date hereof until the
Senior Obligations have been finally and irrevocably paid in full in accordance
with the terms hereof and thereof:
7.1 Indebtedness. The Company will not create, incur, issue,
assume, guarantee or otherwise become liable for any Indebtedness except (a)
Permitted Indebtedness; (b) any extension, renewal or refinancing of any
Permitted Indebtedness on terms and conditions as are, on the whole, no more
onerous to the Company than the terms and conditions of such Permitted
Indebtedness on the date of such extension, renewal or refinancing; and (c)
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any Permitted Indebtedness which is subordinated to the Senior Obligations shall
continue to be subordinated to the Senior Obligations on the same terms and
conditions.
7.2 Limitation on Liens. The Company will not incur, create,
assume, or permit to exist any Lien upon any of its property, assets, or
revenues, including, but not limited to, its shares of capital stock of each of
its Subsidiaries, whether now owned or hereafter acquired, except Permitted
Liens.
7.3 Merger, Acquisition, Dissolution and Sale of Assets. The
Company will not (a) become a party to a merger or consolidation, (b) purchase
or otherwise acquire all or a substantial part of the assets of any Person or
any shares or other evidence of beneficial ownership of any Person, (c) dissolve
or liquidate, (d) form, acquire or permit the existence of any Subsidiary or
Subsidiaries (e) without Purchaser's prior written consent, sell (except
inventory in the ordinary course of business and other assets reasonably and in
good faith determined by the Company to be obsolete or no longer necessary to
the Company's business), assign or transfer any of its assets in an aggregate
amount exceeding $25,000 (except that until each Purchaser's Senior Note has
been paid in full, such sale, assignment or transfer shall be subject to such
Purchaser's written consent).
7.4 Restricted Payments. The Company will not at any time (a) make
or become obligated to make, directly or indirectly, any declaration of any
dividend on, or any other payment or distribution in respect of, any shares of
capital stock of the Company, (b) pay or become obligated to pay any
professional, consulting or management fees or any other payments to Parent or
any shareholders of the Company and/or Parent, except to its employees, officers
directors in their capacities as such as set forth on Schedule 7.10 or any less
than five percent (5%) shareholder of the Parent who is not an officer, director
or employee of the Parent or the Company, pursuant to the limitations set forth
in Section 7.10 hereof, (c) payment or distribution on account of the purchase,
repurchase, redemption, put, call or other retirement of any shares of capital
stock of the Company or of any warrant, option or other right to acquire such
shares (except pursuant to the Warrant Documents and agreements described on
Schedule 4.16(b)), or (d) payment or distribution on account of any Indebtedness
of the Company which is subordinate to the Senior Note; provided, however, that
so long as no Default or Event of Default has occurred and is continuing, the
Company is permitted to make the following payments on the Subordinated Debt:
(i) regularly scheduled interest payments on the
Subordinated Debt may be made when and as due; and
(ii) regularly scheduled principal payments on the
Subordinated Debt may be made:
(A) upon receipt of not less than Three Million
Dollars ($3,000,000) of net proceeds in cash from the sale of
the Parent's equity; or
(B) after three (3) consecutive months of
positive net income; or
(C) from any cash proceeds of equity in the
Parent raised from the existing holders of Subordinated Debt
so long as equity pricing is at a Fair Market Value (as
determined by the Warrant Documents).
Nothing contained in this Section 7.4 is intended to prohibit or restrict the
Subordinated Debt holders from exercising any warrants or options by paying the
exercise price thereof by cancelling the principal amount of such holder's
Subordinated Debt equal to the exercise price of such options or warrants.
7.5 Loans and Investments. Except for Permitted Investments and
advances to employees of the Company in the aggregate of $10,000, not to exceed
$2,500 to any single employee, the Company will not make any advance, loan,
extension of credit, or capital contribution to or investment in, or purchase
any stock, bonds, notes, debentures, or other securities of any Person.
7.6 Transactions with Affiliates. Except as contemplated by this
Agreement and the Other Agreements, the Company will not enter into any
transaction with any director, officer, employee, shareholder, or
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Affiliate of the Company except transactions (including those permitted by
Section 7.5, if any) upon terms which are fair and reasonable and which shall be
at least as favorable as would result in a comparable arm's-length transaction
with a Person not a director, officer, employee, shareholder or Affiliate of the
Company.
7.7 Nature of Business. The Company will not engage in any
business other than the businesses set forth on Schedule 4.25, or any business
reasonably related thereto.
7.8 Capital Expenditures. The Company will not make any Capital
Expenditures if, as a result thereof, the Capital Expenditures of the Company
exceed $150,000 for the fiscal quarter ending June 30,1999. For each fiscal year
following 1999, the Company will not make any Capital Expenditures if, as a
result thereof, the Capital Expenditures of the Company exceed $150,000 (except
that the Company may also make Capital Expenditures in fiscal year 2000 in an
additional amount equal to any unutilized portion of the $150,000 of permitted
Capital Expenditures for the fiscal quarter ending June 30, 1999).
7.9 Financial Covenants.
(a) Minimum Net Worth. At all times during the periods set forth
below, the Company shall not permit the Parent's Net Worth to be less than the
amounts set forth below (with the amount set forth below increased by the amount
of any adjustment to Net Worth from the sale of securities of the Company or the
Parent) for the period corresponding thereto:
Period Amount
------ ------
April 1, 1999 - June 30, 1999 ($4,500,000)
July 1, 1999 - September 30, 1999 ($5,000,000)
October 1, 1999 - December 31, 2000 ($5,300,000)
January 1, 2000 - March 31, 2000 ($5,400,000)
April 1, 2000 - June 30, 2000 ($5,500,000)
July 1, 2000 and thereafter Net Worth Covenant Amount
(b) Minimum EBITDA. The Company shall not permit the Parent's
EBITDA for any fiscal quarter (determined on a consolidated basis) to be less
than the amounts set forth during the periods specified below, measured as of
the last day of each fiscal quarter:
Period EBITDA for Each Fiscal Quarter
------ ------------------------------
April 1, 1999 - June 30, 1999 ($800,000)
July 1, 1999 - September 30, 1999 ($400,000)
October 1, 1999 - December 31, 1999 ($200,000)
January 1, 2000 - March 31, 2000 ($75,000)
April 1, 2000 - June 30, 2000 $25,000
July 1, 2000 - June 30, 2001 $150,000
Thereafter $300,000
(c) Minimum Net Income. The Company shall not permit Parent's
Minimum Net Income for any fiscal quarter to be less than the amounts set forth
during the periods specified below, measured as of the last day of each fiscal
quarter:
Period Net Income Per Fiscal Quarter
------ -----------------------------
April 1, 1999 - June 30, 1999 ($1,000,000)
July 1, 1999 - September 30, 1999 ($600,000)
October 1, 1999 - December 31, 1999 ($400,000)
January 1, 2000 - March 31, 2000 ($250,000)
April 1, 2000 - June 30, 2000 ($150,000)
July 1, 2000 - June 30, 2001 $0
July 1, 2001 - June 30, 2002 and thereafter $150,000
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(d) Maximum Indebtedness. The Company shall not permit its
Indebtedness at any time to exceed $5,200,000, reduced by scheduled payments of
principal and without giving effect to any reborrowing, other than reborrowing
under a revolving line of credit as permitted hereunder and increased by any
Permitted Future Debt to the extent the Company is permitted to incur such
Permitted Future Debt hereunder.
(e) Operating Leases. The Company will not enter into any lease
(other than a capital lease for fixed assets) if, as a result thereof, the
liability of such Persons under all such leases to which such Persons are a
party would exceed $450,000 per annum.
7.10 Remuneration. The Company will not and will not permit any of
its Subsidiaries to (a) pay any management, consulting, or similar fees to any
shareholder or Affiliate of the Company or to any director, officer, employee or
immediate family member of any such Affiliate or shareholder, except as set
forth in Schedule 7.10 or as provided in Section 7.4, or (b) pay any
compensation to the Persons identified on Schedule 7.10 in excess of the amounts
set forth Schedule 7.10, whether such compensation consists of salary, bonus,
management, consulting or other fees, capital distributions, or other benefits
or otherwise, and regardless of whether such compensation is paid by the Company
and/or any Subsidiary or Affiliate of the Company.
7.11 Use of Proceeds. The Company will not use the proceeds of the
sale of the Senior Notes for any other purpose except as set forth in Section
1.4.
7.12 Modification of Non-Compete Agreement. The Company will not
agree to any modification, amendment or waiver of any of the terms or provisions
of the Non-Compete Agreement without Purchaser's prior written consent.
VIII. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) The Company shall fail to pay, when due (whether
upon acceleration or otherwise), any principal, interest or other sums payable
under the Senior Note or this Agreement, or shall fail to pay, when due (whether
upon acceleration or otherwise), any other Senior Obligations;
(b) Other than as provided in paragraph (a), the Company
shall fail to pay when due and after passage of any applicable notice and cure
periods, (whether upon acceleration or otherwise), any Indebtedness; however,
failure of the Company to pay when due any amounts on Subordinated Debt shall
not constitute an Event of Default hereunder if (i) such failure is due to a
contractual prohibition to pay imposed by Purchaser or (ii) if no such
contractual prohibition exists, then unless and until the Company receives
written notice from the holder thereof of such default and such continues for
ten (10) days;
(c) (i) The Company shall fail to perform or observe any
agreement, covenant, term or condition contained in Sections 6.5, 6.13, 6.14,
6.20, 6.22, or Article VII of this Agreement or in the Senior Note or in any
Other Agreement, (ii) the Company shall fail to perform or observe any
agreement, covenant, term or condition contained in Sections 6.1 or 6.2 of this
Agreement, and such default is not cured or otherwise waived within five (5)
days after the occurrence thereof; or (iii) the Company shall fail to perform or
observe any agreement, covenant, term or condition contained in this Agreement
(excluding the specific Sections and Article referred to in Section 8.1(c)(i) or
(ii) above), and such default is not cured or otherwise waived within fifteen
(15) days after the occurrence thereof, or (iv) the Parent shall fail to perform
or observe any agreement, covenant, term or condition contained in any Other
Agreement, including any Warrant Document or any Affiliate Agreement, or any
party (other than a Purchaser) shall fail to perform or observe its obligation
under any Other Agreement;
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(d) The Company shall fail to comply with any agreement,
indenture, mortgage, deed of trust, or other agreement binding on it or
affecting its properties or business, including, without limitation, any
agreement pertaining to Permitted Future Debt, or any of the Other Agreements
shall cease to be in full force and effect and such default is not cured or
otherwise waived within the lesser of (i) thirty (30) days after the occurrence
thereof or (ii) the applicable grace period provided in such agreement;
(e) Any representation, warranty or other material
information whatsoever made or provided by the Company, the Parent, any
Shareholder or Affiliate of the Company or the Parent in connection with this
Agreement or the Other Agreements or otherwise to induce Purchaser to purchase
the Senior Note or the Warrant was incorrect or misleading in any material
respect, when made;
(f) The Company or the Parent shall become subject to an
Event of Bankruptcy;
(g) Any judgment or order for payment of money shall be
rendered against the Company which exceeds $100,000 and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order, or (ii) there shall be a period of thirty (30) consecutive days during
which a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(h) James Stein shall no longer be the president or the
chief executive officer of the Company without a replacement satisfactory to
Purchaser within ninety (90) days of his departure.
8.2 Remedies of Holders upon Occurrence of Event of Default. When
any Event of Default described in Section 8.1 above, other than any Event of
Default described in clause (f) thereof, has occurred and is continuing,
Purchaser may (in addition to any other right, power or remedy permitted to
Purchaser by law) declare the entire amount of the Senior Obligations,
including, without limitation, the entire principal, Prepayment Fee (if any) and
all interest accrued then outstanding under the Senior Note, to be, and the same
shall thereupon become, forthwith due and payable, without any presentment,
demand, protest, notice of default, notice of intention to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby expressly
waived, and in such event the Company shall forthwith pay to Purchaser an amount
equal to one hundred percent (100%) of the amount thereof. When any Event of
Default described in clause (f) of Section 8.1 above shall occur, all of the
Senior Obligations, including, without limitation, the entire principal,
Prepayment Fee (if any), and all accrued interest then outstanding under the
Senior Note, shall thereupon be forthwith due and payable without any
presentment, demand, protest, notice of default, notice of intention to
accelerate, notice of acceleration or other notice of any kind (including any
notice by the Holders of the Senior Note), all of which are hereby expressly
waived by the Company, and the Company will forthwith pay to Purchaser an amount
equal to one hundred percent (100%) of the amount thereof.
8.3 Annulment of Acceleration. The provisions of the foregoing
Section 8.2 are subject to the condition that, if all or any part of the Senior
Obligations have been declared or have otherwise become immediately due and
payable by reason of the occurrence of any Event of Default, Purchaser may, by
written instrument delivered to the Company (an "Annulment Notice"), rescind and
annul such declaration and the consequences thereof as to the Senior Note,
provided that (a) at the time such Annulment Notice is delivered no judgment or
decree has been entered for the payment of any monies due pursuant to such
Senior Obligations in connection therewith, and (b) all arrears of interest and
all other sums payable on such Senior Obligations in connection therewith
(except any principal, interest or Prepayment Fee which has become due and
payable solely by reason of such declaration under Section 8.2 hereof) shall
have been duly paid or deferred by the Holder of the Senior Obligations agreeing
to such rescission and annulment; and provided further, that no such rescission
and annulment shall extend to or affect any subsequent default or Event of
Default or impair any right consequent thereto, and shall not be deemed a waiver
of the Event of Default giving rise to the acceleration unless specifically
waived in writing by Holder.
8.4 Payment of Senior Obligations. Purchaser shall have the right,
which is absolute and unconditional, to receive payment of the principal of and
interest on such Senior Note and payment of all other Senior Obligations on the
date when due and, upon the occurrence and continuance of an Event of Default,
to
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institute suit against the Company for the enforcement of any such payment. Such
rights shall not be impaired without Purchaser's prior written consent.
8.5 Remedies. If any Event of Default shall occur and be
continuing, each and every Holder may exercise any right or remedy it has at
law, in equity or under this Agreement or any Other Agreement. No right or
remedy conferred upon or reserved to Purchaser under this Agreement or any Other
Agreement is intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative and in addition to every other right or
remedy given hereunder or now or hereafter existing under any applicable law.
Every right and remedy given by this Agreement or by applicable law to each
Purchaser may be exercised from time to time and as often as may be deemed
expedient by each Purchaser.
8.6 Conduct No Waiver. No course of dealing on the part of
Purchaser, nor any delay or failure on the part of any Purchaser to exercise any
of its rights, shall operate as a waiver of such right or otherwise prejudice
such Purchaser's rights, powers and remedies. If the Company fails to pay, when
due, the principal of, Prepayment Fee (if any) or the interest on, the Senior
Note, or fails to comply with any other provision of this Agreement, the Company
shall pay to each Purchaser, to the extent permitted by law, on demand, such
further amounts as shall be sufficient to cover the cost and expenses,
including, but not limited to, reasonable attorney's fees, incurred by such
Purchaser in collecting any sums due on the Senior Note or in otherwise
enforcing any of such Purchaser's rights.
IX. [RESERVED]
X. FORM OF SENIOR NOTE, REGISTRATION, TRANSFER AND REPLACEMENT
10.1 Form of Senior Note. Each Senior Note initially delivered
under this Agreement will be a fully registered note on the books of the
Company. Each Senior Note is issuable only in fully registered form in
denominations of at least $100,000 (or the then-remaining outstanding balance
thereof, if less than $100,000).
10.2 Senior Note Register. The Company shall cause to be kept at
the principal office a register for the registration and transfer of each Senior
Note. The names and addresses of the Holder of each Senior Note, the transfer
thereof and the name and address of the transferee of each Senior Note shall be
recorded in such register.
10.3 Issuance of New Senior Note upon Exchange or Transfer. Upon
surrender for exchange or registration of transfer of a Senior Note at the
office of the Company designated for notices in accordance with Section 12.3
hereof, the Company shall execute and deliver, at its expense, one or more new
Senior Notes of any authorized denomination requested by the Holder of the
surrendered Senior Note, each dated the date to which interest has been paid on
the Senior Note so surrendered (or, if no interest has been paid, the date of
the surrendered Senior Note), but in the same aggregate unpaid principal amount
as the surrendered Senior Note, and registered in the name of such Person or
Persons as shall be designated in writing by such Holder. Every Senior Note
surrendered for registration of transfer shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by the Holder of
such Senior Note or by his attorney duly authorized in writing.
10.4 Replacement of Senior Note. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Senior Note and, in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company or, in the event of such mutilation upon surrender
and cancellation of the Senior Note, the Company, without charge to the Holder
thereof, will make and deliver a new Senior Note of like tenor and the same
series in lieu of such lost, stolen, destroyed or mutilated Senior Note. If any
such lost, stolen or destroyed Senior Note is owned by Purchaser or any other
Holder whose credit is satisfactory to the Company, then the affidavit of an
authorized officer of such owner setting forth the fact of loss, theft or
destruction and of its ownership of the Senior Note at the time of such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
further indemnity shall be required as a condition to the execution and delivery
of a new Senior Note, other than a written agreement of such owner (in form
reasonably satisfactory to the Company) to indemnify the Company.
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XI. INTERPRETATION OF AGREEMENT
11.1 Certain Terms Defined. When used in this Agreement, the terms
set forth below are defined as follows:
"Act" means the Small Business Investment Act of 1958, as amended and
in effect from time to time, and the regulations promulgated
thereunder.
"Affiliate" means any Person directly or indirectly controlling,
controlled by, or under common control with, the Person in question. A
Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract, or otherwise.
"Affiliate Agreement" means each Pledge and Security Agreement, the
Parent Guaranty Agreement, the Parent Security Agreement, the
Noncompete Agreement, and each other agreement, instrument or document
executed by Parent or any shareholder or Affiliate of Parent or Company
in favor of, or for the benefit of, Purchaser, in connection with the
transactions contemplated by this Agreement, as each of the foregoing
may be amended from time to time pursuant to the terms hereof and
thereof.
"Agreement" means this Note Purchase Agreement, including all schedules
and exhibits hereto, as the same may be modified, supplemented,
extended and/or amended from time to time in accordance with the terms
hereof.
"Annulment Notice" is defined in Section 8.3.
"Assignment of Life Insurance Policy" means that certain Assignment of
Life Insurance Policy, dated as of the date hereof, by the Company in
favor of Purchaser, as amended from time to time pursuant to the terms
hereof and thereof.
"Business Day" means each day of the week except Saturdays, Sundays,
and days on which banking institutions are authorized by law to close
in the State of California.
"Capital Expenditures" means expenditures made and liabilities incurred
for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more
than one (1) year, including, but not limited to, the direct or
indirect acquisition of such assets or incurrence of such expenses by
way of increased product or service charges, offset items or otherwise
and payments with respect to capitalized lease obligations.
"Capital Stock" means as to any Person, its common stock and any other
capital stock of such Person authorized from time to time, and any
other shares, options, interests, participations, or other equivalents
(however designated) of or in such Person, whether voting or nonvoting,
including, without limitation, common stock, options, warrants,
preferred stock, phantom stock, stock appreciation rights, preferred
stock, convertible notes or debentures, stock purchase rights, and all
agreements, instruments, documents, and securities convertible,
exercisable, or exchangeable, in whole or in part, into any one or more
of the foregoing.
"Change in Control" means an event causing James Stein, James A. Barnes
and Jerry E. Polis, collectively, to hold less than 20% of the fully
diluted shares of Common Stock of the Parent or of the Parent to own
less than 100% of the Capital Stock of the Company.
"Closing Date" means the date on which all of the conditions stated in
Article V of this Agreement have been met to each Purchaser's
satisfaction and the purchase price for the Senior Note has been paid,
but in any event not later than March 31, 1999.
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"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, and the regulations promulgated thereunder.
"Collateral" has the meaning set forth in the Security Documents.
"Company" means ValueStar, Inc., a California corporation, a wholly
owned subsidiary of the Parent.
"Controlled Group" means any group of organizations within the meaning
of Section 414(b), (c), (m) or (o) of the Code of which the Company is
a member.
"EBITDA" means, for any period of determination, (a) Net Income; plus,
(b) in each case, to the extent deducted in determining net income for
such period (i) taxes, (ii) interest expenses and (iii) amortization
and depreciation and similar non-cash charges; and minus (c) to the
extent included in determining net income for such period,
extraordinary gains, all calculated in accordance with GAAP.
"Employee Benefit Plan" means any employee benefit plan, as defined in
Section 3(3) of ERISA, which is, previously has been or will be
established or maintained by any member of a Controlled Group.
"Environmental Laws" means all federal, state, or local laws,
ordinances, rules, regulations, interpretations and orders of courts or
administrative agencies or authorities relating to pollution or
protection of the environment (including, without limitation, ambient
air, surface water, ground water, land surface, and subsurface strata),
and other laws relating to (a) Polluting Substances or (b) the
manufacture, processing, distribution, use, treatment, handling,
storage, disposal, or transportation of Polluting Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and in effect from time to time, and the regulations
promulgated thereunder.
"Event of Bankruptcy" means any of (a) the filing by a Person of a
voluntary petition in bankruptcy under any provision of any bankruptcy
law or a petition to take advantage of any insolvency act, (b) the
admission in writing by a Person of its inability to pay its debts
generally as they become due, (c) the appointment of a receiver or
receivers for all or a material part of a Person's assets with the
consent of such Person, (d) the filing of any bankruptcy, arrangement
or reorganization petition by or, with the consent of a Person, against
such Person under any provision of any bankruptcy law, (e) a receiver,
liquidator or trustee of a Person or a substantial part of its assets
shall be appointed pursuant to the Federal Bankruptcy Code by the order
of a court of competent jurisdiction which shall not be dismissed or
stayed within sixty (60) days, or (f) an involuntary petition to
reorganize or liquidate a Person pursuant to the Federal Bankruptcy
Code shall be filed against such Person and shall not be dismissed or
stayed within sixty (60) days.
"Event of Default" is defined in Section 8.1.
"Excess Interest" is defined in Section 2.7.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or
in statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as
of the date in question, provided, that the Company may not change the
use or application of any accounting method, practice or principle
without the prior written consent of Purchaser, which shall not be
unreasonably withheld, such consent may require that an adjustment be
made to any and all the financial covenants and the capital expenditure
covenant set forth herein. Accounting principles are applied on a
"consistent basis" when the accounting principles observed in a current
period are comparable in all material respects to those accounting
principles applied in a preceding period.
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"Holder" when used in reference to the Senior Note and/or the Senior
Obligations, means the Person or Persons who, at the time of
determination, is the lawful owner of all or a portion of a Senior Note
or an obligee of all or a portion of the Senior Obligations. Unless
otherwise provided in this Agreement or in the Intercreditor Agreement,
in each instance that the Holders are required to request or consent in
concert to an action, the Holders will be deemed to have requested or
consented to such action if the Holders of a majority-in-interest of
the Senior Obligations so request or consent.
"Impositions" is defined in Section 6.9.
"Indebtedness" means for any Person: (a) all indebtedness, whether or
not represented by bonds, debentures, notes, securities, or other
evidences of indebtedness, for the repayment of money borrowed, (b) all
indebtedness representing deferred payment of the purchase price of
property or assets, (c) all indebtedness under any lease which, in
conformity with GAAP, is required to be capitalized for balance sheet
purposes and leases of property or assets made as a part of any sale
and lease-back transaction if required to be capitalized, (d) all
indebtedness under guaranties, endorsements, assumptions, or other
contractual obligations, including any letters of credit, or the
obligations in respect of, or to purchase or otherwise acquire,
indebtedness of others, (e) all indebtedness secured by a Lien existing
on property owned, subject to such Lien, whether or not the
indebtedness secured thereby shall have been assumed by the owner
thereof, (f) trade accounts payable more than one hundred twenty (120)
days past due, (g) all amendments, renewals, extensions, modifications
and refundings of any indebtedness or obligations referred to in
clauses (a), (b), (c), (d), (e) or (f).
"Intercreditor Agreement" means the Intercreditor Agreement dated as of
the date hereof among the Company, the Parent and Purchaser, as the
same may be amended or modified in accordance with the terms thereof.
"Investment Unit Pricing Agreement" means each Investment Unit Pricing
Agreement, dated as of the date hereof among each Purchaser and Parent,
as amended from time to time pursuant to the terms hereof and thereof.
"Intellectual Property" means all patents, patent rights, patent
applications, licenses, inventions, trade secrets, know-how,
proprietary techniques (including processes and substances),
trademarks, service marks, trade names and copyrights.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, financing statement, or conditional sale or title
retention agreement, or any other interest in property designed to
secure the repayment of Indebtedness or any other obligation, whether
arising by agreement, operation of law, or otherwise.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial or
otherwise) of the Company or, as the case may be, Parent and the
Company, taken as a whole or (b) the impairment of the ability of any
party other than any Purchaser to perform its obligations under this
Agreement or any of the Other Agreements to which it is a party or of
any Purchaser to enforce or collect any of the Senior Obligations,
including the obligations of the Company to perform or of any Purchaser
to enforce the guaranty of Parent. In determining whether any
individual event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such effect, a
Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events
would result in a Material Adverse Effect.
"Maximum Rate" is defined in Section 2.7.
"Net Income" means the net income of the Parent determined on a
consolidated basis in accordance with GAAP, without giving effect to
any non-cash interest expense as a result of the issuance of the
Warrant or any Permitted Stock (as defined in the Warrant Documents).
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"Net Worth" means, at any date of determination thereof on a
consolidated basis, the aggregate amount of (i) all assets (including
intangibles) of the Parent, less (ii) the aggregate amounts of all
liabilities of the Parent, all in accordance with GAAP, without giving
effect to any adjustments as a result of the issuance of the Warrant.
"Net Worth Covenant Amount" ($5,500,000), plus on a cumulative basis
any Net Income, but excluding any net losses (calculated in the same
manner as Net Income).
"New Financing" is defined in Section 12.15.
"Non-Compete Agreement" means the Employment Agreement dated as of July
1, 1998, by and between the Parent and James Stein.
"Other Agreements" means each Senior Note, the SBA Letter, the Warrant
Documents, the Subsidiary Guaranty Agreement, the Security Documents,
each Affiliate Agreement and all other agreements, instruments and
documents (including, without limitation, notes, guarantees, powers of
attorney, consents, assignments, contracts, notices, subordination
agreements and all other written matter), and all renewals,
modifications and extensions thereof, whether heretofore, now or
hereafter executed by or on behalf of the Company, Parent or any
Shareholder or Affiliate of Parent or the Company and delivered to and
for the benefit of Purchaser or any Person participating with Purchaser
in the Senior Note with respect to this Agreement or any of the
transactions contemplated by this Agreement.
"Parent" means ValueStar Corporation, a Colorado corporation.
"Parent Guaranty Agreement" means that certain Parent Guaranty
Agreement, dated as of the date hereof, by Parent in favor of
Purchaser, as amended from time to time pursuant to the terms hereof
and thereof.
"Parent Security Agreement" means that certain Parent Security
Agreement, dated as of the date hereof, by Parent in favor of
Purchaser, as amended from time to time pursuant to the terms hereof
and thereof.
"Pension Plan" means any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which is, was or will be established or
maintained by any member of the Controlled Group.
"Pledge and Security Agreement" means, collective, that certain Pledge
and Security Agreement, dated as of the date hereof, by James Stein in
favor of Purchaser; that certain Pledge and Security Agreement, dated
as of the date hereof, by James A. Barnes in favor of Purchaser; and;
that certain Pledge and Security Agreement, dated as of the date
hereof, by Jerry E. Polis in favor of Purchaser, as amended from time
to time pursuant to the terms hereof and thereof.
"Permitted Future Debt" means, so long as no Potential Default or Event
of Default has occurred and is continuing and upon either (i) receiving
written approval from the Purchaser; (ii) achieving three (3)
consecutive months of positive Net Income; or (iii) receiving net
proceeds in cash from the sale of Parent's equity of not less than
$3,000,000 additional dollars in equity, the Company has the option to
maintain debt senior to the Purchaser provided that:
(a) Indebtedness senior to the Purchaser shall not
exceed $1,000,000; and
(b) the terms of subordination and the proposed senior
lender are reasonably acceptable to Purchaser, including lien
subordination of only current assets typically securing a revolving
senior credit facility with typical revolver advance rates.
"Permitted Indebtedness" means (a) any Indebtedness in favor of the
Subordinate Lender is as set forth on Schedule 11.1(a) attached hereto
and made a part hereof, (b) any Indebtedness in favor of Purchaser
under
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this Agreement and/or the Other Agreements and created pursuant
thereto, (c) presently existing and future purchase money Indebtedness
incurred by the Company to finance the acquisition of capital assets by
the Company, subject to the limitations placed on Capital Expenditures
in Section 7.8; provided, however, in no event shall annual capitalized
lease payments exceed $180,000 per annum (d) the other Indebtedness set
forth on Schedule 11.1(a), and (e) the Permitted Future Debt.
"Permitted Investments" means the following:
(a) securities issued or directly and fully guaranteed
or insured by the United States Government or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States Government is pledged in support thereof), having
maturities of not more than twelve (12) months from the date of
acquisition;
(b) time deposits and certificates of deposit (i) of any
commercial bank incorporated in the United States of recognized
standing having capital and surplus in excess of $30,000,000 with
maturities of not more than twelve months from the date of acquisition
or (ii) which are fully insured by the Bank Insurance Fund with
maturities of not more than twelve (12) months from the date of
acquisition;
(c) commercial paper issued by any Person incorporated
in the United States rated at least A-1 or the equivalent thereof by
Standard & Poor's Corporation or at least P-1 or the equivalent thereof
by Moody's Investors Service, Inc. and in each case maturing not more
than twelve (12) months after the date of acquisition; or
(d) investments in money market funds substantially all
of whose assets are comprised of securities of the types described in
clauses (a) through (c) above.
"Permitted Liens" means (a) Liens in favor of Purchaser under the
Security Documents, (b) Liens securing purchase money Indebtedness
incurred to finance the acquisition of capital assets by the Company,
subject to the limitations placed on Capital Expenditures in Section
7.8 hereof, and with the condition that all payment of principal and
interest thereon, together with any payments on any capitalized leases,
shall not exceed $180,000 per annum in the aggregate and as (i) such
Lien attaches only to the asset so financed, (ii) the Indebtedness
secured by such Lien does not exceed one hundred percent (100%) of the
purchase price, including installation, taxes and freight, of the asset
so financed and (iii) no Event of Default or Potential Default has
occurred and is continuing, (c) Liens for property taxes not yet due,
(d) materialmen's, mechanics', worker's, repairmen's, employees' or
other like Liens arising against the Company in the ordinary course of
business, in each case which are either not delinquent or are being
contested in good faith and by appropriate actions or proceedings
conducted with due diligence and for the payment of which adequate
reserves in accordance with GAAP have been established with respect
thereto to the reasonable satisfaction of Purchaser, (e) deposits to
secure payment of worker's compensation, unemployment insurance or
other social security benefits, (f) Liens disclosed on Schedule 11.1(b)
and approved by Purchaser and (g) Liens securing Permitted Future Debt.
"Person" means any individual, sole proprietorship, corporation,
business trust, unincorporated organization, association, company,
partnership, joint venture, governmental authority (whether a national,
federal, state, county, municipality or otherwise, and shall include
without limitation any instrumentality, division, agency, body or
department thereof), or other entity.
"Polluting Substances" means all pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes and shall
include, without limitation, any flammable explosives, radioactive
materials, oil, hazardous materials, hazardous or solid wastes,
hazardous or toxic substances or related materials defined in the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the
Resource Conservation and Recovery Act of 1976, the Hazardous and Solid
Waste Amendments of 1984, and the Hazardous Materials Transportation
Act, as any of the same are hereafter amended, and in the regulations
adopted and
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publications promulgated thereto; provided, in the event any of the
foregoing Environmental Laws is amended so as to broaden the meaning of
any term defined thereby, such broader meaning shall apply subsequent
to the effective date of such amendment and, provided, further, to the
extent that the applicable laws of any state establish a meaning for
"hazardous substance," "hazardous waste," "hazardous material," "solid
waste," or "toxic substance" which is broader than that specified in
any of the foregoing Environmental Laws, such broader meaning shall
apply.
"Potential Default" means the occurrence of any condition or event
which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
"Prepayment Fee" is defined in Section 2.2 and includes any Prepayment
Fee arising as a result of Purchaser's exercise of its rights and
remedies under Section 8.2.
"Public Offering" means a public offering by the Company or the Parent
of shares of any Capital Stock issued by the Company or the Parent to
the general public pursuant to a registration statement declared
effective by the United States Securities and Exchange Commission.
"Purchaser" means Seacoast, Tangent and Pacific, together with all of
their respective transferees, successors and assigns of all or any
portion of the Senior Note or the Senior Obligations and any nominees
on whose behalf any of the foregoing purchase or otherwise acquire any
of such Indebtedness of the Company, and shall include, but not be
limited to, each and every person who at the time of determination is
the lawful owner of a Senior Note with respect to any indemnification
provided to Purchasers here under or in any Other Agreement,
"Purchaser" shall include each officer, director, partner, shareholder
and agent of each Purchaser. Unless otherwise provided in this
Agreement or in the Intercreditor Agreement, in each instance that the
Purchaser is required to request or consent in concert to an action,
the Purchaser will be deemed to have requested or consented to such
action if the Purchaser of a majority-in-interest of the Senior
Obligations so request or consent.
"Qualified Liquidation Event" means either (i) a Public Offering of
common stock completed by the Parent and resulting in proceeds (before
underwriting discounts and commissions and adjusted for any stock
splits, stock dividends, reorganization, reverse stock split, or any
other change in the Capital Stock of the Company) to the Company or
Subsidiary, as applicable, of at least $15,000,000, at a price of not
less than $5.00 per share (adjusted for any stock splits, stock
dividends, reorganization, reverse stock split, or any other change in
the Capital Stock of the Company) and which results in an aggregate
valuation of all of the outstanding shares of Common Stock of the
Company on a fully diluted basis immediately prior to the consummation
of such offering of at least $40,000,000, or (ii) a sale of stock or
assets of the Company in an amount not less than $40,000,000, provided
that the Purchaser receives cash consideration of not less than (x)
$5.00 per Warrant Share (adjusted for any stock splits, stock
dividends, reorganization, reverse stock split, or any other change in
the Capital Stock of the Company) if such sale occurs on or before
March 31, 2002, or (y) $7.00 per Warrant Share (adjusted for any stock
splits, stock dividends, reorganization, reverse stock split, or any
other change in the Capital Stock of the Company) if such sale occurs
after March 31, 2002.
"Reportable Event" means (i) any of the events set forth in Sections
4043(b) (other than a merger, consolidation or transfer of assets in
which no Pension Plan involved has any unfunded benefit liabilities),
4068(f) or 4063(a) of ERISA, (ii) any event requiring any member of the
Controlled Group to provide security under Section 401(a)(29) of the
Code, or (iii) any failure to make payments required by Section 412(m)
of the Code.
"SBA Letter" means each SBA letter in the form of Exhibit D to this
Agreement, executed by the Company in favor of each Purchaser.
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"Security Agreement" means that certain Security Agreement, dated as of
the date hereof, by the Company in favor of Purchaser, as amended from
time to time pursuant to the terms hereof and thereof.
"Security Documents" means all security agreements, pledge agreements,
collateral assignments, mortgages, deeds of trust and other documents,
including but not limited to the Security Agreement, the Trademark
Security Agreement, each Pledge and Security Agreement, the Assignment
of Life Insurance Policy, the Parent Security Agreement, executed in
connection with this Agreement and granting to Purchaser liens and
security interests in the Collateral, all renewals, modifications or
extensions of such documents, and any such documents hereafter executed
in favor of Purchaser to secure payment of all or any part of the
Senior Obligations, together with all financing statements and other
documents necessary to record or perfect the Liens granted by any of
the foregoing.
"Senior Note" means a term promissory note issued to each Purchaser
pursuant to this Agreement in substantially the same form as Exhibit A
attached hereto, together with all renewals, modifications, extensions,
substitutions and replacements thereof.
"Senior Obligations" means and includes any and all Indebtedness and/or
liabilities of the Company to each Purchaser of every kind, nature and
description, direct or indirect, secured or unsecured, joint, several,
joint and several, absolute or contingent, due or to become due, now
existing or hereafter arising, under this Agreement or any Other
Agreement (regardless of how such Indebtedness or liabilities arise or
by what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument) and all obligations of the
Company and the Parent to each Purchaser to perform acts or refrain
from taking any action under any of the aforementioned documents,
together with all renewals, modifications, extensions, increases,
substitutions or replacements of any of such Indebtedness.
"Subordinate Debt" means, at any given time, the Indebtedness (whether
now outstanding or hereafter incurred) of the Company set forth on
Schedule 11.1(a).
"Subordinate Lender" means those parties set forth on Schedule 11.1(a).
"Subsidiary" means any Person of which or in which the Company and its
other Subsidiaries own directly or indirectly fifty percent (50%) or
more of (a) the combined voting power of all classes having general
voting power under ordinary circumstances to elect a majority of the
board of directors or equivalent body of such Persons, if it is a
corporation, (b) the capital interest or profits interest of such
Person, if it is a partnership, joint venture or similar entity, or (c)
the beneficial interest of such Person if it is a trust, association or
other unincorporated organization.
"Subsidiary Guaranty Agreement" means that certain Subsidiary Guaranty
Agreement executed as of the date hereof by the Company in favor of the
Purchaser, as amended from time to time pursuant to the terms hereof
and thereof.
"Termination Date" means the earliest to occur of (a) December 31, 2005
(b) the date on which the Senior Note is accelerated pursuant to
Article VIII, or (c) the date on which the Senior Obligations are paid
in full.
"Termination Event" means (a) a Reportable Event, (b) the termination
of a Pension Plan which has unfunded benefit liabilities (including an
involuntary termination under Section 4042 of ERISA), (c) the filing of
a Notice of Intent to Terminate a Pension Plan, (d) the initiation of
proceedings to terminate a Pension Plan under Section 4042 of ERISA or
(e) the appointment of a trustee to administer a Pension Plan under
Section 4042 of ERISA.
"Trademark Security Agreement" means that certain Trademark Security
Agreement, dated as of the date hereof, by the Company in favor of
Purchaser, as amended from time to time pursuant to the terms hereof
and thereof.
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"Transfer" is defined in Section 12.5 hereof.
"Transferee" means any Person to whom a Transfer is made.
"Warrant" shall have the meaning set forth in the Warrant Documents.
"Warrant Documents" means, collectively, (a) the Warrant, (b) the
Warrant Purchase Agreement dated as of the Closing Date executed by and
between the Company and Purchaser and the other parties named therein,
with respect to the issuance to Purchaser of the Warrant, and (c) the
Shareholders Agreement dated as of the Closing Date executed by
Purchaser, the Company and the other parties named therein, and (d) the
Investment Unit Pricing Agreement, as each of the foregoing may be
amended from time to time, pursuant to the terms hereof and thereof.
Terms which are defined in other Sections of this Agreement shall have the
meanings specified therein. All other terms contained in this Agreement shall
have, when the context so indicates, the meanings provided for by the Uniform
Commercial Code as adopted and in force in the State of California, as from time
to time in effect.
11.2 Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done, unless specified otherwise,
in accordance GAAP, except where such principles are inconsistent with the
requirements of this Agreement.
11.3 Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
11.4 References. When used in this Agreement, the words "hereof",
"herein" and "hereunder" and words of similar import shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
the words "Article", "Section", "subsection", "clause", "Annex", "Schedule" and
"Exhibit" refer to Articles, Sections, subsections and clauses of, and Annexes,
Schedules and Exhibits to, this Agreement unless otherwise specified.
XII. MISCELLANEOUS
12.1 Expenses. The Company agrees to pay (a) all out-of-pocket
expenses of each Purchaser (including reasonable fees, expenses and
disbursements of Purchaser's counsel) in connection with the preparation,
negotiation, enforcement, operation, monitoring and administration of this
Agreement, the Senior Note, the Other Agreements, or any documents executed in
connection therewith, or any waiver, modification or amendment of any provision
hereof or thereof; and (b) if an Event of Default occurs, all court costs and
costs of collection, including, without limitation, reasonable fees, expenses
and disbursements of counsel employed in connection with any and all collection
efforts. The attorneys' fees arising from such services, including those of any
appellate proceedings, and all expenses, costs, charges and other fees incurred
by such counsel or any Purchaser in any way or respect arising in connection
with or relating to any of the events or actions described in this Article XII
shall be payable by the Company to such Purchaser, on demand, and shall be
additional Senior Obligations secured under this Agreement. Without limiting the
generality of the foregoing, such expenses, costs, charges and fees may include:
recording costs, appraisal costs, paralegal fees, costs and expenses;
accountants' fees, costs and expenses; court costs and expenses; photocopying
and duplicating expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges, telegram charges; facsimile charges;
secretarial overtime charges; and expenses for travel, lodging and food paid or
incurred in connection with the performance of such legal services. The Company
agrees to indemnify each Purchaser from and hold it harmless against any
documentary taxes, assessments or charges made by any governmental authority by
reason of the execution and delivery by the Company or any other Person of this
Agreement, the Other Agreements, and any documents executed in connection
therewith.
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12.2 Indemnification. IN ADDITION TO AND NOT IN LIMITATION OF THE
OTHER INDEMNITIES PROVIDED FOR HEREIN OR IN ANY OTHER AGREEMENTS, THE COMPANY
HEREBY INDEMNIFIES AND AGREES TO HOLD HARMLESS PURCHASER AND ANY OTHER HOLDERS,
AND EVERY AFFILIATE OF ANY OF THE FOREGOING, AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS, FROM ANY CLAIMS, ACTIONS, DAMAGES, COSTS,
ATTORNEYS' FEES AND EXPENSES (INCLUDING ANY OF THE SAME ARISING OUT OF THE SOLE
OR CONTRIBUTORY NEGLIGENCE OF THE PERSON TO BE INDEMNIFIED) TO WHICH ANY OF THEM
MAY BECOME SUBJECT, INSOFAR AS SUCH LOSSES, LIABILITIES, CLAIMS, ACTIONS,
DAMAGES, COSTS AND EXPENSES ARISE FROM OR RELATE TO THIS AGREEMENT OR THE OTHER
AGREEMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR FROM ANY
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION,
ANY THREATENED INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF
THE FOREGOING, OR FROM ANY VIOLATION OR CLAIM OF VIOLATION OF ANY APPLICABLE
ENVIRONMENTAL LAWS WITH RESPECT TO ANY REAL OR PERSONAL PROPERTY, OR FROM ANY
GOVERNMENTAL OR JUDICIAL CLAIM, ORDER OR JUDGMENT WITH RESPECT TO ANY REAL OR
PERSONAL PROPERTY OF THE COMPANY, OR FROM ANY BREACH OF THE WARRANTIES,
REPRESENTATIONS OR COVENANTS CONTAINED IN THIS AGREEMENT OR THE OTHER
AGREEMENTS. THE FOREGOING INDEMNIFICATION INCLUDES ANY SUCH CLAIMS, ACTIONS,
DAMAGES, COSTS, AND EXPENSES INCURRED BY REASON OF THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF THE PERSON TO BE INDEMNIFIED, BUT EXCLUDES ANY OF THE SAME
INCURRED BY REASON OF SUCH PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
12.3 Notices. Except as otherwise expressly provided herein, all
communications provided for hereunder shall be in writing and delivered or
mailed by the United States mails, certified mail, return receipt requested, (a)
if to Purchaser, addressed to each Purchaser at the address specified on Annex I
hereto or to such other address as such Purchaser may in writing designate, (b)
if to any other Holder, addressed to such Holder at such address as such Holder
may in writing designate, and (c) if to the Company, addressed to the Company at
the address set forth next to its name on the signature pages hereto or to such
other address as the Company may in writing designate. Notices shall be deemed
to have been validly served, given or delivered (and "the date of such notice"
or words of similar effect shall mean the date) five (5) days after deposit in
the United States mails, certified mail, return receipt requested, with proper
postage prepaid, or upon actual receipt thereof (whether by noncertified mail,
telecopy, telegram, facsimile, express delivery or otherwise), whichever is
earlier.
12.4 Reproduction of Documents. This Agreement and all documents
relating hereto, including, without limitation (a) consents, waivers and
modifications which may hereafter be executed, (b) documents received by
Purchaser at the closing of the purchase of the Senior Note, and (c) financial
statements, certificates and other information previously or hereafter furnished
to any Purchaser, may be reproduced by such Purchaser by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and Purchaser may destroy any original document so reproduced. The
Company agrees and stipulates that any such reproduction which is legible shall
be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Company in the regular course
of business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence; provided that nothing
herein contained shall preclude the Company from objecting to the admission of
any reproduction on the basis that such reproduction is not accurate, has been
altered, is otherwise incomplete or is otherwise inadmissible.
12.5 Assignment, Sale of Interest. The Company may not sell, assign
or transfer this Agreement, or the Other Agreements or any portion thereof,
including, without limitation, the Company's rights, title, interests, remedies,
powers and/or duties hereunder or thereunder. The Company hereby consents to any
Purchaser's participation, sale, assignment, transfer or other disposition
(collectively, a "Transfer"), at any time or times hereafter, of this Agreement,
or the Other Agreements, or of any portion hereof or thereof, including, without
limitation, any Purchaser's rights, title, interests, remedies, powers and/or
duties hereunder or thereunder. In connection with any Transfer, the Company
agrees to cooperate fully with such Purchaser and any potential
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Transferee. Such cooperation shall include, but is not limited to, cooperating
with any audits or other due diligence investigation undertaken by any potential
Transferee.
12.6 Successors and Assigns. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
12.7 Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
12.8 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart or reproduction thereof permitted by Section
12.4.
12.9 Reliance on and Survival Provisions. All covenants,
representations and warranties made by the Company or any other Person herein
and in each Other Agreement and in any certificates delivered pursuant hereto,
whether or not in connection with a closing, (a) shall be deemed to be material
and to have been relied upon by each Purchaser, notwithstanding any
investigation heretofore or hereafter made by such Purchaser or on such
Purchaser's behalf, and (b) shall survive the delivery of this Agreement and the
Senior Note until all Senior Obligations shall have been satisfied.
12.10 Integration and Severability. This Agreement embodies the
entire agreement and understanding between each Purchaser and the Company, and
supersedes all prior agreements and understandings relating to the subject
matter hereof. In case any one or more of the provisions contained in this
Agreement or in any Senior Notes or any Other Agreement, or any application
thereof, shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
12.11 Law Governing. THIS AGREEMENT HAS BEEN SUBSTANTIALLY
NEGOTIATED AND IS BEING EXECUTED, DELIVERED, AND ACCEPTED, AND IS INTENDED TO BE
PERFORMED, IN PART IN THE STATE OF CALIFORNIA. ALL OBLIGATIONS, RIGHTS AND
REMEDIES HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE SENIOR NOTE SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE SPECIFIED THEREIN. EACH PURCHASER RETAINS ALL RIGHTS UNDER THE LAWS OF THE
UNITED STATES OF AMERICA, INCLUDING THOSE RELATING TO THE CHARGING OF INTEREST.
12.12 Waivers; Modification. SUBJECT TO ANY LIMITATIONS SET FORTH
HEREIN OR IN THE INTERCREDITOR AGREEMENT, NO PROVISION OF THIS AGREEMENT MAY BE
WAIVED, CHANGED OR MODIFIED, OR THE DISCHARGE THEREOF ACKNOWLEDGED, ORALLY, BUT
ONLY BY AN AGREEMENT IN WRITING SIGNED BY THE PURCHASER AND THE COMPANY.
12.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE COMPANY AND EACH PURCHASER HEREBY IRREVOCABLY AND EXPRESSLY
WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT, THE SENIOR NOTE THE OTHER AGREEMENTS OR ANY OTHER DOCUMENTS
ENTERED INTO IN CONNECTION THEREWITH OR THE TRANSACTIONS CONTEMPLATED THEREBY OR
THE ACTIONS OF ANY PURCHASER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT
THEREOF.
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12.14 The Act. This Agreement, the Other Agreements and all
transactions contemplated hereby and thereby are subject to provisions of the
Act, and shall be governed thereby to the extent of any conflict therewith.
12.15 New Financing; Right of First Offer. If at any time the
Company proposes to incur any Indebtedness or debt financing, other than the
financing obtained pursuant to this Agreement (the "New Financing"), the Company
shall first offer to each Purchaser, on a pari passu and pro rata basis, based
upon the principal amount of the Senior Obligations outstanding to each
Purchaser, the right to provide all or any part of the New Financing proposed to
be incurred, on the most favorable terms for lender(s) to be providing such New
Financing. Such offer shall describe the New Financing in reasonable detail.
Thereafter, each Purchaser shall have fifteen (15) days in which to accept the
Company's offer and closing of the transaction shall take place within sixty
(60) days of acceptance. If any Purchaser does not accept the offer or accepts
only a part of it, such Purchaser shall notify the Company and the other
Purchasers, and the other Purchasers shall thereupon have the right, within an
additional ten (10) day period, to agree to provide on a pro rata basis the New
Financing not so provided by the non-accepting Purchaser, and closing of such
transaction shall take place within sixty (60) days of acceptance. If no
Purchaser accepts the offer, or if each Purchaser elects to provide only a part
of the New Financing offered, then the Company may then offer to third parties
such New Financing, or a portion thereof not provided by any Purchaser, on terms
and conditions no more favorable to the lenders thereof than those provided by,
or offered to, the Purchaser, provided that any such funding occurs within one
hundred eighty (180) days of the Purchaser's non-acceptance or partial
acceptance of the Company's original offer. Any New Financing thereafter must
first be reoffered to each Purchaser under the terms of this Section 12.15.
IN WITNESS WHEREOF, the Company and Purchaser have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized.
COMPANY:
VALUESTAR, INC.
By:/s/ JAMES STEIN
Name: James Stein
Its: President and Chief Executive Officer
Company's Address for Notices:
1120A Bellena Boulevard
Alameda, CA 94501-3683
Attn: James Stein - Managing Director
Facsimile: (510) 814-9319
with a copy to:
Bay Venture Counsel, LLP
1999 Harrison Street, Suite 1300
Oakland, California 94612
Attn: Donald Reinke, Esq.
Facsimile: (510) 834-7440
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PURCHASER:
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:/s/ JEFFREY J. HOLLAND
Name: Jeffrey J. Holland
Title: Vice President
PACIFIC MEZZANINE fund, L.P., a limited
partnership
By: Pacific Private Capital
its general partner
By:/s/ DAVID WOODWARD
Name: David Woodward
Title: General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management LLC
its general partner
By:/s/ MARK P. GILLES
Name: Mark P. Gilles
Title: Vice President
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EXHIBIT 4.18
SENIOR NOTE
$__________ March 31, 1999
FOR VALUE RECEIVED, the undersigned corporation, ValueStar, Inc., a
California corporation, hereby promises to pay to the order of
_____________________ ("Purchaser"), at its offices at ______________ (or at
such other place as the holder hereof may from time to time designate) the
principal amount of ______________ ($___________) or so much of such principal
amount as may have been advanced from time to time and be outstanding hereunder.
This note is the Senior Subordinated Note referred to in the Note
Purchase Agreement dated the date hereof by and between the undersigned and
Purchaser (the "Purchase Agreement"). Capitalized terms used in this note are
defined in the Purchase Agreement, unless otherwise expressly stated herein.
This note is entitled to the benefits of the Purchase Agreement and is subject
to all of the agreements, terms and conditions contained therein, all of which
are incorporated herein by this reference. This note may not be prepaid, in
whole or in part, except in accordance with the terms and conditions set forth
in the Purchase Agreement.
The outstanding principal balance of this note shall be due and payable
as provided in Section 2.1(a) of the Purchase Agreement. Interest on the
principal amount of this note from time to time outstanding shall be due and
payable as provided in Section 2.1(b) of the Purchase Agreement, at the annual
rate of interest set forth in Section 1.1 of the Purchase Agreement (computed on
the basis of the actual number of days elapsed over a 360-day year). In no
event, however, shall interest exceed the maximum rate permitted by law.
As provided in Section 8.2 of the Purchase Agreement, (a) upon the
occurrence of an Event of Default under Section 8.1(f) of the Purchase
Agreement, this note, and all amounts payable hereunder in accordance with the
terms of the Purchase Agreement, shall immediately become due and payable,
without notice of any kind, and (b) upon the occurrence of any other Event of
Default under the Purchase Agreement, this note, and all amounts payable
hereunder in accordance with the terms of the Purchase Agreement, shall, at the
option of the holder, immediately become due and payable, without notice of any
kind.
THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AN AGREEMENT EXECUTED,
DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES
THEREOF OR ANY OTHER PRINCIPLES THAT COULD REQUIRE THE APPLICATION OF THE
SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
The undersigned expressly waives any presentment, demand, protest,
notice of default, notice of intention to accelerate, notice of acceleration or
notice of any other kind except as expressly provided in the Purchase Agreement.
VALUESTAR, INC.
By: /s/ JAMES STEIN
---------------
Name: James Stein
Title: President and Chief Executive Officer
EXHIBIT 4.19
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT (the "Agreement") made as of March 31, 1999, by
and among VALUESTAR CORPORATION, a Colorado corporation (the "Company"),
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP, a Delaware Limited Partnership
("Seacoast"), PACIFIC MEZZANINE FUND, L.P. a California limited partnership
("Pacific") and TANGENT GROWTH FUND, L.P., a California limited partnership
("Tangent") (individually and collectively, "Purchaser"), and Jim Stein
("Stein"), James A. Barnes ("Barnes"), and Jerry E. Polis ("Polis")
(individually and collectively, the "Shareholder").
W I T N E S S E T H:
WHEREAS, ValueStar, Inc., a wholly owned subsidiary of the
Company (the "Borrower"),and the Purchaser have entered into a Note Purchase
Agreement (the "Note Agreement") dated of even date with this Agreement pursuant
to which the Company has issued 8% Senior Notes in the stated principal amount
of $2,450,000 to Purchaser (the "Note");
WHEREAS, the Company, the Shareholder and Purchaser have entered into a
Warrant Purchase Agreement (the "Warrant Agreement") dated of even date with
this Agreement;
WHEREAS, Purchaser is willing to enter into and consummate the
transactions contemplated by the Note Agreement only if, among other things, the
Company and the Shareholder enter into, and perform under, this Agreement and
the Warrant Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Purchaser, the
Shareholder, and the Company, intending to be legally bound, agree as follows:
Article I
Definitions
All terms used in this Agreement will have the meanings ascribed to
them in the Warrant Agreement unless otherwise specifically defined in this
Agreement.
Article II
Holders' Preemptive Rights
2.01 Equity Preemptive Right. The Company will not issue or sell
any New Securities without first complying with this Article II. The Company
hereby grants to each Holder the preemptive right to purchase, pro rata, any
part of the New Securities that the Company may, from time to time, propose to
sell or issue. In the event New Securities are offered or sold as part of a unit
with other New Securities, the preemptive right granted by this Article II will
apply to such units and not to the individual New Securities composing such
units. Each Holder's pro rata share for purposes of Article II is the ratio that
the number of shares of Common Stock issuable to such Holder upon exercise of
its Warrant plus the number of shares of Common Stock that are Issued Warrant
Shares owned by such Holder immediately prior to the issuance of the New
Securities, bears to the sum of (x) the total number of shares of Common Stock
then outstanding, plus (y) the number of shares of Common Stock issuable upon
exercise of all Warrants and Common Stock Equivalents then outstanding. Any
payment due from Holder in connection with the exercise of the preemptive right
granted pursuant to this Section 2.01 may be satisfied, at the option of the
Holder, by (i) cancellation of any debt and/or accrued interest owed by the
Company to the Holder or (ii) cancellation of Warrant Shares, valued at Fair
Market Value.
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2.02 Debt Preemptive Right. The Company will not incur any
additional debt other than the debt due under the Note or any Permitted
Indebtedness, (as defined in the Note Agreement) without first complying with
this Article II and Section 12.15 of the Note Agreement.
2.03 Notice to Holders.
(a) In the event the Company proposes to issue or sell
New Securities, it will give each Holder written notice of its
intention, describing the type of New Securities and the price and
terms upon which the Company proposes to issue or sell the New
Securities. Each Holder will have fifteen (15) days from the date of
receipt of any such notice and such information as the Holders may
reasonably request to facilitate their investment decision to agree to
purchase up to its respective pro rata share of the New Securities for
the price (valued at Fair Market Value for any noncash consideration)
and upon the terms specified in the notice by giving written notice to
the Company stating the quantity of New Securities agreed to be
purchased.
(b) In the event the Company proposes to incur
additional debt to which Section 2.02 above would apply, (the "New
Financing"), the Company shall first offer to each Holder, on a pari
passu and pro rata basis, based upon the principal amount of the Senior
Obligations outstanding to each Holder (except that if the Senior
Obligations have been paid in full, based upon the amount of Capital
Stock owned by each Holder), the right to provide all or any part of
the New Financing proposed to be incurred, on the most favorable terms
for lender(s) to be providing such New Financing. Such offer shall
describe the New Financing in reasonable detail. Thereafter, each
Holder shall have fifteen (15) days in which to accept the Company's
offer and closing of the transaction shall take place within sixty (60)
days of acceptance. If any Holder does not accept the offer or accepts
only a part of it, such Holder shall notify the Company and the other
Holders, and the other Holders shall thereupon have the right, within
an additional ten (10) day period, to agree to provide on a pro rata
basis the New Financing not so provided by the non-accepting Holder,
and closing of such transaction shall take place within sixty (60) days
of acceptance. If no Holder accepts the offer, or if each Holder elects
to provide only a part of the New Financing offered, then the Company
may then offer to third parties such New Financing, or a portion
thereof not provided by any Holder, on terms and conditions no more
favorable to the lenders thereof than those provided by, or offered to,
the Holders, provided that any such funding occurs within one hundred
eighty (180) days of the Holders' non-acceptance or partial acceptance
of the Company's original offer. Any New Financing thereafter must
first be reoffered to each Holder under the terms of this Section
2.03(b).
2.04 Allocation of Unsubscribed New Securities. In the event a
Holder fails to exercise such equity preemptive right within such fifteen (15)
day period, the other Holders, if any, will have an additional five (5) day
period to purchase such Holder's portion not so agreed to be purchased in the
same proportion in which such other Holders were entitled to purchase the New
Securities (excluding for such purposes such nonpurchasing Holder). Thereafter,
the Company will have ninety (90) days to sell the New Securities not elected to
be purchased by the Holders at the same price and upon the same terms specified
in the Company's notice described in Section 2.03(a). In the event the Company
has not sold the New Securities within such ninety (90) day period, the Company
will not thereafter issue or sell any New Securities without first offering such
securities in the manner provided above.
2.05 Termination of Preemptive Rights. The rights granted pursuant
to this Article II shall terminate upon the earlier to occur of (i) a Qualified
Liquidation Event, (ii) a Qualified Liquidity Milestone or (iii) the repayment
of any and all Senior Obligations (as defined in the Note Agreement) owed to
such Purchaser and the sale in excess of 80% of such Purchaser's Warrant Shares.
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Article III
Dilution Fee
In the event that, during the term of the Warrants, the Company pays
any cash dividend or makes any cash distribution to any holder of any class of
its Capital Stock with respect to such Capital Stock, each Holder of the
Warrants will be entitled to receive in respect of its Warrant a dilution fee in
cash (the "Dilution Fee") on the date of payment of such dividend or
distribution, which Dilution Fee will be equal to the difference between (a) the
highest amount per share paid to any class of Capital Stock times the number of
Issued Warrant Shares then owned by such Holder plus the number of Issuable
Warrant Shares then owned by such Holder, and (b) the amount of such dividend or
distribution otherwise paid to such Holder as a result of its ownership of
Common Stock.
Article IV
Drag Along Rights and Call Option Upon Exercise of Drag Along Rights
4.01 Drag Along Rights.
(a) In the event that at any time or times after the earlier to
occur of (i) the fifth (5th) anniversary of the date of this Agreement, or (ii)
at any time or times after the occurrence of any of the events listed in any of
clauses (i), (ii), (iii) or (iv), below but in any event prior to the earlier of
(w) the closing of a Qualified Liquidation Event, (x) the Company achieving a
Qualified Liquidity Milestone, (y) the repayment of any and all Senior
Obligations owed to such Purchaser and the sale in excess of 80% of such
Purchaser's Warrant Shares or (z) the tenth (10th) anniversary of the date of
this Agreement (the "Drag-Along Option Period"), Purchaser shall have the right
to cause the Shareholder to participate in a sale or transfer, with respect to
all of the Capital Stock of the Company held by Shareholder and the Shareholder
shall use its best efforts to participate in a sale or transfer of all or
substantially all of the assets or stock of the Borrower, on the terms set forth
in this Section 4.01:
(i) a change in control of the Company (for purposes of
this subsection a "change of control" will include, without limitation,
the Shareholder ceasing to own, directly, a number of shares of issued
and outstanding voting stock of the Company which is equal to at least
20% of the fully diluted equity of the Company) or the Company ceasing
to own 100% of the Borrower; or
(ii) completion of a Public Offering by the Company or any
of its Subsidiaries; or
(iii) James Stein ("Key Manager") ceasing to be president or
chief executive officer of the Company and a replacement satisfactory
to each Holder is not found within ninety (90) days of his departure;
or
(iv) after the occurrence and during the continuance of an
Event of Default (as defined in the Note Agreement) pursuant to
Sections 8.1(a), (b), (f) or (h) of the Note Agreement or any failure
of the Company in any material respect to perform any of its
obligations hereunder or under the Warrant Agreement.
(b) In order to exercise the right granted pursuant to Section
4.01(a), the Holder will deliver or cause to be delivered a written notice to
the Company and each Shareholder (the "Notice of Proposed Drag-Along Sale") of
the Holder's intention to seek one or more buyers for the Company, its
Subsidiaries or all or substantially all of their assets (the "Proposed Sale").
Upon receipt of the Notice of Proposed Drag-Along Sale, the Company shall have
thirty (30) days to retain an investment banking firm of national standing
reasonably acceptable to the Holder to assist the Company in consummating the
Proposed Sale. In the event that the Company does not retain an investment
banking firm of national standing reasonably acceptable to the Holder within
such thirty (30) day period or the Company does not consummate a Proposed Sale
within one hundred eighty (180) days after retaining such investment banking
firm, then Holder may, at the Company's expense, in Holder's sole discretion
take all actions that it deems necessary and appropriate to consummate the
Proposed Sale. Upon receipt of an offer for the Proposed Sale acceptable to the
Holder, the Company and the Shareholder shall use their best efforts to take all
actions to complete the Proposed Sale in a timely manner and shall fully
cooperate with the Holder to consummate
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the Proposed Sale on the terms accepted by Holder, subject to and contingent
upon compliance with applicable state corporate and federal securities laws.
(c) Subject to the fiduciary obligations of each Board member of
the Company and Borrower, the Company represents and warrants to Holder that the
provisions of this Section 4.01 are valid and enforceable and do not, and will
not, result in the breach of any obligations or duties of the Company or the
Shareholder. In addition, the Company agrees and acknowledges that the Holder
would not purchase the Senior Notes without being provided the benefits of the
provisions of this Section 4.01.
4.02 Grant of Call Option Upon Exercise of Drag-Along Rights. Upon
receipt of a Notice of Proposed Drag-Along Sale, the Holder hereby grants to the
Company the right to purchase from the Holders (the "Drag-Along Call Option")
all, but not less than all, of the Warrant Shares and any other Capital Stock
purchased in connection with the exercise of its rights granted pursuant to this
Agreement (the "Drag- Along Call Option Shares"). The Company may assign the
rights granted pursuant to this Section 4.02 to the Shareholders. The Drag-Along
Call Option may be exercised at any time after receipt by the Company of a
Notice of Proposed Drag Along Sale and prior to the earlier of (x) the execution
by the Company of a binding agreement for a Proposed Sale, or (y) the expiration
of ninety (90) days following the receipt by the Company of a Notice of Proposed
Drag Along Sale (the "Drag-Along Call Option Period").
4.03 Drag-Along Call Option Price. In the event that the Company
exercises the Drag-Along Call Option, the price (the "Drag-Along Call Option
Price") to be paid to each Holder pursuant to this Agreement will be cash
(denominated in U.S. Dollars) in an amount equal to the sum of (i) the amount
determined by multiplying (a) the higher of (I) the Fair Market Value or (II)
the Revenue Value as of the end of the month immediately preceding the date
notice is given of the exercise of the Drag-Along Call Option pursuant to
Section 4.02 (less the Exercise Price of the Warrants, to the extent not already
taken into account in calculating Fair Market Value or Revenue Value) times (b)
the number of Drag-Along Call Option Shares owned by each Holder.
4.04 Exercise of Drag-Along Call Option. The Drag-Along Call Option
may be exercised during the Drag Along Call Option Period with respect to all,
but not less than all, of the Drag-Along Call Option Shares, by the Company
giving notice to each Holder during the Drag-Along Call Option Period of the
Company's election to exercise the Drag-Along Call Option, and the date of the
Drag-Along Call Option Closing (as defined below), which will not be more than
ninety (90) days after the date of such notice.
4.05 Certain Remedies. In the event that the Company defaults in
its obligation to purchase the Drag-Along Call Option Shares upon exercise of
the Drag-Along Call Option, in addition to any other rights or remedies of each
Holder, the unpaid portion of the Drag-Along Call Option Price will bear
interest at the lesser of (i) sixteen percent (16%) or (ii) the highest rate
permitted by applicable law. The Company will, upon the request of any Holder,
execute and deliver to such Holder a promissory note upon terms similar to the
Senior Note (as defined in the Note Agreement) in form and substance
satisfactory to such Holder evidencing such obligation.
4.06 Drag-Along Call Option Closing. The closing for the purchase
and sale of all of the Drag-Along Call Option Shares will take place at the
office of the Company on the date specified in such notice of exercise (a
"Drag-Along Call Option Closing"). At any Drag Along Call Option Closing, to the
extent applicable, the Holder of the Drag-Along Call Option Shares will deliver
the certificate or certificates evidencing the Drag-Along Call Option Shares
being purchased, duly endorsed in blank. In consideration therefor, the Company
will deliver to the Holder the Drag-Along Call Option Price, which will be
payable in cash.
Article V
Call Option for Class C Warrants
5.01 Grant of Option. The Holders hereby severally grant to the
Company an option to require all Holders to sell to the Company, and each Holder
is obligated to sell to the Company under this option (the "Call Option"), all,
but not less than all, of the C Warrants and the Warrant Shares issued upon any
previous exercise of the C Warrants. The Company may assign its rights granted
pursuant to this Section 5.01 to the Shareholder. The
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Call Option will be effective at any time prior to the fifth (5th) anniversary
of the Closing Date (the "Call Option Period"). The provisions of this Article V
will only be applicable if the Company or its Affiliates or Subsidiaries are not
in default under this Agreement, the Shareholder Agreement, the Note Agreement
or any Other Agreement, as defined in the Note Agreement.
5.02 Call Price. In the event that the Company exercises the Call
Option, the exercise price to be paid in cash to each Holder will be equal to
$6.00 per share (such price to be adjusted for any stock split, stock dividend,
reverse stock split or other subdivision of the Common Stock) less any
applicable Exercise Price. The Call Option may only be exercised with respect to
all C Warrants and all Warrant Shares issued upon any previous exercise of the C
Warrants.
5.03 Exercise of Call Option. The Call Option may be exercised
during the Call Option Period with respect to all of the C Warrants and the
Warrant Shares issued upon any previous exercise of C Warrants of all Holders,
by the Company giving notice to each Holder during the Call Option Period of the
election of the Company to exercise the Call Option, and the date of the Call
Option Closing (as defined below), which in all events will be within at least
sixty (60) days after the date of such notice. In the event that a Drag-Along
Call Option with respect to any of the C Warrants or the Warrant Shares issued
upon any previous exercise of C Warrants is exercised within the Call Option
Period and the Drag-Along Call Option has not been consummated with respect to
such C Warrants or Warrant Shares, the Company may exercise the Call Option and
the terms of this Article V will be applicable rather than the terms of Article
IV above with respect to all of the C Warrants and the Warrant Shares issued
upon any previous exercise of C Warrants.
5.04 Call Option Closing. The closing for the purchase and sale of
all of the C Warrants and Warrant Shares issued upon any previous exercise of
the C Warrants will take place at the office of the Company, on the date
specified in such notice of exercise (the "Call Option Closing"). At the Call
Option Closing, the Holders of the C Warrants will deliver the C Warrants and
the certificate or certificates representing the Warrant Shares issued upon any
previous exercise of C Warrants, duly endorsed in blank. In consideration
therefor, the Company will deliver to each Holder the purchase price, which will
be payable in immediately available funds.
Article VI
First Refusal; and Co-Sale Rights
6.01 Rights of Co-Sale.
(a) In the event that any Shareholder intends to sell or
transfer, directly or indirectly, any shares of any class of Capital
Stock held by it to any Person, each Holder will have the right to
participate in such sale or transfer on the terms set forth in this
Article VI; provided, however, none of the provisions of this Article
VI will apply to any sale by the Shareholder of shares of Capital Stock
in a Public Offering, so long as all Holders have had an opportunity to
participate in such offering pursuant to the registration rights under
this Agreement. The rights granted under this Section 6.01 shall expire
with respect to each Purchaser individually upon (i) the repayment of
the Senior Obligations owed to such Purchaser and the sale of in excess
of 80% of such Purchaser's Warrant Shares, (ii) the occurrence of a
Qualified Liquidation Event or (iii) the occurrence of a Qualified
Liquidity Milestone.
(b) Notwithstanding Section 6.01(a) or Section 6.02, Stein
may sell up to an aggregate amount of 10% (calculated as of the date
hereof) of his equity interest in the Company including stock, options
and/or warrants (the "Stein Equity Interest") without invoking the
Holders' rights pursuant to Section 6.01(a) or Section 6.02 as long as
(i) no sales are made in calendar year 1999 and (ii) no more than 2.5%
of Stein Equity Interest is sold in any single subsequent year. Any
sales which would result in an excess of 10% of the Stein Equity
Interest in the Company being sold will require Purchaser's consent and
be subject to Section 6.01(a) above.
(c) Notwithstanding Section 6.01(a) or Section 6.02, Barnes
may sell up to an aggregate amount of 16% (calculated as of the date
hereof) of his equity interests in the Company including stock, options
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and/or warrants (the "Barnes Equity Interest") without invoking the
Holders' rights pursuant to Section 6.01(a) or Section 6.02 as long as
(i) no sales are made in calendar year 1999 and (ii) no more than 4% of
his equity interest is sold in any single subsequent year. Any sales
which would result in an excess of 16% of the Barnes Equity Interest in
the Company being sold will require Purchaser's consent and be subject
to Section 6.01(a) above.
(d) Notwithstanding Section 6.01(a) or Section 6.02, Polis
may sell up to an aggregate amount of 16% (calculated as of the date
hereof) of his equity interests in the Company including stock, options
and/or warrants (the "Polis Equity Interest") without invoking the
Holders' rights pursuant to Section 6.01(a) or Section 6.02 as long as
(i) no sales are made in calendar year 1999 and (ii) no more than 4% of
his equity interest is sold in any single subsequent year. Any sales
which would result in an excess of 16% of the Polis Equity Interest in
the Company being sold will require Purchaser's consent and be subject
to Section 6.01(a) above.
(e) Notwithstanding Section 6.01(a) or Section 6.02, in
addition to any shares excluded by subsections 6.01(b),(c) and (d),
Section 6.01(a) and Section 6.02 shall not apply to any shares of stock
sold by Stein, Barnes or Polis where and to the extent the proceeds of
such sale are used to either (i) pay taxes on any income resulting from
the exercise of options or warrants of the Company held by such
individual from such individual's sale of shares to pay such taxes or
(ii) exercise options or warrants of the Company held by such
individual (collectively, Sections 6.01(b)-(e), the "Released Shares").
6.02 Method of Electing Sale; Allocation of Sales. Except for the
Released Shares or as otherwise provided in Section 6.01, no sale or transfer by
any Shareholder of any shares of Capital Stock will be valid unless the
transferee of such Capital Stock first agrees in writing to be bound by the same
terms and conditions that apply to the Shareholder under this Agreement and the
Warrant Agreement. In addition, before any shares of Capital Stock held,
directly or indirectly, by any Shareholder may be sold or transferred to any
Person, such Shareholder (as such, the "Selling Shareholder") will comply with
the following provisions:
(a) The Selling Shareholder will deliver or cause to be
delivered a written notice (the "Notice of Sale") to each Holder at
least twenty (20) days prior to making any such sale or transfer. The
Company agrees to provide the Selling Shareholder with a list of the
names and addresses of each such Holder for such purpose. The Notice of
Sale will include (i) a statement of the Selling Shareholder's bona
fide intention to sell or transfer; (ii) the name of and the address of
the prospective transferee (the "Buyer"); (iii) the number of shares of
Capital Stock of the Company to be sold or transferred; (iv) the terms
and conditions of the contemplated sale or transfer; (v) the purchase
price in cash that the Buyer will pay for such shares of Capital Stock;
(vi) the expected closing date of the transaction; and (vii) such other
information as the Holders may reasonably request to facilitate their
decision as to whether or not to exercise the rights granted by this
Article VI.
(b) Any Holder receiving the Notice of Sale may elect to
participate in the contemplated sale or transfer by exercising either
(i) its right of first refusal to purchase such Capital Stock pursuant
to Section 6.02(c) or (ii) its right to co-sell its Capital Stock
pursuant to Section 6.02(d). Either of such rights may be exercised in
the sole discretion of the Holder by delivering a written notice (an
"Election Notice") to the Company and the Selling Shareholder within
ten (10) days after receipt of such Notice of Sale stating the election
of the Holder to exercise either its right of first refusal pursuant to
Section 6.02(c) or its right of co-sale pursuant to Section 6.02(d).
(c) Each Holder may elect to treat the Notice of Sale as an
irrevocable offer to sell to the Holder up to its pro rata share
(determined in a manner consistent with Article II, and including the
pro rata share of Capital Stock not purchased by other Holders) of the
number of shares of Capital Stock proposed to be sold to the Buyer on
the same per share terms and conditions as stated in the Notice of
Sale. Such offer will remain open for a period of twenty (20) days from
delivery to the Shareholder of the Election Notice. Within such twenty
(20) day period, the Holder may elect to accept such offer in whole or
in part by delivering to the Selling Shareholder written notice of its
irrevocable election to accept such
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offer. If the Holder irrevocably accepts such offer, the closing of the
purchase and sale will occur on or before the tenth (10th) business day
following delivery of the notice of acceptance. At such closing, the
Holder will deliver the consideration payable to the order of the
Selling Shareholder, against delivery by the Selling Shareholder of the
Capital Stock being so purchased, free and clear of all liens, claims,
and encumbrances, other than this Agreement, endorsed in good form for
transfer to the Holder or its designees. If a Holder does not accept
such offer within the twenty (20) day period specified above, the offer
to such Holder will be deemed to have been rejected, and the Selling
Shareholder, subject to Section 6.02(d), will be free to sell or
transfer such Capital Stock not purchased by the Holders to the Buyer
on the same terms set forth in the Notice of Sale within ninety (90)
days of the expiration of such twenty (20) day period. If the sale to
the Buyer is not so consummated, the terms of this Article VI will
again be applicable to any sale or transfer of Capital Stock by the
Shareholder.
(d) Each Holder may elect to sell or transfer in the
contemplated transaction up to the total of the number of shares of
Capital Stock then held by it (including the Issuable Warrant Shares).
Promptly after the receipt of an Election Notice exercising such right,
the Selling Shareholder will use its best efforts to cause the Buyer to
amend its offer so as to provide for such Buyer's purchase, upon the
same terms and conditions as those contained in the Notice of Sale, of
all of the shares of Capital Stock (including the Issuable Warrant
Shares) elected to be sold in such Election Notices (the "Co-Sell
Shares"). In the event that the Buyer is unwilling to amend its offer
to purchase all of the Co-Sell Shares in addition to the shares of
Capital Stock described in the related Notice of Sale, if the Selling
Shareholder desires to proceed with the sale, the total number of
shares that such Buyer is willing to purchase will be allocated to the
Selling Shareholder and each Holder having given an Election Notice
exercising its right pursuant to this Section 6.02(d) (the
"Co-Sellers") in proportion to the aggregate number of shares of
Capital Stock (including Issuable Warrant Shares) held by each such
Person; provided, however, that no such Person will be so allocated a
number of shares greater than the number of shares that it has sought
to sell to such Buyer in the related Notice of Sale or Election Notice.
All Capital Stock sold or transferred by the Selling Shareholder and
the Co-Sellers with respect to a single Notice of Sale under Section
6.02(b) will be sold or transferred to the Buyer in a single closing on
the terms described in such Notice of Sale, and each such share will
receive the same per share consideration. In the event that the Buyer
for whatever reason, declines to purchase any shares from any Holder
delivering an Election Notice, then (x) the Selling Shareholder will
not be permitted to sell or transfer any shares of Capital Stock to
such Buyer and (y) the shares of Capital Stock of the Selling
Shareholder that were to have been sold or transferred to the Buyer
will be subject to the Holders' right of first refusal pursuant to
Section 6.02(c) for a period of twenty (20) days thereafter on the
terms and conditions that the Buyer would have purchased such shares of
Capital Stock from the Selling Shareholder had it not declined to
purchase shares from the Co-Seller under this Section 6.02(d).
6.03 Sales to Related Parties. No sale or transfer of shares of
Capital Stock by the Shareholder to a Related Party will be subject to the
provisions of Section 6.02; provided, however, that such Related Party first
agrees to assume the obligations of the Shareholder (without relieving the
Shareholder of any obligations under this Agreement) under this Agreement with
respect to the shares of Capital Stock thereby acquired by it and to be bound by
the same terms and conditions that apply to the Shareholder under this Agreement
and the Warrant Agreement in a written instrument in a form and substance
satisfactory to the Holders.
6.04 Termination of First Refusal and Co-Sale Rights. The rights
granted pursuant to this Article VI shall terminate upon the earlier to occur of
(i) a Qualified Liquidation Event, (ii) a Qualified Liquidity Milestone or (iii)
the repayment of any and all Senior Obligations owed to such Purchaser and the
sale in excess of 80% of such Purchaser's Warrant Shares.
Article VII
Liquidity
7.01 Required Registration. At any time, the Holders may, upon not
more than two (2) occasions and not more often than once during any 180-day
period, make a written request to the Company requesting that the
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Company effect the registration of Registrable Securities so long as such
request is for an aggregate offering price of not less than Five Million Dollars
($5,000,000). After receipt of such a request, the Company will, as soon as
practicable, notify all Holders of such request and use its best efforts to
effect the registration of all Registrable Securities that the Company has been
so requested to register by any Holder for sale, all to the extent required to
permit the disposition (in accordance with the intended method or methods
thereof) of the Registrable Securities so registered.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each Holder
of such Registrable Securities that the success of the offering would be
materially and adversely affected by the inclusion of any securities requested
to be included in such offering, then the amount of securities to be offered for
the accounts of any Persons, other than the Holders, will be reduced pro rata
(according to the securities proposed for registration by any Persons other than
the Holders) to the extent necessary to reduce the total amount of securities to
be included in such offering to the amount recommended by such managing
underwriter or underwriters.
7.02 Incidental Registration. If the Company at any time proposes
to file on its behalf or on behalf of any of its security holders a registration
statement under the Securities Act on any form (other than a registration
statement on Form S-4 or S-8 or any successor form unless such forms are being
used in lieu of or as the functional equivalent of, registration rights) for any
class that is the same or similar to Registrable Securities, it will give
written notice setting forth the terms of the proposed offering and such other
information as the Holders may reasonably request to all holders of Registrable
Securities at least twenty (20) days before the initial filing with the
Commission of such registration statement, and offer to include in such filing
such Registrable Securities as any Holder may request. Each Holder of any such
Registrable Securities desiring to have Registrable Securities registered under
this Section 7.02 will advise the Company in writing within ten (10) days after
the date of receipt of such notice from the Company, setting forth the amount of
such Registrable Securities for which registration is requested. The Company
will thereupon include in such filing the number of Registrable Securities for
which registration is so requested, and will use its best efforts to effect
registration under the Securities Act of such Registrable Securities.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each Holder
of such Registrable Securities that the success of the offering would be
materially and adversely affected by the inclusion of the Registrable Securities
requested to be included, then the amount of securities to be offered for the
accounts of Holders will be reduced pro rata (according to the Registrable
Securities proposed for registration) to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters; provided, however,
that if securities are being offered for the account of other persons as well as
the Company, then with respect to the Registrable Securities intended to be
offered to Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced will not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other Persons (other than the Company) is reduced.
7.03 Form S-3 Registrations. In addition to the registration rights
provided in Sections 7.01 and 7.02 above, if at any time the Company is eligible
to use Form S-3 (or any successor form) for registration of secondary sales of
Registrable Securities, any Holder of Registrable Securities may request in
writing that the Company register shares of Registrable Securities on such form
so long as such request is for an aggregate offering price of at least One
Million Dollars ($1,000,000). Upon receipt of such request, the Company will
promptly notify all holders of Registrable Securities in writing of the receipt
of such request and each such Holder may elect (by written notice sent to the
Company within fifteen (15) days of receipt of the Company's notice) to have its
Registrable Securities included in such registration pursuant to this Section
7.03. Thereupon, the Company will, as soon as practicable, use its best efforts
to effect the registration on Form S-3 of all Registrable Securities that the
Company has so been requested to register by such Holder for sale. The Company
will use its best efforts to qualify and maintain its qualification for
eligibility to use Form S-3 for such purposes.
7.04 Rule 144 Availability. Notwithstanding the foregoing, the
Company will not be obligated to register any Registrable Securities as to which
counsel reasonably acceptable to the Holders renders an opinion in
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form and substance satisfactory to the Holders to the effect that such
Registrable Securities are freely saleable without limitation as to volume under
Rule 144 under the Securities Act.
7.05 Registration Procedures. In connection with any registration
of Registrable Securities under this Article VII, the Company will, as soon as
practicable:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become and remain
effective until the earlier of such time as all Registrable Securities
subject to such registration statement have been disposed of or the
expiration of one hundred eighty (180) days;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all Registrable
Securities covered by such registration statement until the earlier of
such time as all of such Registrable Securities have been disposed of
or the expiration of one hundred eighty (180) days;
(c) furnish to each Holder such number of copies of the
registration statement and prospectus (including, without limitation, a
preliminary prospectus) in conformity with the requirements of the
Securities Act (in each case including all exhibits) and each amendment
or supplement thereto, together with such other documents as any Holder
may reasonably request;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions within the
United States and Puerto Rico as each Holder reasonably requests, and
do such other acts and things as may be reasonably required of it to
enable such holder to consummate the disposition in such jurisdiction
of the securities covered by such registration statement, except any
particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already
subject to service in such jurisdiction;
(e) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its securities holders, as soon as practicable, an earnings
statement covering the period of at least twelve months beginning with
the first month after the effective date of such registration
statement, which earnings statement will satisfy the provisions of
Section 11(a) of the Securities Act;
(f) provide and cause to be maintained a transfer agent and
registrar for Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement;
(g) if requested by the underwriters for any underwritten
offering or Registrable Securities on behalf of a Holder of Registrable
Securities pursuant to a registration requested under Section 7.01, the
Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
provisions with respect to indemnities and contribution as are
reasonably satisfactory to such underwriters and the Holders; the
Holders on whose behalf Registrable Securities are to be distributed by
such underwriters will be parties to any such underwriting agreement
and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters,
will also be made to and for the benefit of such Holders of Registrable
Securities; and no Holder of Registrable Securities will be required by
the Company to make any representations or warranties to or agreements
with the Company or the underwriters other than reasonable and
customary representations, warranties, or agreements regarding such
Holder, such
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Holder's Registrable Securities, such Holder's intended method or
methods of disposition, and any other representation required by law;
(h) furnish, at the written request of any Holder, on the
date that such Registrable Securities are delivered to the underwriters
for sale pursuant to such registration, or, if such Registrable
Securities are not being sold through underwriters, on the date that
the registration statement with respect to such Registrable Securities
becomes effective, (i) an opinion in form and substance reasonably
satisfactory to such Holders, and addressing matters customarily
addressed in underwritten public offerings, of the counsel representing
the Company for the purposes of such registration (who will not be an
employee of the Company and who will be satisfactory to such Holders),
addressed to the underwriters, if any, and to the selling Holders; and
(ii) a letter (the "comfort letter") in form and substance reasonably
satisfactory to such Holders, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and
to the selling Holders making such request (and, if such accountants
refuse to deliver the comfort letter to such Holders, then the comfort
letter will be addressed to the Company and accompanied by a letter
from such accountants addressed to such Holders stating that they may
rely on the comfort letter addressed to the Company); and
(i) during the period when the registration statement is
required to be effective, notify each selling Holder of the happening
of any event as a result of which the prospectus included in the
registration statement contains an untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and prepare a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
It will be a condition precedent to the obligation of the Company to
take any action pursuant to this Article VII in respect of the Registrable
Securities that are to be registered at the request of any Holder of Registrable
Securities that such Holder furnish to the Company such information regarding
the Registrable Securities held by such Holder and the intended method of
disposition thereof as is legally required in connection with the action taken
by the Company. The managing underwriter or underwriters, if any, for any
offering of Registrable Securities to be registered pursuant to Section 7.01 or
7.03 will be selected by the Holders of a majority of the Registrable Securities
being so registered.
7.06 Allocation of Expenses. Except as provided in the following
sentence, the Company will bear all expenses arising or incurred in connection
with any of the transactions contemplated by this Article VII, including,
without limitation, (a) all expenses incident to filing with the National
Association of Securities Dealers, Inc.; (b) registration fees; (c) printing
expenses; (d) accounting and legal fees and expenses; (e) expenses of any
special audits or comfort letters incident to or required by any such
registration or qualification; and (f) expenses of complying with the securities
or blue sky laws of any jurisdictions in connection with such registration or
qualification. Each Holder will severally bear the expense of its underwriting
fees, discounts, or commissions relating to its sale of Registrable Securities.
7.07 Listing on Securities Exchange. If the Company lists any
shares of Capital Stock on any securities exchange or on the National
Association of Securities Dealers, Inc. Automated Quotation System or similar
system, it will, at its expense, list thereon, maintain and, when necessary,
increase such listing of, all Registrable Securities.
7.08 Holdback Agreements.
(a) If any registration pursuant to Section 7.02 is in
connection with an underwritten public offering, each Holder of
Registrable Securities agrees, if so required by the managing
underwriter, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten public
offering) during the period beginning seven (7) days prior to the
effective date of such registration
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statement and ending on the one hundred eightieth (180th) day after the
effective date of such registration statement; provided, however, that
the Shareholder and each Person that is an officer, director, or
beneficial owner of five percent (5%) or more of the outstanding shares
of any class of Capital Stock enters into such an agreement.
(b) The Company and the Shareholder agree not to effect any
public sale or distribution during the period seven (7) days (or such
longer period as may be prescribed by Regulation M) prior to the
effective date of the registration statement employed in any
underwritten public offering and ending on the one hundred eightieth
(180th) day after any such registration statement contemplated by
Sections 7.01 or 7.03 has become effective, except as part of such
underwritten public offering pursuant to such registration statement
and except pursuant to securities registered on Forms S-4 or S-8 of the
Commission or any successor forms, and the Company agrees to use its
best efforts to cause each holder of its equity securities or any
securities convertible into or exchangeable or exercisable for any of
such securities, in each case purchased from the Company at any time
after the date of this Agreement (other than in a public offering), to
agree not to effect any such public sale or distribution of such
securities during such period.
7.09 Rule 144. At all times following completion by the Company of
a Public Offering, the Company will take such action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell shares of Registrable Securities without registration pursuant to
and in accordance with (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation adopted by
the Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
7.10 Rule 144A. The Company agrees that, upon the request of any
Holder or any prospective purchaser of a Warrant or Warrant Shares designated by
a Holder, the Company will promptly provide (but in any case within fifteen (15)
days of a request) to such Holder or potential purchaser, the following
information:
(a) a brief statement of the nature of the business of the
Company and any Subsidiaries and the products and services they offer;
(b) the most recent consolidated balance sheets and profit
and losses and retained earnings statements, and similar financial
statements of the Company for such part of the two preceding fiscal
years prior to such request as the Company has been in operation (such
financial information will be audited, to the extent reasonably
available); and
(c) such other publicly available information about the
Company, any Subsidiaries, and their business, financial condition, and
results of operations as the requesting Holder or purchaser of such
Warrants requests in order to comply with Rule 144A, as amended, and
the antifraud provisions of the federal and state securities laws.
The Company hereby represents and warrants to any such requesting Holder and any
prospective purchaser of Warrants or Warrant Shares from such Holder that the
information provided by the Company pursuant to this Section 7.10 will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
7.11 Limitations on Subsequent Registration Rights. Until (i) a
Qualified Liquidity Milestone, (ii) a Qualified Liquidation Event or (iii) the
repayment of any and all Senior Obligations owed to such Purchaser and the sale
in excess of 80% of such Purchaser's Warrant Shares from and after the date of
this Agreement or until the provisions of Section 7.04 are applicable, the
Company will not, without the prior written consent of the Holders of a majority
of the outstanding Registrable Securities, enter into any agreement with any
holder or prospective holder of any securities of the Company that would allow
such holder or prospective holder (a) to include such securities in any
registration filed under Section 7.01, unless under the terms of such agreement,
such holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of its securities
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will not reduce the amount of the Registrable Securities of the Holders that is
included or (b) to make a demand registration that could result in such
registration statement being declared effective prior to the effectiveness of
the first registration statement effected under Section 7.01 or within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 7.01.
7.12 Right to Delay a Demand Registration. If, at the time of any
request to register Registrable Securities hereunder, the Company is preparing a
registration statement for a Public Offering (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
of the Commission is applicable) and such registration statement in fact is
filed and becomes effective within ninety (90) days after the request, then the
Company may at its option delay such request for a period not more than in
excess of one hundred twenty (120) days from the effective date of such offering
or the date of commencement of such other activity, as the case may be. Such
right to delay shall be exercised by the Company not more than once in any
twelve (12) month period. Nothing in this Section 7.12 shall preclude a Holder
of Registrable Securities from enjoying registration rights which it might
otherwise possess under this Article 7.
7.13 Indemnification by Holders of Registrable Securities. Each
Holder of any Registrable Securities shall, by acceptance thereof, indemnify and
hold harmless each other holder of any Registrable Securities, the Company, its
directors and officers, each above-described underwriter who contracts with the
Company or its agents and each other Person, if any, who controls the Company or
such underwriter, against any liability, joint or several, to which any such
other Holder, the Company, underwriter or any such director or officer of any
such Person may become subject under the Securities Act or any other statute or
at common law, if such liability (or actions in respect hereof) arises out of or
is based upon (i) the disposition by such Holder of such Registrable Securities
in violation of the provisions of this Article VII, (ii) any alleged untrue
statement of any material fact contained in any registration statement under
which securities were registered under the Securities Act at the request of such
Holder, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (iii) any alleged omission to state therein
a material fact required to be stated therein or necessary to make statement(s)
therein not misleading. Notwithstanding any other provision of this Section, the
indemnification rights set forth in this Section shall be given in the case of
clause (ii) or (iii) only if such alleged untrue statement or alleged omission
supplement thereto was made (1) in reliance upon and in conformity with
information furnished to the Company by such Holder expressly stated for use
therein, and (2) not based on the authority of an expert as to whom the holder
had no reasonable ground to believe, and did not believe, that (A) the
statements made on the authority of such expert were untrue or (B) there was an
omission to state a material fact. Such Holder shall reimburse the Company, such
underwriter or such director, officer, other Person or other Holder for any
reasonable legal fees incurred in investigating or defending any such liability;
provided, however, that no Holder of Registrable Securities shall be required to
indemnify any Person against any liability arising from any untrue or misleading
statement or omission contained in any prospectus or for any liability which
arises out of the failure of any Person to deliver a prospectus as required by
the Securities Act; and provided further, that the obligations of such Holder of
Registrable Securities for the indemnity hereunder shall be limited to an amount
equal to the net proceeds received by such Holder of Registrable Securities upon
disposition thereof and shall not extend to any settlement of claims related
thereto without the express written consent of such Holder of Registrable
Securities, which consent shall not be unreasonably withheld.
Article VIII
Directors
8.01 Voting Agreement. To ensure compliance with this Article VIII,
the Shareholder hereby irrevocably covenants and agrees to vote, or give or
withhold consent with respect to, all shares of Capital Stock now owned or later
acquired by them, all in accordance with the terms of this Article VIII. The
agreement to vote contained in this Article VIII will expire on the earlier to
occur of (a) the day prior to maximum period permitted under applicable law, (b)
the date Purchaser and Affiliates (with respect to such Purchaser) cease to hold
20% of Warrants or Warrant Shares purchased at Closing or (c) the occurrence of
a Qualified Liquidity Event or Qualified Liquidity Milestone. A counterpart of
this Agreement will be deposited with the Company at its principal place of
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business or registered office and will be subject to the same right of
examination by a shareholder of the Company, in person or by agent or attorney,
as are the books and records of the Company.
8.02 Board of Directors. Until the expiration of the agreement to
vote in this Article VIII, subject to applicable state law, Seacoast and Pacific
shall be entitled to designate one (1) member to the Company's Board of
Directors (the "Purchaser Directors"). Neither Seacoast nor Pacific shall have
the obligation to designate a member to the Company's Board of Directors. The
Shareholder shall (i) vote all shares of Capital Stock now owned or later
acquired by such Shareholder (the "Voting Shares") at all regular and special
meetings of the stockholders of the Company called or held for the purpose of
filling positions on the Board of Directors, and in each written consent
executed in lieu of such a meeting of stockholders, and each Shareholder shall
take all actions otherwise necessary, to ensure (to the extent within such
Shareholder's collective control) the election to the Board of Directors of the
Purchaser Directors and (ii) not vote their Voting Shares for the removal of any
Purchaser Director unless requested by the Purchaser party that designated such
Purchaser Director. Any Purchaser Director vacancy created or existing on the
Company's Board of Directors shall be filled by a successor Purchaser Director
who shall be elected in a manner by which his or her predecessor was elected or
entitled to be elected as provided above if so requested by the applicable
Purchaser party.
Subject to the confidentiality provisions set forth in Section 11.17,
the Company will deliver to each Purchaser a copy of the minutes of and all
materials distributed at or prior to all meetings of the Board of Directors
(including the executive committee thereof) or shareholders of the Company,
certified as true and accurate by the Secretary of the Company, promptly
following each such meeting. The Company will (a) permit Holders to designate
three (3) persons to attend all meetings of the Company's Board of Directors
(including executive committee meetings) (so long as Pacific, Tangent and
Seacoast are Holders each of them shall be permitted to designate one (1)
person) unless in the case of Seacoast or Pacific they have a representative as
a member of the Board of Directors, (b) provide such designees not less than
fourteen (14) calendar days' actual notice of all regular meetings and of all
special meetings of the Company's Board of Directors (including the executive
committee thereof) or shareholder, (c) permit such designees to attend such
meetings as an observer and (d) provide to such designees a copy of all
materials distributed at such meetings or otherwise to the Board of Directors of
the Company. Such meetings shall be held in person at least quarterly, and the
Company will cause its Board of Directors to call a meeting at any time upon the
request of either Seacoast or Pacific not more than two (2) occasions per
calendar year upon fourteen (14) calendar days' actual notice to the Company.
The Company agrees to reimburse each individual referred to in Subsection (c)
above for all reasonable expenses incurred in traveling to and from such
meetings and attending such meetings. All actions that may be taken at a duly
called Board meeting likewise may be taken by unanimous written consent of each
Board member, which consent, if signed by Seacoast or Pacific either as a Board
member or observer shall be deemed effective upon such signing whether or not
the relevant number of advance days' notice has been given as required if a
meeting had been held in lieu of written consent.
Article IX
Representations and Warranties; Covenants
9.01 Representations and Warranties and Covenants of the Company.
Each of the representations and warranties set forth in Section 3.01 of the
Warrant Agreement and each of the covenants set forth in Article IV of the
Warrant Agreement are hereby restated and incorporated by reference in this
Agreement as though set forth in this Agreement, and is made by the Company as
made in the Warrant Agreement for the benefit of Purchaser.
9.02 Representations and Warranties of Purchaser. Each of the
representations and warranties of Purchaser set forth in Section 3.02 of the
Warrant Agreement and Article III of the Note Agreement is hereby restated and
incorporated by reference in this Agreement as though set forth in this
Agreement, and is made by Purchaser as representations and warranties of
Purchaser hereunder for the benefit of the Company.
9.03 Covenants of Shareholder. The Shareholder agrees that they
shall take all reasonable shareholder action necessary to permit or enable the
Company to comply with the Company's obligations to the Holder under Article II,
Article IV and Article VI of the Warrant Purchase Agreement (provided that any
costs and
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expenses relating thereto shall be borne by the Company), and that they shall
refrain from taking any action that would restrict or impair the Company's power
or ability to comply therewith.
Article X
Conditions
The obligations of Purchaser to effect the transactions contemplated by
this Agreement are subject to the following conditions:
10.01 Note Agreement and Warrant Agreement Conditions. All of the
conditions precedent to the obligations of Purchaser under the Note Agreement
and the Warrant Agreement shall have been satisfied in full or waived.
10.02 Proceedings. All proceedings taken in connection with the
transactions contemplated by this Agreement, and all documents necessary to the
consummation thereof, will be reasonably satisfactory in form and substance to
Purchaser and its counsel, and Purchaser and its counsel will have received
copies (executed or certified as may be appropriate) of all documents,
instruments, and agreements that Purchaser or its counsel may request in
connection with the consummation of such transactions.
Article XI
Miscellaneous
11.01 Indemnification. In addition to any other rights or remedies
to which Purchaser and the Holders may be entitled, the Company agrees to and
will indemnify and hold harmless Purchaser, the Holders, and their Affiliates
and their respective successors, assigns, officers, directors, employees,
attorneys, and agents (individually and collectively, an "Indemnified Party")
from and against any and all losses, claims, obligations, liabilities,
deficiencies, diminutions in value, penalties, causes of action, damages,
out-of-pocket costs, reasonable attorneys' fees, and expenses including, without
limitation, costs and expenses of investigation and defense, attorneys' fees and
expenses including, without limitation, those arising out of the sole or
contributory negligence of any Indemnified Party, that any Indemnified Party may
suffer, incur, or be responsible for, arising or resulting from any
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of the Company, the Company, or the Shareholder under this Agreement, the
Warrant Agreement, or under any other agreement to which the Company or the
Shareholder is a party in connection with the transactions contemplated by this
transaction, or from any misrepresentation in or omission from any certificate
or other instrument furnished or to be furnished by the Company or the
Shareholder to Purchaser or the Holders under this Agreement. The foregoing
indemnification includes any such claims, actions, damages, costs and expenses
incurred by reason of the sole or contributory negligence of the Person to be
indemnified, but excludes any of the same incurred by reason of such Person's
gross negligence or willful misconduct.
11.02 Default. It is agreed that a violation by any party of the
terms of this Agreement cannot be adequately measured or compensated in money
damages, and that any breach or threatened breach of this Agreement by a party
to this Agreement would do irreparable injury to the nonbreaching party. It is,
therefore, agreed that in the event of any breach or threatened breach by a
party to this Agreement of the terms and conditions set forth in this Agreement,
the nondefaulting party will be entitled, in addition to any and all other
rights and remedies that it may have in law or in equity, to apply for and
obtain injunctive relief requiring the defaulting party to be restrained from
any such breach, or threatened breach or to refrain from a continuation of any
actual breach.
11.03 Integration. This Agreement, the Note Agreement and the
Warrant Agreement constitute the entire agreement among the parties with respect
to the subject matter hereof and thereof and supersede all previous written, and
all previous or contemporaneous oral, negotiations, understandings,
arrangements, and agreements. This Agreement may not be amended or supplemented
except by a writing signed by the Company, the Shareholder, and each Holder.
14
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11.04 Headings. The headings in this Agreement are for convenience
and reference only and are not part of the substance of this Agreement.
References in this Agreement to Sections and Articles are references to the
Sections and Articles of this Agreement unless otherwise specified.
11.05 Severability. The parties to this Agreement expressly agree
that it is not their intention to violate any public policy, statutory or common
law rules, regulations, or decisions of any governmental or regulatory body. If
any provision of this Agreement is judicially or administratively interpreted or
construed as being in violation of any such policy, rule, regulation, or
decision, the provision, section, sentence, word, clause, or combination thereof
causing such violation will be inoperative (and in lieu thereof there will be
inserted such provision, sentence, word, clause, or combination thereof as may
be valid and consistent with the intent of the parties under this Agreement) and
the remainder of this Agreement, as amended, will remain binding upon the
parties to this Agreement, unless the inoperative provision would cause
enforcement of the remainder of this Agreement to be inequitable under the
circumstances.
11.06 Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration, or other communication be given
to or served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
will be deemed to have been validly served, given, or delivered (and "the date
of such notice" or words of similar effect will mean the date) five (5) days
after deposit in the United States mails, certified mail, return receipt
requested, with proper postage prepaid, or upon receipt thereof (whether by
non-certified mail, telecopy, telegram, express delivery, or otherwise),
whichever is earlier, and addressed to the party to be notified as follows:
If to the Purchaser, at Seacoast Capital Partners Limited Partnership
One Sansome Street, Suite 2100
San Francisco, California 94104
Attention: Jeffrey J. Holland
Fax: (415) 956-1459
Seacoast Capital Partners Limited Partnership
c/o Seacoast Capital Corporation
55 Ferncroft Road
Danvers, Massachusetts 01923
Attention: Walt Leonard
Fax: (508) 750-1301
Pacific Mezzanine Fund, L.P.
2200 Powell Street, Suite 1250
Emeryville, California 94608
Attention: Dave Woodward
Fax: (510) 595-9801
Tangent Growth Fund, L.P.
1 Union Square
180 Geary Street, Suite 500
San Francisco, California 94108
Attention: Mark P. Gilles
Fax: (415) 392-1928
with courtesy copies to: Patton Boggs LLP
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attention: Charles P. Miller, Esq.
Fax: (214) 871-2688
15
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If to the Company, at ValueStar Corporation
1120A Ballena Boulevard
Alameda, California 94501
Attention: Jim Stein
Fax: (510) 814-9319
with courtesy copies to: Bay Venture Counsel, LLP
1999 Harrison Street, Suite 1300
Oakland, California 94612
Attention: Bruce Johnson, Esq.
Fax: (510) 834-7440
If to the Shareholder, at: James Stein
ValueStar, Inc.
7009 Baker Lane
Sebastopol, California 954724501
Fax: (707) 824-1370
James A. Barnes
9029 Opus Drive
Las Vegas, Nevada 89117
Fax: (702) 254-4212
Jerry E. Polis
980 American Pacific Drive, Suite 111
Henderson, Nevada 89014
Fax: (702) 737-6900
or to such other address as each party may designate for itself by like notice.
Notice to any Holder other than Purchaser will be delivered as set forth above
to the address shown on the stock transfer books of the Company or the Warrant
Register unless such Holder has advised the Company in writing of a different
address to which notices are to be sent under this Agreement.
Failure or delay in delivering the courtesy copies of any notice,
demand, request, consent, approval, declaration, or other communication to the
persons designated above to receive copies of the actual notice will in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration, or other communication.
No notice, demand, request, consent, approval, declaration, or other
communication will be deemed to have been given or received unless and until it
sets forth all items of information required to be set forth therein pursuant to
the terms of this Agreement.
11.07 Successors. This Agreement will be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns.
11.08 Remedies. The failure of any party to enforce any right or
remedy under this agreement, or to enforce any such right or remedy promptly,
will not constitute a waiver thereof, nor give rise to any estoppel against such
party, nor excuse any other party from its obligations under this Agreement. Any
waiver of any such right or remedy by any party must be in writing and signed by
the party against which such waiver is sought to be enforced.
11.09 Survival. All warranties, representations, and covenants made
by any party in this Agreement or in any certificate or other instrument
delivered by such party or on its behalf under this Agreement will be
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considered to have been relied upon by the party to which it is delivered and
will survive the Closing Date, regardless of any investigation made by such
party or on its behalf. All statements in any such certificate or other
instrument will constitute warranties and representations under this Agreement.
11.10 Fees. Any and all fees, costs, and expenses, of whatever kind
and nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings arising
out of or in connection with this Agreement will, to the extent provided in this
Agreement, be borne and paid by the Company within ten (10) days of demand by
the Holders.
11.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
11.12 Other Business. It is understood and accepted that Purchaser,
the Initial Holder, the Holders, and their Affiliates have interests in other
business ventures that may be in conflict with the activities of the Company and
that nothing in this Agreement will limit the current or future business
activities of such parties whether or not such activities are competitive with
those of the Company. The Company and the Shareholder agree that all business
opportunities in any field substantially related to the business of the Company
will be pursued exclusively through the Company.
11.13 Choice of Law. THIS AGREEMENT HAS BEEN EXECUTED, DELIVERED,
AND ACCEPTED BY THE PARTIES AND WILL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF
CALIFORNIA AND WILL BE INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE THERETO AND THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AN AGREEMENT EXECUTED,
DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES
THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE
SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
11.14 Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner of such
Registrable Securities, the beneficial owner of Registrable Securities may, at
its election, be treated as the Holder of such Registrable Securities for
purposes of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities. In no event will a Holder be required to exercise the
Warrant as a condition to the registration of such Warrant or Registrable
Securities thereunder.
11.15 Fiduciary Duties. The Company acknowledges and agrees that,
for so long as any Warrant is outstanding and regardless of whether the Holder
has exercised any portion of its Warrants, (a) the officers and directors of the
Company will owe the same duties (fiduciary and otherwise) to the Holder as are
owed to a stockholder of the Company and (b) the Holder will be entitled to all
rights and remedies with respect to such duties or that are otherwise available
to a stockholder of the Company under the General Corporation Law of the
jurisdiction in which the Company is organized, as amended from time to time.
11.16 Duties Among Holders. The provision relating to actions of the
Holders under the definition of Holder in the Warrant Agreement are incorporated
herein by reference.
11.17 Confidentiality. Each Holder agrees to keep confidential any
information delivered by the Company to such Holder under this Agreement that
the Company clearly indicates in writing to be confidential information;
provided, however, that nothing in this Section 11.17 will prevent such Holder
from disclosing such information (a) to any Affiliate of such Holder or any
actual or potential purchaser, participant, assignee, or transferee of such
Holder's rights or obligations hereunder that agrees to be bound by the terms of
this Section 11.17, (b) upon order of any court or administrative agency, (c)
upon the request or demand of any regulatory
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agency or authority having jurisdiction over such Holder, (d) that is in the
public domain, (e) that has been obtained from any Person that is not a party to
this Agreement or an Affiliate of any such party without breach by such Person
of a confidentiality obligation known to such Holder, (f) if necessary and only
to the extent necessary for the exercise of any remedy under this Agreement, or
(g) to the certified public accountants for such Holder. The Company agrees that
such Holder will be presumed to have met its obligations under this Section
11.17 to the extent that it exercises the same degree of care with respect to
information provided by the Company as it exercises with respect to its own
information of similar character.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
<PAGE>
COMPANY:
VALUESTAR CORPORATION
By: /s/ JAMES STEIN
---------------------------
Name: James Stein
Its: President and Chief Executive Officer
SHAREHOLDER:
/s/ JAMES STEIN
----------------------------
James Stein
/s/ JAMES A. BARNES
----------------------------
James A. Barnes, individually, as President of Sunrise
Capital, Inc. and General Partner of Tiffany Investments,
and as General Partner of Tiffany Investments Limited
Partnership
/s/ JERRY E. POLIS
---------------------------
Jerry E. Polis, individually, as President of Davric
Corporation and Trustee of the Jerry E. Polis Family Trust
PURCHASER:
SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By: /s/ JEFFREY J. HOLLAND
---------------------------
Name: Jeffrey J. Holland
Its: Vice President
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital
its general partner
By: /s/ DAVID WOODWARD
---------------------------
Name: David Woodward
Its: General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management, LLC
its general partner
By: /s/ MARK P. GILLES
---------------------------
Name: Mark P. Gilles
Its: Vice President
19
EXHIBIT 4.20
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (the "Agreement") made as of March 31, 1999,
by and between VALUESTAR CORPORATION, a Colorado corporation, (the "Company"),
Jim Stein, James A. Barnes and Jerry E. Polis (individually and collectively,
the "Shareholder"), and SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP, a
Delaware limited partnership ("Seacoast") PACIFIC MEZZANINE FUND, L.P. a
California limited partnership, ("Pacific") and TANGENT GROWTH FUND, L.P., a
California limited partnership ("Tangent"), (individually and collectively,
"Purchaser").
W I T N E S S E T H:
WHEREAS, the Company owns beneficially and of record all of the issued
and outstanding capital stock of the ValueStar, Inc., a California corporation
(or "Borrower");
WHEREAS, the Borrower and Purchaser have entered into a Note Purchase
Agreement (the "Note Agreement") dated of even date with this Agreement;
WHEREAS, the Company, the Purchaser and the Shareholder have entered
into a Shareholder Agreement (the "Shareholder Agreement") dated of even date
with this Agreement; and
WHEREAS, Purchaser is willing to enter into and consummate the
transactions contemplated by the Note Agreement only if, among other things, the
Company and the Shareholder enter into, and perform under, this Agreement and
the Shareholder Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Purchaser, the
Shareholder, and the Company, intending to be legally bound, agree as follows:
Article I
Definitions
As used in this Agreement, the following terms have the meanings
indicated:
Act. This term is defined in Section 3.01(k).
Additional Securities. This term is defined in Section 2.08(a)(iv).
Affiliate. Any Person directly or indirectly controlling, controlled
by, or under common control with, the Person in question. A Person
shall be deemed to control a corporation if such Person possesses,
directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation, whether through the
ownership of voting securities, by contract, or otherwise.
Agreement. This term is defined in the preamble.
Appraised Value. The value determined in accordance with the following
procedures. For a period of thirty (30) days after the date of a
Valuation Event (the "Negotiation Period"), each party to this
Agreement agrees to negotiate in good faith to reach agreement upon the
Appraised Value of the securities or property at issue, as of the date
of the Valuation Event, which will be the fair market value of such
securities or property, without premium for control or discount for
minority interests, illiquidity, or restrictions on transfer. In the
event that the parties are unable to agree upon the Appraised Value of
such securities or other property by the end of the Negotiation Period,
then the Appraised Value of such securities or property will be
determined for purposes of this Agreement by a recognized appraisal or
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investment banking firm mutually agreeable to the Holders and the
Company (the "Appraiser"). If the Holders and the Company cannot agree
on an Appraiser within fifteen (15) days after the end of the
Negotiation Period, the Company, on the one hand, and the Holders, on
the other hand, shall each select an Appraiser within twenty-one (21)
days after the end of the Negotiation Period and those two Appraisers
shall select within twenty-five (25) days after the end of the
Negotiation Period an independent Appraiser to determine the fair
market value of such securities or property, without premium for
control or discount for minority interests. Such independent Appraiser
shall be directed to determine fair market value of such securities or
property as soon as practicable, but in no event later than thirty (30)
days from the date of its selection. The determination by an Appraiser
of the fair market value will be conclusive and binding on all parties
to this Agreement. Appraised Value of each share of Common Stock at a
time when (i) the Company is not a reporting company under the Exchange
Act and (ii) the Common Stock is not traded in the organized securities
markets, will, in all cases, be calculated by determining the Appraised
Value of the entire Company taken as a whole (plus the exercise price
of all Common Stock Equivalents having an exercise price per share less
than the Fair Market Value of such Common Stock Equivalents) and
dividing that value by the sum of (x) the number of shares of Common
Stock then outstanding plus (y) the number of shares of Common Stock
Equivalents having an exercise price per share less than the Fair
Market Value of such Common Stock Equivalents, without premium for
control or discount for minority interests, illiquidity, or
restrictions on transfer. The costs of the Appraiser will be borne
equally by the Company and Purchaser. In no event will the Appraised
Value of the Common Stock or Other Securities be less than the per
share consideration received or receivable with respect to the Common
Stock or securities or property of the same class as the Other
Securities, as the case may be, in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or
transfer of all or a majority of its assets or revenue or income
generating capacity, or similar transaction. The prevailing market
prices for any security or property will not be dispositive of the
Appraised Value thereof.
Appraiser. This term is defined in the definition of Appraised Value.
Average Market Value. The average of the Closing Price for the security
in question for the thirty (30) trading days immediately preceding the
date of determination.
Business Day. This term is defined in Section 11.1 of the Note
Agreement.
Buyer. This term is defined in Section 6.02(a)(ii) of the Shareholder
Agreement.
Call Option. This term is defined in Section 5.01 of the Shareholder
Agreement.
Call Option Closing. This term is defined in Section 5.04 of the
Shareholder Agreement.
Call Option Period. This term is defined in Section 5.01 of the
Shareholder Agreement.
Capital Stock. As to any Person, its common stock and any other capital
stock of such Person authorized from time to time, and any other
shares, options, interests, participations, or other equivalents
(however designated) of or in such Person, whether voting or nonvoting,
including, without limitation, common stock, options, warrants,
preferred stock, phantom stock, stock appreciation rights, preferred
stock, convertible notes or debentures, stock purchase rights, and all
agreements, instruments, documents, and securities convertible,
exercisable, or exchangeable, in whole or in part, into any one or more
of the foregoing.
Closing Date. March 31, 1999.
Closing Price.
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(a) If the primary market for the security in question is a
national securities exchange registered under the Exchange Act, the
National Association of Securities Dealers Automated Quotation System
-- National Market System, or other market or quotation system in which
last sale transactions are reported on a contemporaneous basis, the
last reported sales price, regular way, of such security for such day,
or, if there has not been a sale on such trading day, the highest
closing or last bid quotation therefor on such trading day (excluding,
in any case, any price that is not the result of bona fide arm's length
trading); or
(b) If the primary market for such security is not an
exchange or quotation system in which last sale transactions are
contemporaneously reported, the highest closing or last bona fide bid
or asked quotation by disinterested Persons in the over-the-counter
market on such trading day as reported by the National Association of
Securities Dealers through its Automated Quotation System or its
successor or such other generally accepted source of publicly reported
bid quotations as the Holders designate.
Common Stock. The common stock, .00025 par value, of the Company.
Common Stock Equivalent. Any option, warrant, right, or similar
security exercisable into, exchangeable for, or convertible to Common
Stock.
Commission. The Securities and Exchange Commission and any successor
federal agency having similar powers.
Company. ValueStar Corporation and any successor or assign, and, unless
the context requires otherwise, the term Company includes any
Subsidiary, including Borrower.
Co-Sell Shares. This term is defined in Section 6.02(d) of the
Shareholder Agreement.
Co-Sellers. This term is defined in Section 6.02(d) of the Shareholder
Agreement.
Dilution Fee. This term is defined in Article III of the Shareholder
Agreement.
Drag-Along Call Option. This term is defined in Section 4.02 of the
Shareholder Agreement.
Drag-Along Call Option Closing. This term is defined in Section 4.05 of
the Shareholder Agreement.
Drag-Along Call Option Period. This term is defined in Section 4.02 of
the Shareholder Agreement.
Drag-Along Call Option Price. This term is defined in Section 4.03 of
the Shareholder Agreement.
Drag-Along Call Option Shares. This term is defined in Section 4.03 of
the Shareholder Agreement.
Election Notice. This term is defined in Section 6.02(b) of the
Shareholder Agreement.
Exchange Act. The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Exchange Common Stock. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exchange Company. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exchange Notice. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exercise Price. The price per share specified in Section 2.03 as
adjusted from time to time pursuant to the provisions of this
Agreement.
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Fair Market Value.
(a) As to securities regularly traded in the organized
securities markets, the higher of (i) the Average Market Value
determined on a per share basis, (ii) the value of the securities as
carried on the books of the Company, determined on a per share basis or
(iii) an amount determined using the value attributable to equity in a
concurrent Public Offering or sale of business or merger,
consolidation, reorganization, share exchange, recapitalization, or
similar transaction or series of related transactions involving a
change of control of the Company or disposition of all or substantially
all of the assets or revenue or income generating capacity of the
Company, determined on a per share basis; provided, however, that, at
the election of the Holders, the Fair Market Value of such securities
and other property will be the Appraised Value; and
(b) as to all securities not regularly traded in the
securities markets and other property, (i) the fair market value of
such securities or property as determined in good faith by the Board of
Directors of the Company at the time it authorizes the transaction (a
"Valuation Event") requiring a determination of Fair Market Value under
this Agreement, determined on a per share basis, (ii) the value of the
securities as carried on the books of the Company, determined on a per
share basis or (iii) an amount determined using the value attributable
to equity in a concurrent sale of business or merger, consolidation,
reorganization, share exchange, recapitalization, or similar
transaction or series of related transactions involving a change of
control of the Company or disposition of all or substantially all of
the assets or revenue or income generating capacity of the Company,
determined on a per share basis; provided, however, that, at the
election of the Holders, the Fair Market Value of such securities and
other property will be the Appraised Value.
GAAP. The generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or
in statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as
of the date in question, provided, that the Company may not change the
use or application of any accounting method, practice or principle
without the prior written consent of Purchaser, which consent may
require that an adjustment be made to any and all the financial
covenants and the capital expenditure covenant set forth herein.
Accounting principles are applied on a "consistent basis" when the
accounting principles observed in a current period are comparable in
all material respects to those accounting principles applied in a
preceding period.
Holders. Purchaser, and all Persons holding Registrable Securities,
except that neither the Company nor any Shareholder nor any Affiliate
of the Company or the Shareholder (other than Purchaser) will at any
time be a Holder. Unless otherwise provided in this Agreement or in the
Intercreditor Agreement (as defined in the Note Agreement), in each
instance that the Holders are required to request, consent, amend,
modify, waive or terminate in concert with respect to any provision in
this Agreement or to an action directly or indirectly relating to this
Agreement, the Holders will be deemed to have undertaken or approved
such action if the Holders of a majority-in-interest of the Registrable
Securities so request or consent.
Indebtedness. For any Person: (a) all indebtedness, whether or not
represented by bonds, debentures, notes, securities, or other evidences
of indebtedness, for the repayment of money borrowed, (b) all
indebtedness representing deferred payment of the purchase price of
property or assets, (c) all indebtedness under any lease which, in
conformity with GAAP, is required to be capitalized for balance sheet
purposes and leases of property or assets made as a part of any sale
and lease-back transaction if required to be capitalized, (d) all
indebtedness under guaranties, endorsements, assumptions, or other
contractual obligations, including any letters of credit, or the
obligations in respect of, or to purchase or otherwise acquire,
indebtedness of others, (e) all indebtedness secured by a Lien existing
on property owned, subject to such Lien, whether or not the
indebtedness secured thereby shall have been assumed by the owner
thereof, (f) trade accounts payable more than 120 days past due, (g)
all amendments, renewals,
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extensions, modifications and refundings of any indebtedness or
obligations referred to in clauses (a), (b), (c), (d), (e) or (f).
Indemnified Party. This term is defined in Section 6.01 hereof and in
Section 11.01 of the Shareholder Agreement.
Initial Holders. Each Purchaser and any Affiliate of Purchaser to which
any of the Warrants or any part of or interest in the Warrants is
assigned.
Issuable Warrant Shares. Shares of Common Stock or Other Securities
issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other Securities
issued on exercise of the Warrants.
Lien. Any lien, mortgage, security interest, tax lien, pledge,
encumbrance, financing statement, or conditional sale or title
retention agreement, or any other interest in property designed to
secure the repayment of Indebtedness or any other obligation, whether
arising by agreement, operation of law, or otherwise.
Negotiation Period. This term is defined in the definition of Appraised
Value.
New Securities. Any Capital Stock other than the Warrant Shares and the
Permitted Stock.
Non-Compete Agreements. This term is defined in Section 11.1 of the
Note Agreement.
Note. All or any portion of any of the Senior Note (as defined in the
Note Agreement) and any and all documents evidencing the indebtedness
under the Note and any refinancing, refunding, or replacement of the
Note.
Note Agreement. This term is defined in the preamble and includes the
Note Purchase Agreement of even date with this Agreement between the
Company and Purchaser and all documents evidencing indebtedness
thereunder or otherwise related to the Note Agreement as the same may
be amended from time to time, and any refinancing, refunding, or
replacements of the indebtedness under the Note Agreement.
Notice of Proposed Drag-Along Sale. This term is defined in Section
4.01 of the Shareholder Agreement.
Notice of Sale. This term is defined in Section 6.02(a) of the
Shareholder Agreement.
Other Securities. Any stock, other securities, property, or other
property or rights (other than Common Stock) that the Holders become
entitled to receive upon exercise of the Warrants.
Permitted Stock. Any stock issued or issuable by the Company pursuant
to any securities outstanding on the Closing Date as disclosed on
Schedules 3.01 (a) or 3.01 (d) and up to 385,900 shares reserved for
issuance but not yet issued under the Company's 1992, 1996 and 1997
Stock Option Plans (and the reissuance of any cancelled or expired
options issued thereunder).
Person. This term will be interpreted broadly to include any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, company, entity,
or government authority (whether national, federal, state, county,
city, municipal, or otherwise, including, without limitation, any
instrumentality, division, agency, body, or department of any of the
foregoing).
Proposed Sale. This term is defined in Section 4.01 of the Shareholder
Agreement.
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Public Offering. A public offering of shares of any class of Capital
Stock by the Company issued to the general public pursuant to a
registration statement declared effective by the United States
Securities and Exchange Commission.
Purchaser. This term is defined in the preamble.
Qualified Liquidation Event. Either (i) a Public Offering of common
stock completed by and resulting in proceeds (before underwriting
discounts and commissions and adjusted for any stock splits, stock
dividends, reorganization, reverse stock split, or any other change in
the Capital Stock of the Company) to the Company or Subsidiary, as
applicable, of at least $15,000,000, at a price of not less than $5.00
per share (adjusted for any stock splits, stock dividends,
reorganization, reverse stock split, or any other change in the Capital
Stock of the Company) and which results in an aggregate valuation of
all of the outstanding shares of Common Stock of the Company on a fully
diluted basis immediately prior to the consummation of such offering of
at least $40,000,000, or (ii) a sale of stock or assets of the Company
in an amount not less than $40,000,000, provided that the Purchaser
receives cash consideration of not less than (x) $5.00 per Warrant
Share (adjusted for any stock splits, stock dividends, reorganization,
reverse stock split, or any other change in the Capital Stock of the
Company) if such sale occurs on or before March 31, 2002, or (y) $7.00
per Warrant Share (adjusted for any stock splits, stock dividends,
reorganization, reverse stock split, or any other change in the Capital
Stock of the Company) if such sale occurs after March 31, 2002.
Qualified Liquidity Milestone. A date on which the Common Stock has
qualified for and is trading on the National Association of Securities
Dealers Automated Quotation System -- National Market System or the New
York Stock Exchange with one calendar quarter of average trading volume
of 25,000 shares per day with an average share price during such
quarter at $5.00 (such price to be adjusted for any stock split, stock
dividend, reverse stock split or other subdivision of the Common Stock)
if the quarter occurs within the first three (3) years of the date
hereof and $7.00 (such price to be adjusted for any stock split, stock
dividend, reverse stock split or other subdivision of the Common Stock)
per share thereafter.
Register, registered, and registration refer to a registration effected
by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of
such registration statement.
Registrable Securities. (a) The Issuable Warrant Shares and (b) the
Issued Warrant Shares that have not been previously sold to the public.
Related Party. An entity wholly owned by a Selling Shareholder or one
or more Related Parties.
Revenue. The gross revenue of the Company calculated in accordance with
GAAP.
Revenue Value. Shall mean the sum of (a) the product of (i) three and
one half (3.5) times (ii) Revenue for such period, less (b) funded
Indebtedness (excluding trade accounts payable more than 120 days due)
and the liquidation or redemption value of any outstanding preferred
stock, plus (c) the exercise price of any Common Stock Equivalents,
that have a Fair Market Value greater than the exercise price of such
Common Stock Equivalents, plus (d) cash of the Company, cash
equivalents and the Fair Market Value of marketable securities held by
or for the Company; and dividing that value by the sum of (x) the
number of shares of Common Stock then outstanding plus (y) the number
of shares of Common Stock Equivalents having an exercise price per
share less than the Fair Market Value of such Common Stock Equivalents,
without premium for control or discount for minority interests,
illiquidity, or restrictions on transfer, provided, however, the
Revenue Value will be equal to the value determined using either (aa)
the twelve (12) month period comprising the immediately preceding
fiscal year, or (bb) the immediately preceding twelve (12) calendar
months, prior to the date notice is given of the exercise of the
Drag-Along Call Option, whichever is greater.
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Selling Shareholder. This term is defined in Section 6.02 of the
Shareholder Agreement.
Securities Act. The Securities Act of 1933, as amended, and the rules
and regulations thereunder.
Shareholder. This term is defined in the preamble.
Shareholder Agreement. This term is defined in the preamble and
includes the Shareholder Agreement dated as of the Closing Date between
the Company, the Shareholder and Purchaser in substantially the form
attached to this Agreement as Annex A and incorporated in this
Agreement by reference.
Subsidiary. Each Person of which or in which the Company or its other
Subsidiaries own directly or indirectly fifty-one percent (51%) or more
of (i) the combined voting power of all classes of stock having general
voting power under ordinary circumstances to elect a majority of the
board of directors or equivalent body of such Person, if it is a
corporation or similar person; (ii) the capital interest or profits
interest of such Person, if it is a partnership, joint venture, or
similar entity; or (iii) the beneficial interest of such Person, if it
is a trust, association, or other unincorporated organization.
Valuation Event. This term is defined in the definition of Fair Market
Value.
Warrant Agreement. This term is defined in the preamble to the
Shareholder Agreement and includes this Agreement and all documents
related to this Agreement as this Agreement may be amended from time to
time.
Warrants. This term means collectively the "A Warrant," the "B Warrant"
and the "C Warrant" referred to in Section 2.01, dated as of the
Closing Date, issued to Initial Holders, and all Warrants issued upon
the transfer or division of, or in substitution for, such Warrants.
Warrant Shares. The Issued Warrant Shares and the Issuable Warrant
Shares.
Article II
The Warrants
2.01 The Warrants. On the Closing Date, each Purchaser agrees to
purchase from the Company for the purchase price set forth beneath the name of
each Purchaser on the signature page of this Agreement, and the Company agrees
to issue to each Purchaser, certain warrants designated as the "A Warrant," the
"B Warrant" and the "C Warrant" each in substantially the form attached to this
Agreement as Annex B-1, B-2 and B-3, respectively, and incorporated in this
Agreement by reference to purchase the number of shares of Common Stock
corresponding to the type of Warrant set forth beneath the name of each
Purchaser on the signature page of this Agreement, all in accordance with the
terms and conditions of this Agreement.
2.02 Legend. The Company will deliver to each Purchaser on the
Closing Date one or more certificates representing the A Warrant, the B Warrant,
and the C Warrant purchased by each Purchaser in such denominations as such
Purchaser requests. Such certificates will be issued in each Purchaser's name or
in the name or names of its designee or designees, as the case may be. It is
understood and agreed that the certificates evidencing the Warrants will bear
the following legend:
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN
CONNECTION WITH THE DISTRIBUTION HEREOF. THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION
FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
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"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO THE TERMS AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT AND
A SHAREHOLDER AGREEMENT, EACH DATED AS OF MARCH 31, 1999, BETWEEN
VALUESTAR CORPORATION (THE "COMPANY"), JAMES STEIN, JAMES A. BARNES,
AND JERRY E. POLIS, SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP,
PACIFIC MEZZANINE FUND, L.P. AND TANGENT GROWTH FUND, L.P. (AS SUCH
AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM
TIME TO TIME, THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE
AT THE EXECUTIVE OFFICES OF THE COMPANY."
2.03 Exercise Price.
(a) The Exercise Price in connection with the A Warrant per
share will be $1.00 for each share of Common Stock covered by the A
Warrant; provided, however, that in no event will the aggregate
Exercise Price for all of the shares of Common Stock covered by all A
Warrants exceed $1,527,250 whether as a result of any change in the par
value of the Common Stock or Other Securities, as a result of any
change in the number of shares purchasable as provided in this Article
II, or otherwise; provided, further, that such limitation of the
aggregate Exercise Price will have no effect whatsoever upon the amount
or number of Warrant Shares for which the A Warrant may be exercised.
(b) The Exercise Price in connection with the B Warrant per
share will be $0.00025 for each share of Common Stock covered by the B
Warrant; provided, however, that in no event will the aggregate
Exercise Price for all of the shares of Common Stock covered by all B
Warrants exceed $131.88, whether as a result of any change in the par
value of the Common Stock or Other Securities, as a result of any
change in the number of shares purchasable as provided in this Article
II, or otherwise; provided, further, that such limitation of the
aggregate Exercise Price will have no effect whatsoever upon the amount
or number of Warrant Shares for which the B Warrant may be exercised.
(c) The Exercise Price in connection with the C Warrant per
share will be $1.00 for each share of Common Stock covered by the C
Warrant; provided, however, that in no event will the aggregate
Exercise Price for all of the shares of Common Stock covered by all C
Warrants exceed $231,132 whether as a result of any change in the par
value of the Common Stock or Other Securities, as a result of any
change in the number of shares purchasable as provided in this Article
II, or otherwise; provided, further, that such limitation of the
aggregate Exercise Price will have no effect whatsoever upon the amount
or number of Warrant Shares for which the C Warrant may be exercised.
2.04 Exercise.
(a) Each of the Warrants may be exercised at any time or
from time to time on or after the Closing Date and prior to the earlier
of (i) six (6) years from the date the Note is paid in full or (ii) ten
(10) years from the date hereof, on any day that is a Business Day, for
all or any part of the number of Issuable Warrant Shares purchasable
upon its exercise. In order to exercise any Warrant, in whole or in
part, the Holder will deliver to the Company at the address designated
by the Company pursuant to Section 6.06, (x) a written notice of such
Holder's election to exercise its Warrant, which notice will specify
the number of Issuable Warrant Shares to be purchased pursuant to such
exercise, (y) payment of the Exercise Price, in an amount equal to the
aggregate purchase price for all Issuable Warrant Shares to be
purchased pursuant to such exercise, and (z) the Warrant. Such notice
will be substantially in the form of the Subscription Form appearing at
the end of the Warrants. Upon receipt of such notice, the Company will,
as promptly as practicable, and in any event within ten (10) Business
Days (or such longer period of time as is reasonably necessary to
complete any required calculations or determinations), execute, or
cause to be executed, and deliver to such Holder a certificate or
certificates representing the aggregate number of full shares of Common
Stock and Other Securities issuable upon such exercise, as provided in
this Agreement. The stock certificate or certificates so delivered will
be in such denominations as may be specified in such notice and will be
registered in the name of such Holder, or such other name as designated
in such notice. Warrants will be deemed to have been exercised, such
certificate or
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certificates will be deemed to have been issued, and such Holder or any
other Person so designated or named in such notice will be deemed to
have become a holder of record of such shares for all purposes, as of
the date that such notice, together with payment of the Exercise Price
and the Warrant, is received by the Company. If the Warrant has been
exercised in part, the Company will, at the time of delivery of such
certificate or certificates, deliver to such Holder a new Warrant
evidencing the rights of such Holder to purchase a number of Issuable
Warrant Shares with respect to which the Warrant has not been
exercised, which new Warrant will, in all other respects, be identical
with the Warrants, or, at the request of such Holder, appropriate
notation may be made on the Warrant and the Warrant returned to such
Holder.
(b) Payment of the Exercise Price will be made, at the
option of the Holder, by (i) company or individual check, certified or
official bank check, (ii) cancellation of any debt and/or accrued
interest owed by the Company to the Holder, or (iii) cancellation of
Warrant Shares, valued at Fair Market Value (but no Appraised Value
shall be required for purposes of this calculation). If the Holder
surrenders a combination of cash or cancellation of any debt owed by
the Company to the Holder or Warrants, the Holder will specify the
respective number of shares of Common Stock to be purchased with each
form of consideration, and the foregoing provisions will be applied to
each form of consideration with the same effect as if the Warrant were
being separately exercised with respect to each form of consideration;
provided, however, that a Holder may designate that any cash to be
remitted to a Holder in payment of debt be applied, together with other
monies, to the exercise of the portion of the Warrant being exercised
for cash; provided further, that so long as any amounts due under the
Note remain outstanding, Holder will first apply such outstanding debt
due under the Note towards the cost of exercising Warrants before
applying any value in Warrants or Warrant Shares towards such exercise
cost, but only if, such priority does not result in a greater tax
liability than if Holder applied such outstanding debt due under the
Note towards the cost of exercising Warrants after applying any value
in Warrants or Warrant Shares towards such exercise cost.
2.05 Taxes. The issuance of any Common Stock or Other Securities
upon the exercise of the Warrant will be made without charge to any Holder for
any tax, other than income taxes assessed on such Holder, in respect of such
issuance.
2.06 Warrant Register. The Company will, at all times while any of
the Warrants remain outstanding and exercisable, keep and maintain at its
principal office a register in which the registration, transfer, and exchange of
the Warrants will be provided for. The Company will not at any time, except upon
the dissolution, liquidation, or winding up of the Company, close such register
so as to result in preventing or delaying the exercise or transfer of any
Warrant.
2.07 Transfer and Exchange. The Warrants and all options and rights
under the Warrants are transferable, as to all or any part of the number of
Issuable Warrant Shares purchasable upon its exercise, by the Holders of the
Warrants, in person or by duly authorized attorney, on the books of the Company
upon surrender of the Warrants at the principal offices of the Company, together
with the form of transfer authorization attached to the Warrants duly executed.
Absent any such transfer and subject to the Shareholder Agreement, the Company
may deem and treat the registered Holders of the Warrants at any time as the
absolute owners of the Warrants for all purposes and will not be affected by any
notice to the contrary. If any Warrant is transferred in part, the Company will,
at the time of surrender of such Warrant, issue to the transferee a Warrant
covering the number of Issuable Warrant Shares transferred and to the transferor
a Warrant covering the number of Issuable Warrant Shares not transferred.
2.08 Adjustments to Number of Shares Purchasable.
(a) The Warrants will be exercisable for the number of
shares of Common Stock in such manner that, following the complete and
full exercise of the Warrant of each Holder, the amount of Common Stock
issued to all Holders will equal the aggregate number of shares of
Common Stock set forth beneath the name of Purchaser on the signature
pages of this Agreement in connection with each type of Warrant, as
adjusted, to the extent necessary, to give effect to the following
events:
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(i) In case at any time or from time to time, the
holders of any class of Common Stock or Common Stock
Equivalent have received, or (on or after the record date
fixed for the determination of shareholders eligible to
receive) have become entitled to receive, without payment
therefor:
(A) consideration (other than cash) by
way of dividend or distribution; or
(B) consideration (including cash) by
way of spin-off, split-up, reclassification
(including any reclassification in connection with a
consolidation or merger in which the Company is the
surviving corporation), recapitalization, combination
of shares into a smaller number of shares, or similar
corporate restructuring;
other than additional shares of Common Stock issued as a stock
dividend or in a stock-split (adjustments in respect of which
are provided for in Sections 2.08(a)(ii) and (iii)), then, and
in each such case, the Holders, on the exercise of the
Warrants, will be entitled to receive for each share of Common
Stock issuable under the Warrants as of the record date fixed
for such distribution, the greatest per share amount of
consideration received by any holder of any class of Common
Stock or Common Stock Equivalent or to which such holder is
entitled less the amount of any Dilution Fee actually and
irrevocably paid to such Holders. All such consideration
receivable upon exercise of the Warrant with respect to such a
distribution will be deemed to be outstanding and owned by
such Holder for purposes of determining the amount of
consideration to which such Holder is entitled upon exercise
of the Warrant with respect to any subsequent distribution.
(ii) If at any time there occurs any stock split,
stock dividend, reverse stock split, or other subdivision of
the Common Stock, then the number of shares of Common Stock to
be received by the Holder of the Warrant and the Exercise
Price, subject to the limitations set forth in this Agreement,
will be proportionately adjusted.
(iii) In the case of any reclassification or change
of outstanding shares of any class of Common Stock or Common
Stock Equivalent (other than a change in par value, or from
par value to no par value, or from no par value to par value),
or in the case of any consolidation of the Company with, or
merger or share exchange of the Company with or into, another
Person, or in the case of any sale of all or a majority of the
property, assets, business, income or revenue generating
capacity, or goodwill of the Company, the Company, or such
successor or other Person, as the case may be, will provide in
writing that the Holder of this Warrant will thereafter be
entitled to receive the highest per share kind and amount of
consideration received or receivable (including cash) upon
such reclassification, change, consolidation, merger, share
exchange, or sale by any holder of any class of Common Stock
or Common Stock Equivalent that the Warrant entitles the
Holder to receive immediately prior to such reclassification,
change, consolidation, merger, share exchange, or sale (as
adjusted pursuant to Section 2.08(a)(i) and otherwise in this
Agreement). Any such successor Person, which thereafter will
be deemed to be the Company for purposes of the Warrants, will
provide for adjustments that are as nearly equivalent as may
be possible to the adjustments provided for by this Section
2.08.
(iv) If at any time the Company issues or sells
any shares of any Common Stock or any Common Stock Equivalent,
other than Permitted Stock, at a per unit or share
consideration (which consideration will include the price paid
upon issuance plus the minimum amount of any exercise,
conversion, or similar payment made upon exercise or
conversion of any Common Stock Equivalent) less than the then
current Fair Market Value per share of Common Stock
immediately prior to the time such Common Stock or Common
Stock Equivalent is issued or sold (the "Additional
Securities"), then:
(A) the Exercise Price will be reduced
to the lower of the prices calculated by:
(I) dividing (x) an amount equal
to the sum of (1) the number of shares of
Common Stock outstanding on a fully diluted
basis immediately prior to
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such issuance or sale multiplied by the then
existing Exercise Price plus (2) the
aggregate consideration, if any, received by
the Company upon such issuance or sale, by
(y) the total number of shares of Common
Stock outstanding immediately after such
issuance or sale on a fully diluted basis;
and
(II) multiplying the then
existing Exercise Price by a fraction, the
numerator of which is (x) the sum of (1) the
number of shares of Common Stock outstanding
on a fully diluted basis immediately prior
to such issuance or sale, multiplied by the
Fair Market Value per share of Common Stock
immediately prior to such issuance or sale,
plus (2) the aggregate consideration
received by the Company upon such issuance
or sale, (y) divided by the total number of
shares of Common Stock outstanding on a
fully diluted basis immediately after such
issuance or sale, and the denominator of
which is the Fair Market Value per share of
Common Stock immediately prior to such
issuance or sale (for purposes of this
subsection (II), the date as of which the
Fair Market Value per share of Common Stock
will be computed will be the earlier of the
date upon which the Company (aa) enters into
a firm contract for the issuance of such
shares, or (bb) issues such shares); and
(B) the number of shares of Common Stock
for which any of the Warrants may be exercised at the
Exercise Price resulting from the adjustment
described in subsection (A) above will be equal to
the product of the number of shares of Common Stock
purchasable under such Warrants immediately prior to
such adjustment multiplied by a fraction, the
numerator of which is the Exercise Price in effect
immediately prior to such adjustment and the
denominator of which is the Exercise Price resulting
from such adjustment.
(v) In the case any event occurs as to which the
preceding Sections 2.08(a)(i) through (iv) are not strictly
applicable, but as to which the failure to make any adjustment
would not fairly protect the purchase rights represented by
the Warrants in accordance with the essential intent and
principles of this Agreement, then, in each such case, the
Holder may appoint an independent investment bank or firm of
independent public accountants, which will give its opinion as
to the adjustment, if any, on a basis consistent with the
essential intent and principles established in this Agreement,
necessary to preserve the purchase rights represented by the
Warrants. Upon receipt of such opinion, the Company will
promptly deliver a copy of such opinion to the Holder and will
make the adjustments described in such opinion. The fees and
expenses of such investment bank or independent public
accountants will be borne by the Company.
(vi) In the event of, and as a condition
precedent to the effectiveness of, any sale or other
disposition of all or substantially all of the stock or assets
of the Company or any of its Subsidiaries in a single
transaction or series of transactions prior to the occurrence
of a Qualified Liquidation Event or a Qualified Liquidity
Milestone (a "Sale"), the number of shares of Common Stock for
which the Warrants may be exercised shall be increased so that
each Holder's share of the proceeds from any such Sale is not
less than the Revenue Value of each Holder's Warrant Shares
(calculated immediately prior to the consummation of such Sale
after deducting the Exercise Price). The adjustments set forth
in the immediately preceding sentence are in addition to, and
not in lieu of, any other adjustments to the Warrants, the
Warrant Shares and/or the Exercise Price provided for in this
Agreement.
(b) The Company and the Shareholder will not by any action
including, without limitation, amending, or permitting the amendment
of, the charter documents, bylaws, or similar instruments of the
Company or through any reorganization, reclassification, transfer of
assets, consolidation, merger, share exchange, dissolution, issue or
sale of securities, or any other similar voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Agreement or the Warrants, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such
actions as may be necessary or
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appropriate to protect the rights of the Holders against impairment or
dilution. Without limiting the generality of the foregoing, each of the
Company and the Shareholder will (i) use their reasonable efforts to
take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock and Other Securities, free and clear of all
liens, encumbrances, equities, and claims and (ii) use its reasonable
efforts to obtain all such authorizations, exemptions, or consents from
any public regulatory body having jurisdiction as may be necessary to
enable the Company to perform its obligations under the Warrants.
(c) Any calculation under this Section 2.08 will be made
to the nearest one ten-thousandth of a share and the number of Issuable
Warrant Shares resulting from such calculation will be rounded up to
the next whole share of Common Stock or Other Securities comprising
Issuable Warrant Shares.
(d) The Company will not permit any Subsidiary to issue
any Capital Stock other than to the Company.
2.09 Lost, Stolen, Mutilated, or Destroyed Warrants. Upon receipt
of evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of any Warrants and, in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company or, in the event of such
mutilation upon surrender and cancellation of the Warrants, the Company, without
charge to the Holder thereof, will make and deliver a new Warrant of like tenor
and the same series in lieu of such lost, stolen, destroyed or mutilated
Warrant. If any such lost, stolen or destroyed Warrant is owned by Purchaser or
any other Holder whose credit is satisfactory to the Company, then the affidavit
of an authorized officer of such owner setting forth the fact of loss, theft or
destruction and of its ownership of the Warrant at the time of such loss, theft
or destruction shall be accepted as satisfactory evidence thereof, and no
further indemnity shall be required as a condition to the execution and delivery
of a new Warrant, other than a written agreement of such owner (in form
reasonably satisfactory to the Company) to indemnify the Company.
2.10 Stock Legend. Unless there is an effective registration
statement and qualification respecting the Warrant Shares under the Securities
Act or under applicable state securities laws, any stock certificate issued
pursuant to the exercise of a Warrant will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES
LAWS AND (B) ARE SUBJECT TO THE TERMS OF AND PROVISIONS OF A WARRANT
PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED AS OF MARCH
31, 1999 BETWEEN VALUESTAR CORPORATION (THE "COMPANY"), JAMES STEIN,
JAMES A. BARNES AND JERRY E. POLIS, SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP, PACIFIC MEZZANINE FUND, L.P. AND TANGENT GROWTH FUND. L.P.
(AS SUCH AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED
FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE
AVAILABLE AT THE OFFICES OF THE COMPANY."
Article III
Representations and Warranties
3.01 Representations and Warranties of the Company. The Company
represents and warrants to Purchaser that:
(a) The Company is a corporation duly organized and
existing and in good standing under the laws of its state of
incorporation and is qualified or licensed to do business in all other
countries, states, and jurisdictions the laws of which require it to be
so qualified or licensed, where the failure to so qualify or license
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would have a Material Adverse Effect on the Company. The Company has no
Subsidiaries or debt or equity investment in any Person other than
Borrower. Except as set forth on Schedule 3.01(a), no Person has any
rights, whether granted by the Company or any other Person, to acquire
any portion of the equity interest of the Company or the assets of the
Company. The Company owns 100% of the equity interest of the Borrower
free and clear of all liens, claims, and encumbrances, and no Person
has any rights, whether granted by the Borrower, the Company or any
other Person, to acquire any portion of the equity interest of the
Borrower or the assets of the Borrower.
(b) The Company has, and at all times that this Agreement
is in force will have, the right and power, and is duly authorized, to
enter into, execute, deliver, and perform this Agreement, the
Shareholder Agreement, and the Warrants, and the officers of Company
executing and delivering this Agreement, the Shareholder Agreement, and
the Warrants are duly authorized to do so. This Agreement, the
Shareholder Agreement, and the Warrants have been duly and validly
executed, issued, and delivered and constitute the legal, valid, and
binding obligations of Company, enforceable in accordance with their
respective terms.
(c) The execution, delivery, and performance of this
Agreement, the Shareholder Agreement, and the Warrants will not, by the
lapse of time, the giving of notice, or otherwise, constitute a
violation of any applicable provision contained in the charter, bylaws,
or organizational documents of the Company or contained in any
agreement, instrument, or document to which the Company is a party or
by which it is bound.
(d) As of the Closing Date, the authorized capital stock of
the Company consists of 25,000,000 shares of capital stock, of which
20,000,000 are Common Stock .00025 par value, 5,000,000 are preferred
stock .00025 par value, and of which 9,312,996 shares of Common Stock
are issued and outstanding and no shares of preferred stock are
outstanding. One million five hundred twenty-seven thousand two hundred
fifty (1,527,250) shares of Common Stock are reserved for issuance on
exercise of the A Warrants. Five hundred twenty-seven thousand five
hundred fourteen (527,514) shares of Common Stock are reserved for
issuance on exercise of the B Warrants. Two hundred thirty-one thousand
one hundred thrity-two (231,132) shares of Common Stock are reserved
for issuance on exercise of the C Warrants. All such issued and
outstanding shares have been duly authorized and validly issued, are
fully paid and nonassessable, and have been offered, issued, sold, and
delivered by Company free from preemptive rights, rights of first
refusal, or similar rights and in compliance with applicable federal
and state securities laws. Except as disclosed on Schedule 3.01(a) and
pursuant to this Agreement, the Company is not obligated to issue or
sell any Capital Stock, and, except for this Agreement and the
Shareholder Agreement, the Company is not party to, or otherwise bound
by, any agreement affecting the voting of any Capital Stock. Except as
disclosed on Schedule 3.01(d) and the Shareholder Agreement, the
Company is not, nor will it be, a party to, or otherwise bound by, any
agreement obligating it to register any of its Capital Stock.
(e) The shares of Common Stock issuable on exercise of the
Warrants have been duly and validly authorized and reserved for
issuance and, when issued in accordance with the terms of the Warrants
will be validly issued, fully paid, and nonassessable and free of
preemptive rights, rights of first refusal, or similar rights.
(f) The Company has good, indefeasible, merchantable, and
marketable title to, and ownership of, all of its assets free and clear
of all liens, pledges, security interests, claims, or other
encumbrances except those in favor of (i) the Purchaser pursuant to the
Note Agreement or (ii) the Permitted Liens (as defined in the Note
Agreement).
(g) There is not now, and at no time during the term of
this Agreement or the Shareholder Agreement will there be, any
agreement, arrangement, or understanding by and between the Company and
any security holder, other than this Agreement, the Shareholder
Agreement, and the documents contemplated hereby and thereby,
modifying, restricting, or in any way affecting the rights of any
security holder to vote securities of the Company in contravention of
this Agreement or the Shareholder Agreement.
(h) Each of the representations and warranties made by the
Company pursuant to the Note Agreement and the Shareholder Agreement is
true and correct.
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(i) None of the documents, instruments, or other
information furnished to the Purchaser by the Company, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make any statements made therein not misleading.
No representation, warranty, or statement made by the Company in this
Agreement, the Note Agreement, or the Shareholder Agreement, or in any
document, certificate, exhibit or schedule attached hereto or thereto
or delivered in connection herewith or therewith, contains or will
contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make any statements made herein
or therein not misleading. There is no fact that materially and
adversely affects the condition (financial or otherwise), results of
operations, business, properties, or prospects of the Company or any of
its Subsidiaries that has not been disclosed in the documents provided
to Purchaser.
(j) Small Business Concern. The Company is a "small
business concern" as defined in Section 103(5) of the Small Business
Investment Act of 1958, as amended and in effect from time to time, and
the regulations promulgated thereunder (the "Act"), which for purposes
of size eligibility meets the applicable criteria set forth in Section
121.802(a)(3) of Title 13 of the Code of Federal Regulations.
3.02 Representations and Warranties of Purchaser. Each of the
representations and warranties of each of the Purchasers set forth in Article
III of the Note Agreement is hereby restated and incorporated by reference in
this Agreement as though set forth in this Agreement and is made by each
Purchaser as representations and warranties of each Purchaser, with respect to
itself and not with respect to any other Purchaser, for the benefit of the
Company. Each Purchaser also represents and warrants to the Company with respect
to itself and not with respect to any other Purchaser as follows:
(a) Seacoast represents and warrants to the Company that it
is a limited partnership duly organized and existing and in good
standing under the laws of the state of its organization.
(b) Pacific represents and warrants to the Company that it
is a limited partnership duly organized and existing in good standing
under the laws of the State of its organization.
(c) Tangent represents and warrants to the Company that it
is a limited liability company duly organized and existing in good
standing under the laws of the State of its organization.
(d) Each Purchaser represents and warrants to the Company
that it has the right and power and is duly authorized to enter into,
execute, deliver, and perform this Agreement and the Shareholder
Agreement, and its partners, officers or agents executing and
delivering this Agreement and the Shareholder Agreement are duly
authorized to do so. This Agreement and the Shareholder Agreement have
been duly and validly executed, issued, and delivered and constitute
the legal, valid, and binding obligation of Purchaser, enforceable in
accordance with its terms.
(e) Each Purchaser represents and warrants to the Company
that it, (i) is an "accredited investor," as that term is defined in
Regulation D under the Securities Act; and (ii) has such knowledge,
skill, and experience in business and financial matters, based on
actual participation, that it is capable of evaluating the merits and
risks of an investment in the Company and the suitability thereof as an
investment for Purchaser.
(f) Each Purchaser represents and warrants to the Company
that, except as otherwise contemplated by this Agreement and the
Shareholder Agreement, Purchaser is acquiring its Warrant and any
securities issuable upon exercise of the Warrant for investment for its
own account and not with a view to any distribution thereof in
violation of applicable securities laws.
(g) Each Purchaser represents and warrants to the Company
that it agrees that the certificates representing its Warrant and any
Issued Warrant Shares will bear the legends referenced in this
Agreement, and such Warrant or securities issuable upon exercise of the
Warrant and pursuant to the Shareholder Agreement, as the case may be,
will not be offered, sold, or transferred in the absence of
registration or exemption under applicable securities laws.
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Article IV
Covenants
The Company covenants and agrees as follows:
4.01 Financial Statements. The Company will furnish to each
Purchaser:
(a) As soon as available, and in any event within ninety
(90) days after the end of each fiscal year of the Company, beginning with the
fiscal year ending June 30, 1999, (i) a copy of the annual audit report of the
Company for such fiscal year containing a balance sheet, statement of income,
statement of stockholders' equity, and statement of cash flow as at the end of
such fiscal year and for the fiscal year then ended, in each case setting forth
in comparative form the figures for the preceding fiscal year, all in reasonable
detail and audited and certified by independent certified public accountants of
recognized standing selected by the Company and consented to by Purchaser
(provided Purchaser's consent shall not unreasonably be withheld) to the effect
that such report has been prepared in accordance with GAAP; (ii) a certificate
delivered to Purchaser by such independent certified public accountants
confirming the calculations set forth in the officers' certificate delivered to
Purchaser simultaneously therewith in accordance with Section 6.2(a); and (iii)
a comparison of the actual results during such fiscal year to those originally
budgeted by the Company prior to the beginning of such fiscal year, together
with a summary analysis of variances prepared by the Company's management. The
Company shall deliver copies of all material reports and correspondence sent to
the Company or the Company by its independent certified public accountants
promptly upon receipt thereof.
(b) As soon as available, and in any event within thirty
(30) days after the end of each calendar month, a copy of an unaudited
consolidated financial report of the Company as of the end of such calendar
month and for the portion of the fiscal year then ended (with notes as to any
consolidating entries), containing consolidated balance sheets, statements of
income, and statements of cash flow, in each case setting forth in comparative
form the figures for the corresponding period of the preceding fiscal year,
together with a comparison of the actual results during such period to those
originally budgeted by the Company for such period together with a written
summary analysis of variances prepared by the Company's management.
(c) As soon as available, and in any event within
forty-five (45) days after the end of each fiscal quarter, a copy of an
unaudited financial report of the Company as of the end of such fiscal quarter
and for the portion of the fiscal year then ended, containing consolidated
balance sheets, statements of income, and statements of cash flow, (with notes
as to any consolidating entries), in each case setting forth in comparative form
the figures for the corresponding period of the preceding fiscal year, together
with a comparison of the actual results during such period to those originally
budgeted by the Company for such period together with a written summary analysis
of variances prepared by the Company's management.
(d) On or before thirty (30) days prior to the beginning of
each fiscal year of the Company, an annual budget or business plan for such
fiscal year on a monthly basis, including projected consolidated balance sheets,
income statements, and cash flow statements for each month of such fiscal year
(with notes as to any consolidating entries), and, at the beginning of each
fiscal quarter, all revisions thereto approved by the board of directors of the
Company.
4.02 Laws. The Company will comply with all applicable statutes,
regulations, and orders of the United States, domestic and foreign states, and
municipalities, agencies, and instrumentalities of the foregoing applicable to
the Company.
4.03 Inspection. Subject to Section 6.16 of this Agreement, the
Company will permit any representative designated by the Holders to (a) visit
and inspect any of the properties of the Company; (b) examine the corporate and
financial records of the Company and make copies thereof or extracts therefrom;
and (c) discuss the affairs, finances, and accounts of the Company with the
directors, officers, key employees, and independent accountants of the Company.
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4.04 Certain Actions. Without the prior written consent of the
Holders (except that with respect to Sections 4.04(c), (d) and (i), in which
case the consent of each Holder shall be required), which consent may be
withheld in the sole discretion of the Holders, the Company will not:
(a) permit to occur any amendment, alteration, or
modification of its Articles of Incorporation, Bylaws or other charter
or organizational documents of the Company, as constituted on the date
of this Agreement, the effect of which, in the sole judgment of the
Holders, would be to alter, impair, or affect adversely, either the
rights and benefits of the Holders or the duties and obligations of
Company or the Shareholder under this Agreement, the Warrants, or the
Shareholder Agreement;
(b) declare or make any dividends or distributions of its
cash, stock, property, or assets or redeem, retire, purchase, or
otherwise acquire, directly or indirectly, any of the Capital Stock or
capital stock or securities of any Affiliate of the Company, or any
securities convertible or exchangeable into Capital Stock or capital
stock or securities of any Affiliate of the Company;
(c) effect any sale, lease, assignment, transfer, or other
conveyance of any portion of the assets or operations or the revenue or
income generating capacity of the Company in excess of $25,000 in the
aggregate (other than inventory in the ordinary course of business and
other assets reasonably and in good faith determined by the Company to
be obsolete or no longer necessary to the business of the Company) or
to take any such action that has the effect of any of the foregoing;
(d) except pursuant to this Agreement or the Shareholder
Agreement, issue or sell, or otherwise dispose of any Capital Stock of
any Subsidiary, dissolve or liquidate, or effect any consolidation or
merger involving the Company or any Subsidiary or any reclassification,
corporate reorganization, stock split or reverse stock split, or other
change of any class of Capital Stock;
(e) enter into any business that the Company is not
conducting on the date of this Agreement or acquire any substantial
business operation or assets (through a stock or asset purchase or
otherwise);
(f) enter into any transaction or transactions with any
director, officer, employee, or 5% or greater shareholder of the
Company, who is not an officer, director or employee of the Company, or
the Shareholder, or any Affiliate or relative of the foregoing except
upon terms that, in the opinion of the Holders, are fair and reasonable
and that are, in any event, at least as favorable as would result in a
comparable arm's-length transaction with a Person not a director,
officer, employee, shareholder, or Affiliate of the Company or the
Shareholder or any Affiliate or related party of the foregoing, or
advance any monies to any such Persons, except for travel advances in
the ordinary course of business;
(g) increase the amount of benefits payable under any benefit
plan in the aggregate, or increase, beyond the amounts permitted
pursuant to the Note Agreement as of the date of this Agreement, the
aggregate amount of salary and any other direct and indirect
remuneration (including, but not limited to, employee benefits,
professional, management, and consulting fees and expenses, and bonuses
under any plans) paid or accrued by the Company during any fiscal year
to or for the direct or indirect benefit of any of its officers,
directors, Affiliates or any 5% or greater shareholder of the Company;
(h) acquire any debt or equity interest in any Person or
establish or acquire a Subsidiary or make any additional capital
contribution or purchase any additional equity in any Subsidiary or
make any advances or loans to any Subsidiary except Borrower or
transfer any technology or assets to any Subsidiary except Borrower;
(i) modify, amend, terminate or waive any provision of the
Non-Compete Agreement or consent to James Stein ceasing to perform the
functions of president and chief executive officer of the Company;
(j) allow the aggregate par value of the Capital Stock
subject to the Warrants from time to time to exceed the price payable
upon exercise of the Warrants, as adjusted from time to time; or
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(k) agree to take, permit or enter into any of the events
described in subsections (a) through (j) above.
4.05 Records. The Company and each of its Subsidiaries will keep
books and records of account in which full, true, and correct entries will be
made of all dealings and transactions in relation to its business and affairs in
accordance with GAAP.
4.06 Accountants. The Company will retain independent public
accountants who will certify the consolidated financial statements of the
Company at the end of each fiscal year, and in the event that the services of
the independent public accountants so selected, or any firm of independent
public accounts hereafter employed by Company, are terminated, the Company will
promptly thereafter notify each Holder and upon the Holders' request, the
Company will request the firm of independent public accountants whose services
are terminated to deliver (without liability for such firm) to each Holder a
letter of such firm setting forth the reasons for the termination of their
services and in its notice to each Holder the Company will state whether the
change of accountants was recommended or approved by the board of directors of
the Company or any committee thereof.
4.07 Existence. The Company will maintain in full force and effect
its corporate existence, rights, and franchises and all licenses and other
rights to use intellectual property where such failure would have a Material
Adverse Effect on the Company.
4.08 Notice.
(a) In the event of (i) any setting by the Company of a
record date with respect to the holders of any class of Capital Stock
for the purpose of determining which of such holders are entitled to
dividends, repurchases of securities or other distributions, or any
right to subscribe for, purchase or otherwise acquire any shares of
Capital Stock or other property or to receive any other right; or (ii)
any capital reorganization of the Company, or reclassification or
recapitalization of the Capital Stock or any transfer of all or a
majority of the assets, business, or revenue or income generating
capacity of the Company, or consolidation, merger, share exchange,
reorganization, or similar transaction involving the Company; or (iii)
any voluntary or involuntary dissolution, liquidation, or winding up of
the Company; or (iv) any proposed issue or grant by the Company of any
Capital Stock, or any right or option to subscribe for, purchase, or
otherwise acquire any Capital Stock (other than the issue of Issuable
Warrant Shares upon exercise of the Warrants or the issuance of
Permitted Stock), then, in each such event, the Company will deliver or
cause to be delivered to the Holders a notice specifying, as the case
may be, (A) the date on which any such record is to be set for the
purpose of such dividend, distribution, or right, and stating the
amount and character of such dividend, distribution, or right; (B) the
date as of which the holders of record will be entitled to vote on any
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up; (C) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up is to take place and the time, if any is to
be fixed, as of which the holders of record of any class of Capital
Stock will be entitled to exchange their shares of Capital Stock for
securities or other property deliverable upon such event; (D) the
amount and character of any Capital Stock, property, or rights proposed
to be issued or granted, the consideration to be received therefor,
and, in the case of rights or options, the exercise price thereof, and
the date of such proposed issue or grant and the Persons or class of
Persons to whom such proposed issue or grant will be offered or made;
and (E) such other information as the Holders may reasonably request.
Any such notice will be deposited in the United States mail, postage
prepaid, at least twenty (20) days prior to the date therein specified,
and notwithstanding anything in this Agreement or the Warrants to the
contrary the Holders may exercise the Warrants within twenty (20) days
from the receipt of such notice.
(b) If there is any adjustment as provided above in Article
II, or if any Other Securities become issuable in lieu of shares of
such Common Stock upon exercise of the Warrants, the Company will
immediately cause written notice thereof to be sent to the each Holder,
which notice, if requested by Holder, will be accompanied by a
certificate of the independent public accountants of the Company
setting forth in reasonable detail the basis for the Holders' becoming
entitled to receive such Other Securities, the facts requiring any such
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adjustment in the number of shares receivable after such adjustment, or
the kind and amount of any Other Securities so purchasable upon the
exercise of the Warrants, as the case may be. At the request of any
Holder and upon surrender of the Warrant of such Holder, the Company
will reissue the Warrant of such Holder in a form conforming to such
adjustments.
4.09 Taxes. The Company will file all required tax returns,
reports, and requests for refunds on a timely basis and will pay on a timely
basis all taxes imposed on either of it or upon any of its assets, income, or
franchises.
4.10 Warrant Rights. The Company covenants and agrees that during
the term of this Agreement and so long as any Warrant is outstanding, (a) the
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock and Other Securities, to provide for the exercise in full
of the rights represented by the Warrants and the exercise in full of the rights
of the Holders under the Shareholder Agreement; (b) the Company will not
increase or permit to be increased the par value per share or stated capital of
the Issuable Warrant Shares or the consideration receivable upon issuance of its
Issuable Warrant Shares; and (c) in the event that the exercise of the Warrant
would require the payment by the Holder of consideration for the Common Stock or
Other Securities receivable upon such exercise of less than the par or stated
value of such Issuable Warrant Shares, the Company and the Shareholder will
promptly take such action as may be necessary to change the par or stated value
of such Issuable Warrant Shares to an amount less than or equal to such
consideration.
4.11 Small Business Investment Act. At the request of any Holder,
the Company will, and each Shareholder will use his/her/its best efforts to,
promptly correct any defect, error or omission with respect to the Act that may
be discovered in the contents of this Agreement or the documents executed in
connection herewith or in the execution or acknowledgment thereof, and will
execute, acknowledge and deliver such further instruments and do such further
acts as may be necessary for this Agreement and such other documents, and all
transactions contemplated thereby, to comply with the Act.
4.12 Non-Compete Agreement. Subject to any limitations established
or existing under applicable law, the Company will maintain the Non-Compete
Agreement in full force and effect, and will diligently enforce the Non-Compete
Agreement against any parties thereto who violate or attempt to violate such
Non-Compete Agreement.
Article V
Conditions
The obligations of Purchaser to effect the transactions contemplated by
this Agreement are subject to the following conditions precedent:
5.01 Opinion. Purchaser will have received favorable opinions,
dated the Closing Date, from Bay Venture Counsel, LLP, counsel for the Company
covering matters raised by the Note Agreement, this Agreement, the Shareholder
Agreement, and such other matters as Purchaser or its counsel may request, and
otherwise in form and substance satisfactory to Purchaser and its counsel, and
written permission from each other firm issuing an opinion to the Company in
connection with this Agreement, the Note Agreement or any Other Agreement, as
defined in the Note Agreement, authorizing Purchaser to rely on such opinions.
5.02 Note Agreement Conditions. All of the conditions precedent to
the obligations of Purchaser under the Note Agreement will have been satisfied
in full.
5.03 Material Change. There will have occurred no material adverse
change in the business, prospects, results, operations, or condition, financial
or otherwise, of the Company.
5.04 Shareholder Agreement. The Company and the Shareholder will
have entered into the Shareholder Agreement with Purchaser.
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5.05 Representations and Agreements. Each representation and
warranty of the Company and the Shareholder set forth in this Agreement will be
true and correct when made and as of the Closing Date, and the Company and the
Shareholder will have fully performed all their covenants and agreements set
forth in this Agreement.
5.06 Proceedings; Consents. All proceedings taken in connection
with the transactions contemplated by this Agreement, and all documents
necessary to the consummation of this Agreement, will be satisfactory in form
and substance to Purchaser and their counsel, and Purchaser and their counsel
will have received certificates of compliance and copies (executed or certified
as may be appropriate) of all documents, instruments, and agreements that
Purchaser or such counsel may request in connection with the consummation of
such transactions. All consents of any Person necessary to the consummation of
the transactions contemplated by this Agreement and the Shareholder Agreement
will have been received, be in full force and effect, and not be subject to any
onerous condition.
5.07 Small Business Concern Documents. The Company will have
completed, executed and delivered to Purchaser a Size Status Declaration on SBA
Form 480, a Non-Discrimination Certificate on SBA Form 652-D and shall have
provided Purchaser the information necessary to complete the Portfolio Financing
Report on SBA Form 1031.
Article VI
Miscellaneous
6.01 Indemnification. In addition to any other rights or remedies
to which Purchaser and the Holders may be entitled, the Company agrees to and
will indemnify and hold harmless Purchaser, the Holders, and their Affiliates
and their respective successors, assigns, officers, directors, employees,
attorneys, and agents (individually and collectively, an "Indemnified Party")
from and against any and all losses, claims, obligations, liabilities,
deficiencies, diminutions in value, penalties, causes of action, damages, costs,
and expenses (including, without limitation, costs of investigation and defense,
attorneys' fees, and expenses), including, without limitation, those arising out
of the sole or contributory negligence of any Indemnified Party, that the
Indemnified Party may suffer, incur, or be responsible for, arising or resulting
from any misrepresentation, breach of warranty, or nonfulfillment of any
covenant or agreement on the part of the Company or the Shareholder under this
Agreement, the Shareholder Agreement, or under any other agreement to which the
Company or the Shareholder is a party in connection with this transaction, or
from any misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished to Purchaser or the Holders under this
Agreement.
6.02 Default. It is agreed that a violation by any party of the
terms of this Agreement cannot be adequately measured or compensated in money
damages, and that any breach or threatened breach of this Agreement by a party
to this Agreement would do irreparable injury to the nondefaulting party. It is,
therefore, agreed that in the event of any breach or threatened breach by a
party to this Agreement of the terms and conditions set forth in this Agreement,
the nondefaulting party will be entitled, in addition to any and all other
rights and remedies that it may have in law or in equity, to apply for and
obtain injunctive relief requiring the defaulting party to be restrained from
any such breach or threatened breach or to refrain from a continuation of any
actual breach.
6.03 Integration. This Agreement and the Shareholder Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all previous written, and all previous
or contemporaneous oral, negotiations, understandings, arrangements, and
agreements. This Agreement may not be amended or supplemented except by a
writing signed by Company, the Shareholder and the Holders.
6.04 Headings. The headings in this Agreement are for convenience
and reference only and are not part of the substance of this Agreement.
References in this Agreement to Sections and Articles are references to the
Sections and Articles of this Agreement unless otherwise specified.
6.05 Severability. The parties to this Agreement expressly agree
that it is not the intention of any of them to violate any public policy,
statutory or common law rules, regulations, or decisions of any governmental or
regulatory body. If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation of any such
policy, rule, regulation, or decision, the provision, section, sentence, word,
clause, or combination thereof causing
19
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such violation will be inoperative (and in lieu thereof there will be inserted
such provision, sentence, word, clause, or combination thereof as may be valid
and consistent with the intent of the parties under this Agreement) and the
remainder of this Agreement, as amended, will remain binding upon the parties,
unless the inoperative provision would cause enforcement of the remainder of
this Agreement to be inequitable under the circumstances.
6.06 Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration, or other communication be given
to or served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
will be deemed to have been validly served, given or delivered (and "the date of
such notice" or words of similar effect will mean the date) five (5) days after
deposit in the United States mails, certified mail, return receipt requested,
with proper postage prepaid, or upon receipt thereof (whether by non-certified
mail, telecopy, telegram, express delivery, or otherwise), whichever is earlier,
and addressed to the party to be notified as follows:
If to the Purchaser, at Seacoast Capital Partners Limited Partnership
One Sansome Street, Suite 2100
San Francisco, California 94104
Attention: Jeffrey J. Holland
Fax: (415) 956-1459
Seacoast Capital Partners Limited Partnership
c/o Seacoast Capital Corporation
55 Ferncroft Road
Danvers, Massachusetts 01923
Attention: Walt Leonard
Fax: (508) 750-1301
Pacific Mezzanine Fund, L.P.
2200 Powell Street, Suite 1250
Emeryville, California 94608
Attention: Dave Woodward
Fax: (510) 595-9801
Tangent Growth Fund, L.P.
1 Union Square
180 Geary Street, Suite 500
San Francisco, California 94108
Attention: Mark P. Gilles
Fax: (415) 392-1928
with courtesy copies to: Patton Boggs LLP
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attention: Charles P. Miller, Esq.
Fax: (214) 871-2688
If to the Company, at ValueStar Corporation
11204 Ballena Boulevard
Almeda, California 94501
Attention: Jim Stein
Fax: (510) 814-9319
with courtesy copies to: Bay Venture Counsel, LLP
1999 Harrison Street, Suite 1300
Oakland, California 94612
20
<PAGE>
Attention: Bruce Johnson, Esq.
Fax: (510) 834-7440
If to the Shareholder, at: James Stein
ValueStar, Inc.
11204 Ballena Boulevard
Almeda, California 94501
Fax: (510) 814-9319
James A. Barnes
9029 Opus Drive
Las Vegas, Nevada 89117
Fax: (702) 254-4212
Jerry E. Polis
980 American Pacific Drive
Suite 111
Henderson, Nevada 89014
Fax: (702) 737-6900
or to such other address as each party may designate for itself by like notice.
Notice to any Holder other than Purchaser will be delivered as set forth above
to the address shown on the stock transfer books of the Company or the Warrant
Register unless such Holder has advised the Company in writing of a different
address to which notices are to be sent under this Agreement.
Failure or delay in delivering courtesy copies of any notice, demand,
request, consent, approval, declaration, or other communication to the persons
designated above to receive copies of the actual notice will in no way adversely
affect the effectiveness of such notice, demand, request, consent, approval,
declaration, or other communication.
No notice, demand, request, consent, approval, declaration or other
communication will be deemed to have been given or received unless and until it
sets forth all items of information required to be set forth therein pursuant to
the terms of this Agreement.
6.07 Successors. This Agreement will be binding upon and inure to
the benefit of the parties and their respective successors and assigns.
6.08 Remedies. The failure of any party to enforce any right or
remedy under this Agreement, or promptly to enforce any such right or remedy,
will not constitute a waiver thereof, nor give rise to any estoppel against such
party, nor excuse any other party from its obligations under this Agreement. Any
waiver of any such right or remedy by any party must be in writing and signed by
the party against which such waiver is sought to be enforced.
6.09 Survival. All warranties, representations, and covenants made
by any party in this Agreement or in any certificate or other instrument
delivered by such party or on its behalf under this Agreement will be considered
to have been relied upon by the party to which it is delivered and will survive
the Closing Date, regardless of any investigation made by such party or on its
behalf. All statements in any such certificate or other instrument will
constitute warranties and representations under this Agreement.
6.10 Fees. Any and all fees, costs, and expenses, of whatever kind
and nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings arising
out of or in connection with this Agreement will be borne and paid by the
Company within ten (10) days of demand by the Holders.
21
<PAGE>
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
6.12 Other Business. It is understood and accepted that Purchaser,
the Holders, and their Affiliates have interests in other business ventures that
may be in conflict with the activities of the Company and that nothing in this
Agreement will limit the current or future business activities of such parties
whether or not such activities are competitive with those of the Company. The
Company and the Shareholder agree that all business opportunities in any field
substantially related to the business of the Company will be pursued exclusively
through the Company.
6.13 Choice of Law. THIS AGREEMENT HAS BEEN EXECUTED, DELIVERED,
AND ACCEPTED BY THE PARTIES IN THE STATE OF CALIFORNIA AND WILL BE DEEMED TO
HAVE BEEN MADE IN THE STATE OF CALIFORNIA, AND WILL BE INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED
STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT
GIVING EFFECT TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT
COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
6.14 Duties Among Holders. Each Holder agrees that no other Holder
will by virtue of this Agreement be under any fiduciary or other duty to give or
withhold any consent or approval under this Agreement or to take any other
action or omit to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as such other Holder
may, in its discretion, elect.
6.15 Small Business Investment Act. This Agreement, the other
purchase documents executed in connection herewith, and all transactions
contemplated hereby and thereby are subject to the provisions of the Act, and
shall be governed thereby to the extent of any conflict therewith.
6.16 Confidentiality. Each Holder agrees to keep confidential any
information delivered by the Company to such Holder under this Agreement that
the Company clearly indicates in writing to be confidential information;
provided, however, that nothing in this Section 6.16 will prevent such Holder
from disclosing such information (a) to any Affiliate of such Holder or any
actual or potential purchaser, participant, assignee, or transferee of such
Holder's rights or obligations hereunder that agrees to be bound by the terms of
this Section 6.16, (b) upon order of any court or administrative agency, (c)
upon the request or demand of any regulatory agency or authority having
jurisdiction over such Holder, (d) that is in the public domain, (e) that has
been obtained from any Person that is not a party to this Agreement or an
Affiliate of any such party without breach by such Person of a confidentiality
obligation known to such Holder, (f) in connection with the exercise of any
remedy under this Agreement, or (g) to the certified public accountants for such
Holder. The Company agrees that such Holder will be presumed to have met its
obligations under this Section 6.16 to the extent that it exercises the same
degree of care with respect to information provided by the Company as it
exercises with respect to its own information of similar character.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
VALUESTAR CORPORATION
By: /s/ JAMES STEIN
-------------------------
Name: James Stein
Title: President and Chief Executive Officer
SHAREHOLDERS:
22
<PAGE>
/s/ JAMES STEIN
---------------------------
James Stein
/s/ JAMES A BARNES
---------------------------
James A. Barnes, individually, as President of Sunrise
Capital, Inc. and General Partner of Tiffany
Investments, and as General Partner of Tiffany
Investments Limited Partnership
/s/ JERRY E. POLIS
---------------------------
Jerry E. Polis, individually, as President of Davric
Corporation and Trustee of the Jerry E. Polis Family
Trust
23
<PAGE>
PURCHASER:
SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By: /s/ JEFFREY J. HOLLAND
---------------------------
Jeffrey J. Holland
Vice President
One Sansome Street, Suite 2100
San Francisco, California 94104
Attention: Jeffrey J. Holland
Fax: (415) 956-459
55 Ferncroft Road
Danvers, Massachusetts 01923
Attention: Walt Leonard
Fax: (508) 750-1301
Number of Warrant Shares in connection with the A
Warrant: 935,051
Number of Warrant Shares in connection with the B
Warrant: 322,968
Number of Warrant shares in connection with the C
Warrant: 141,509
<PAGE>
PACIFIC MEZZANINE FUND. L.P.
By: Pacific Private Capital
its general partner
By: /s/ DAVID WOODWARD
---------------------------
David Woodward
General Partner
2200 Powell Street, Suite 1250
Emeryville, California 94608
Attention: David Woodward
Fax: (510) 595-9801
Number of Warrant Shares in connection with the A
Warrant: 374,021
Number of Warrant Shares in connection with the B
Warrant: 129,187
Number of Warrant shares in connection with the C
Warrant: 56,604
<PAGE>
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management LLC,
General Partner
By: /s/ MARK P. GILLES
---------------------------
Mark P. Gilles
Vice President
1 Union Square
180 Geary Street, Suite 500
San Francisco, California 94108
Attention: Mark P. Gilles
Fax: (415) 392-1928
Number of Warrant Shares in connection with the A
Warrant: 218,178
Number of Warrant Shares in connection with the B
Warrant: 75,359
Number of Warrant shares in connection with the
C Warrant: 33,019
EXHIBIT 4.21
FORM of A WARRANT
-----------------
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH THE
DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
TERMS AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT
EACH DATED AS OF MARCH ______, 1999, AMONG VALUESTAR, CORPORATION (THE
"COMPANY") JIM STEIN, JAMES A. BARNES AND JERRY E. POLIS (INDIVIDUALLY AND
COLLECTIVELY, THE "SHAREHOLDER") AND SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP (THE "PURCHASER"), PACIFIC MEZZANINE FUND, L.P. ("PACIFIC") AND
TANGENT FUND MANAGEMENT, LLC ("TANGENT") (AS SUCH AGREEMENTS MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES
OF THE COMPANY.
_____________ shares of
Common Stock Warrant No. _________
WARRANT TO PURCHASE COMMON STOCK OF
VALUESTAR CORPORATION
This is to certify that, in consideration of ten dollars ($10.00) and
other valuable consideration, which is hereby acknowledged as received, the
Purchaser, its successors and registered assigns, is entitled at any time after
the Closing Date (as defined in the Agreements) and prior to the earlier to
occur of (i) the expiration of six (6) years from the date the obligations
evidenced by the Senior Note, dated as of March ___, 1999 executed by ValueStar,
Inc., a California corporation, (the "Subsidiary") and payable to the Purchaser,
as the same may be amended, modified and extended from time to time, are paid in
full pursuant to the terms of the Note Purchase Agreement, dated as of March
_____, 1999, between the Subsidiary and the Purchaser as the same may be amended
from time to time, (ii) 5:00 p.m. March _____, 2009, to exercise this Warrant to
purchase _________________ (________) shares of the Common Stock of ValueStar
Corporation, a Colorado corporation (the "Company"), as the same shall be
adjusted from time to time pursuant to the provisions of the Agreements at a
price per share as specified in the Agreements and to exercise the other rights,
powers, and privileges hereinafter provided, all on the terms and subject to the
conditions specified in this Warrant and in the Agreements.
This Warrant is issued under, and the rights represented hereby are
subject to the terms and provisions contained in the Agreements, to all terms
and provisions of which the registered holder of this Warrant, by acceptance of
this Warrant, assents. Reference is hereby made to the Agreements for a more
complete statement of the rights and limitations of rights of the registered
holder of this Warrant and the rights and duties of the Company under this
Warrant. Copies of the Agreements are on file at the office of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed this ____ day of March, 1999.
VALUESTAR CORPORATION
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
<PAGE>
FORM of B WARRANT
-----------------
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH THE
DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
TERMS AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT
EACH DATED AS OF MARCH ______, 1999, AMONG VALUESTAR, CORPORATION (THE
"COMPANY") JIM STEIN, JAMES A. BARNES AND JERRY E. POLIS (INDIVIDUALLY AND
COLLECTIVELY, THE "SHAREHOLDER") AND SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP (THE "PURCHASER"), PACIFIC MEZZANINE FUND, L.P. ("PACIFIC") AND
TANGENT FUND MANAGEMENT, LLC ("TANGENT") (AS SUCH AGREEMENTS MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES
OF THE COMPANY.
_____________ shares of
Common Stock Warrant No. _________
WARRANT TO PURCHASE COMMON STOCK OF
VALUESTAR CORPORATION
This is to certify that, in consideration of ten dollars ($10.00) and
other valuable consideration, which is hereby acknowledged as received, the
Purchaser, its successors and registered assigns, is entitled at any time after
the Closing Date (as defined in the Agreements) and prior to the earlier to
occur of (i) the expiration of six (6) years from the date the obligations
evidenced by the Senior Note, dated as of March ___, 1999 executed by ValueStar,
Inc., a California corporation, (the "Subsidiary") and payable to the Purchaser,
as the same may be amended, modified and extended from time to time, are paid in
full pursuant to the terms of the Note Purchase Agreement, dated as of March
_____, 1999, between the Subsidiary and the Purchaser as the same may be amended
from time to time, (ii) 5:00 p.m. March _____, 2009, to exercise this Warrant to
purchase _________________ (________) shares of the Common Stock of ValueStar
Corporation, a Colorado corporation (the "Company"), as the same shall be
adjusted from time to time pursuant to the provisions of the Agreements at a
price per share as specified in the Agreements and to exercise the other rights,
powers, and privileges hereinafter provided, all on the terms and subject to the
conditions specified in this Warrant and in the Agreements.
This Warrant is issued under, and the rights represented hereby are
subject to the terms and provisions contained in the Agreements, to all terms
and provisions of which the registered holder of this Warrant, by acceptance of
this Warrant, assents. Reference is hereby made to the Agreements for a more
complete statement of the rights and limitations of rights of the registered
holder of this Warrant and the rights and duties of the Company under this
Warrant. Copies of the Agreements are on file at the office of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed this ____ day of March, 1999.
VALUESTAR CORPORATION
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
<PAGE>
FORM of C WARRANT
-----------------
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH THE
DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
TERMS AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT
EACH DATED AS OF MARCH ______, 1999, AMONG VALUESTAR, CORPORATION (THE
"COMPANY") JIM STEIN, JAMES A. BARNES AND JERRY E. POLIS (INDIVIDUALLY AND
COLLECTIVELY, THE "SHAREHOLDER") AND SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP (THE "PURCHASER"), PACIFIC MEZZANINE FUND, L.P. ("PACIFIC") AND
TANGENT FUND MANAGEMENT, LLC ("TANGENT") (AS SUCH AGREEMENTS MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES
OF THE COMPANY.
_____________ shares of
Common Stock Warrant No. _________
WARRANT TO PURCHASE COMMON STOCK OF
VALUESTAR CORPORATION
This is to certify that, in consideration of ten dollars ($10.00) and
other valuable consideration, which is hereby acknowledged as received, the
Purchaser, its successors and registered assigns, is entitled at any time after
the Closing Date (as defined in the Agreements) and prior to the earlier to
occur of (i) the expiration of six (6) years from the date the obligations
evidenced by the Senior Note, dated as of March ___, 1999 executed by ValueStar,
Inc., a California corporation, (the "Subsidiary") and payable to the Purchaser,
as the same may be amended, modified and extended from time to time, are paid in
full pursuant to the terms of the Note Purchase Agreement, dated as of March
_____, 1999, between the Subsidiary and the Purchaser as the same may be amended
from time to time, (ii) 5:00 p.m. March _____, 2009, to exercise this Warrant to
purchase _________________ (________) shares of the Common Stock of ValueStar
Corporation, a Colorado corporation (the "Company"), as the same shall be
adjusted from time to time pursuant to the provisions of the Agreements at a
price per share as specified in the Agreements and to exercise the other rights,
powers, and privileges hereinafter provided, all on the terms and subject to the
conditions specified in this Warrant and in the Agreements.
This Warrant is issued under, and the rights represented hereby are
subject to the terms and provisions contained in the Agreements, to all terms
and provisions of which the registered holder of this Warrant, by acceptance of
this Warrant, assents. Reference is hereby made to the Agreements for a more
complete statement of the rights and limitations of rights of the registered
holder of this Warrant and the rights and duties of the Company under this
Warrant. Copies of the Agreements are on file at the office of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed this ____ day of March, 1999.
VALUESTAR CORPORATION
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
EXHIBIT 4.22
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is dated as of March 31, 1999 and
entered into by and between ValueStar, Inc., a California corporation
("Borrower"), and Seacoast Capital Partners Limited Partnership, a Delaware
limited partnership, Pacific Mezzanine Fund, L.P., a California limited
partnership and Tangent Growth Fund, L.P., a California limited partnership
(collectively, "Lenders").
W I T N E S S E T H:
WHEREAS, Borrower and Lenders are parties to a Note Purchase
Agreement of even date herewith, as the same may hereafter be amended, restated,
supplemented or otherwise modified from time to time (the "Note Purchase
Agreement"), providing for the purchase of $2,450,000 of Borrower's 8% senior
notes (collectively, the "Senior Note") and other financial accommodations to be
made to Borrower by Lenders;
WHEREAS, it is a condition to the purchase of the Senior Note
and other financial accommodations under the Note Purchase Agreement, that
Borrower shall have granted the security interests contemplated by this
Agreement, and Borrower desires to grant such security interests in order to
induce Lenders to purchase the Senior Note pursuant to the Note Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and in order
to induce Lenders to purchase the Senior Note, Borrower hereby agrees with
Lenders as follows:
1. Definitions
1.1. Certain Defined Terms. Terms defined in the Note Purchase
Agreement and not otherwise defined herein have the respective meanings provided
for in the Note Purchase Agreement. The following terms, as used herein, have
the meanings set forth below:
"Accounts" means all "accounts" (as defined in the UCC) now
owned or hereafter created or acquired by Borrower and all of the
following now owned or hereafter created or acquired by Borrower: (a)
accounts receivable, contract rights, book debts, notes, drafts and
other obligations or indebtedness owing to Borrower arising from the
sale, lease or exchange of goods or other property and/or the
performance of services; (b) rights in, to and under all purchase
orders for goods, services or other property; (c) rights to any goods,
services or other property represented by any of the foregoing
(including returned or repossessed goods and unpaid sellers' rights of
rescission, replevin, reclamation and rights to stoppage in transit);
(d) monies due to or to become due to Borrower under all contracts for
the sale, lease or exchange of goods or other property and/or the
performance of services including the right to payment of any interest
or finance charges with respect thereto (whether or not yet earned by
performance on the part of Borrower); and (e) all collateral security
and guaranties of any kind given by any Person with respect to any of
the foregoing.
"Collateral" has the meaning assigned to that term in Section
2.
"Control" means "control" as defined in the UCC.
"Copyright License" means any oral or written agreement now or
hereafter in existence granting to Borrower any right to use any
copyright, all as may be amended, supplemented or otherwise modified
from time to time.
1
<PAGE>
"Copyright Mortgage" means, if any, a Copyright Mortgage
executed and delivered by Borrower to Lenders, as the same may be
amended, supplemented or otherwise modified from time to time.
"Copyrights" means collectively all of the following now owned
or hereafter created or acquired by Borrower: (a) all copyrights,
rights and interests in copyrights, works protectable by copyright,
copyright registrations and copyright applications including, without
limitation, those listed on any schedule to any Copyright Mortgage; (b)
all renewals of any of the foregoing; (c) all income, royalties,
damages and payments now or hereafter due and/or payable under any of
the foregoing or with respect to any of the foregoing, including,
without limitation, damages and payments for past, present and future
infringements of any of the foregoing; (d) the right to sue for past,
present and future infringements of any of the foregoing; (e) all
rights corresponding to any of the foregoing throughout the world; and
(f) all goodwill associated with any of the foregoing.
"Depository Account" has the meaning assigned to such term in
Section 7.
"Documents" means all "documents" (as defined in the UCC) or
other receipts covering, evidencing or representing goods now owned or
hereafter acquired by Borrower including, without limitation, all bills
of lading, dock warrants, dock receipts, warehouse receipts and orders
for the delivery of goods, and any other document which in the regular
course of business or financing is treated as adequately evidencing
that the Person in possession of it is entitled to receive, hold and
dispose of the document and the goods it covers.
"Equipment" means all "equipment" (as defined in the UCC) now
owned or hereafter acquired by Borrower including, without limitation,
all machinery, motor vehicles, trucks, trailers, vessels, aircraft,
rolling stock and all other tangible personal property (other than
Inventory) and all parts thereof and all additions and accessions
thereto and replacements therefor.
"Fixtures" means all "fixtures" (as defined in the UCC) now
owned or hereafter acquired by Borrower including, without limitation,
plant fixtures, trade fixtures and business fixtures, wherever located,
and all additions and accessions thereto and replacements therefor.
"General Intangibles" means all "general intangibles" (as
defined in the UCC) now owned or hereafter created or acquired by
Borrower including, without limitation: (a) all agreements, leases,
licenses and contracts to which Borrower is or may become a party; (b)
all obligations or indebtedness owing to Borrower (other than Accounts)
or other rights to receive payments of money from whatever source
arising and all collateral security therefor; (c) all tax refunds and
tax refund claims; (d) all Intellectual Property; (e) all choses in
action and causes of action; and (f) all trade secrets and other
confidential information relating to the business of Borrower
including, without limitation: the names and addresses of, and credit
and other business information concerning, Borrower's past, present or
future customers; the prices which Borrower obtains for its services or
at which it sells merchandise; policies and procedures pertaining to
the sale and design of equipment, components, devices and services
furnished by Borrower; information concerning suppliers of Borrower;
and information concerning the manner of operation, business plans,
projections, and all other information of any kind or character,
whether or not reduced to writing, with respect to the conduct by
Borrower of its business not generally known by the public.
"Instruments" means all "instruments", "chattel paper" and
"letters of credit" (each as defined in the UCC) in which Borrower now
has or hereafter acquires any rights including, without limitation, all
checks, drafts, notes, bonds, debentures and certificates of deposit.
"Intellectual Property" means collectively all of the
following: Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks and Trademark Licenses.
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"Inventory" means all "inventory" (as defined in the UCC) now
owned or hereafter acquired by Borrower, wherever located, including,
without limitation, finished goods, raw materials, work in process and
other materials and supplies (including packaging and shipping
materials) used or consumed in the manufacture or production thereof
and goods which are returned to or repossessed by Borrower.
"Investment Property" means all "investment property" (as
defined in the UCC) now owned or hereafter acquired by Borrower
including, without limitation, all securities (certificated and
uncertificated), securities accounts, securities entitlements,
commodity contracts and commodity accounts (as each such term is
defined in the UCC).
"Patent License" means any oral or written agreement now or
hereafter in existence granting to Borrower any right to use any
invention on which a patent is in existence, all as may be amended,
supplemented or otherwise modified from time to time.
"Patent Mortgage" means, if any, a Patent Mortgage executed
and delivered by Borrower to Lenders, as the same may be amended,
supplemented or otherwise modified from time to time.
"Patents" means collectively all of the following now owned or
hereafter created or acquired by Borrower: (a) all patents and patent
applications including, without limitation, those listed on any
schedule to any Patent Mortgage and the inventions and improvements
described and claimed therein, and patentable inventions; (b) the
reissues, divisions, continuations, renewals, extensions and
continuations-in-part of any of the foregoing; (c) all income,
royalties, damages and payments now or hereafter due and/or payable
under any of the foregoing or with respect to any of the foregoing,
including, without limitation, damages and payments for past, present
and future infringements of any of the foregoing; (d) the right to sue
for past, present and future infringements of any of the foregoing; (e)
all rights corresponding to any of the foregoing throughout the world;
and (f) all goodwill associated with any of the foregoing.
"Proceeds" means all "proceeds" (as defined in the UCC) of,
and all other profits, rentals or receipts, in whatever form, arising
from the collection, sale, lease, exchange, assignment, licensing or
other disposition of, or realization upon, any Collateral including,
without limitation, all claims of Borrower against third parties for
loss of, damage to or destruction of, or for proceeds payable under, or
unearned premiums with respect to, policies of insurance with respect
to any Collateral, and any condemnation or requisition payments with
respect to any Collateral, in each case whether now existing or
hereafter arising.
"Secured Obligations" has the meaning assigned to that term in
Section 3.
"Security Interests" means the security interests granted
pursuant to Section 2 hereof and pursuant to any Copyright Mortgage,
Patent Mortgage and any Trademark Mortgage, as well as all other
security interests created or assigned as additional security for the
Secured Obligations pursuant to the provisions of this Agreement or the
other Loan Documents.
"Trademark License" means any oral or written agreement now or
hereafter in existence granting to Borrower any right to use any
trademark, all as may be amended, supplemented or otherwise modified
from time to time.
"Trademark Mortgage" means, if any, a Trademark Mortgage
executed and delivered by Borrower to Lenders, as the same may be
amended, supplemented or otherwise modified from time to time.
"Trademarks" means collectively all of the following now owned
or hereafter created or acquired by Borrower: (a) all trademarks, trade
names, corporate names, company names, business names, fictitious
business names, trade styles, service marks, logos, other business
identifiers, prints
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and labels on which any of the foregoing have appeared or appear, all
registrations and recordings thereof, and all applications in
connection therewith including, without limitation, those listed on any
schedule to any Trademark Mortgage; (b) all renewals thereof; (c) all
income, royalties, damages and payments now or hereafter due and/or
payable under any of the foregoing or with respect to any of the
foregoing, including, without limitation, damages and payments for
past, present and future infringements of any of the foregoing; (d) the
right to sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing
throughout the world; and (f) all goodwill associated with and
symbolized by any of the foregoing.
"UCC" means the Uniform Commercial Code as in effect on the
date hereof in the State of California, provided that if by reason of
mandatory provisions of law, the perfection or the effect of perfection
or non-perfection of the Security Interests in any Collateral or the
availability of any remedy hereunder is governed by the Uniform
Commercial Code as in effect on or after the date hereof in any other
jurisdiction, "UCC" means the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or
availability of such remedy.
1.2. Other Definition Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. All references to statutes and related regulations shall
include (unless otherwise specifically provided herein) any amendments of the
same and any successor statutes and regulations.
2. Grant of Security Interests
To secure the payment, performance and observance of (i) the
Secured Obligations, (ii) any obligations, liabilities, indebtedness or other
amounts owing by Parent to Lenders, and (iii) Borrower's obligations under the
Subsidiary Guaranty Agreement, Borrower hereby grants Lenders, a continuing
security interest in, a right of setoff against, and an assignment to Lenders
of, all right, title and interest of Borrower in all personal property, whether
now owned or existing or hereafter acquired or arising and regardless of where
located including, without limitation, the following (all being collectively
referred to as the "Collateral"):
(a) Accounts;
(b) Inventory;
(c) General Intangibles;
(d) Documents;
(e) Instruments;
(f) Equipment;
(g) Fixtures;
(h) Investment Property;
(i) All deposit accounts of Borrower maintained with any bank
or financial institution (other than Depository Accounts) and the
contents thereof;
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(j) All Depository Accounts, all cash and other property
deposited therein from time to time and other monies and property of
Borrower in the possession or under the control of Lenders;
(k) All books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software
that at any time evidence or contain information relating to any of the
property described in subparts (a) - (j) above or are otherwise
necessary or helpful in the collection thereof or realization thereon;
and
(l) Proceeds of all or any of the property described in
subparts (a) - (k) above.
3. Security for Obligations
This Agreement secures the payment and performance of the
Obligations and all indebtedness, liabilities and obligations of Borrower now or
hereafter existing under this Agreement and all renewals, extensions,
restructurings and refinancings of any of the above, including, without
limitation, any additional indebtedness which may be extended to Borrower
pursuant to any restructuring or refinancing of Borrower's indebtedness under
the Note Purchase Agreement, and including any post-petition interest accruing
during any bankruptcy reorganization of Borrower or other similar proceeding
(all such indebtedness, liabilities and obligations of Borrower being
collectively called the "Secured Obligations").
4. Borrower Remains Liable
Anything herein to the contrary notwithstanding: (a) Borrower
shall remain liable under the contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed; (b) the exercise by Lenders of any of the rights hereunder shall not
release Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral; and (c) Lenders shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Lenders be obligated to
perform any of the obligations or duties of Borrower thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
5. Representations and Warranties
Borrower represents and warrants as follows, except as set
forth on Schedule IV:
5.1. Location of Equipment, Inventory and Fixtures. All of the
Equipment, Inventory and Fixtures are located at the places specified on
Schedule I. All hereafter acquired or arising Equipment, Inventory or Fixtures
will be located at the places specified on Schedule I hereto, except as
otherwise permitted hereunder. All of said locations are leased by Borrower as
lessee except those designated otherwise on Schedule I.
5.2. Ownership of Collateral; Bailees. Except for matters
disclosed on Schedule II, other Permitted Liens and the Security Interests,
Borrower owns the Collateral, and will own all after-acquired Collateral, free
and clear of any Lien. No effective financing statement or other form of lien
notice covering all or any part of the Collateral is on file in any recording
office, except for those in favor of Lenders or as disclosed on Schedule II.
Except as disclosed on Schedule II, none of the Collateral is in the possession
of any consignee, bailee, warehouseman, agent or processor. Borrower does not
sell any Inventory to any customer on approval or on any other basis which
entitles the customer to return, or which may obligate Borrower to repurchase,
such Inventory.
5.3. Office Locations; Fictitious Names. The mailing address,
chief place of business, chief executive office and office where Borrower keeps
its books and records relating to the Accounts, Documents, General Intangibles,
Instruments and Investment Property is located at the place specified on
Schedule I. Borrower does not have any other places of business except those
separately set forth on Schedule I. Borrower does not do
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business and has not done business during the past three years under any trade
name or fictitious business name except as disclosed on Schedule III.
5.4. Perfection. This Agreement, all necessary UCC filings and
all recordings with the U.S. Patent and Trademark Office and the U.S. Copyright
Office together create a valid, perfected and, except for the Permitted Liens,
first priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings (other than continuation statements),
registrations, recordings and other actions necessary or desirable to create,
perfect and protect such Security Interests have been duly taken, and such
Security Interests are entitled to all of the rights, priorities and benefits
afforded by the UCC or other relevant law as enacted in any relevant
jurisdiction which relates to perfected security interests.
5.5. Governmental Authorizations; Consents. No authorization,
approval or other action by, and no notice to or filing with, any domestic or
foreign governmental authority or regulatory body or consent of any other Person
is required either (a) for the grant by Borrower of the Security Interests
granted hereby or for the execution, delivery or performance of this Agreement
by Borrower or (b) for the perfection of or the exercise by Lenders of their
rights and remedies hereunder (except as may have been taken by or at the
direction of Borrower or Lenders and except for UCC filings in the State of
California and all recordings with the U.S. Patent and Trademark Office and the
U.S. Copyright Office).
5.6. Accounts. Each existing Account constitutes, and each
hereafter arising Account will constitute, the legally valid and binding
obligation of the customer obligated to pay the same. The amount represented by
Borrower to Lenders as owing by each customer is, or will be, the correct amount
actually and unconditionally owing, except for normal cash discounts and
allowances where applicable. To Borrower's knowledge, no customer has any
defense, set-off, claim or counterclaim against Borrower that can be asserted
against Lenders, whether in any proceeding to enforce Lenders' rights in the
Collateral or otherwise except defenses, setoffs, claims or counterclaims that
would not, in the aggregate, have a Material Adverse Effect on Borrower. None of
the Accounts are, nor will any hereafter arising Account be, evidenced by a
promissory note or other Instrument other than a check.
5.7. Intellectual Property. Except as disclosed on Schedule
5.6 of the Note Purchase Agreement, there are no federally registered
Copyrights, Patents or Trademarks. All federally registered Copyrights, Patents
and Trademarks disclosed on Schedule 5.6 of the Note Purchase Agreement are
valid, subsisting and enforceable and all requisite filings have been made and
fees paid.
5.8. Inventory. All Inventory is and will be of good and
merchantable quality, free from any defects. None of such Inventory is subject
to any licensing, patent, trademark, trade name or copyright agreement with any
Person that restricts Borrower's ability to manufacture and/or sell the
Inventory. The completion of the manufacturing process of such Inventory by a
Person other than Borrower would be permitted under any contract to which
Borrower is a party or to which the Inventory is subject.
6. Further Assurances; Covenants
6.1. Other Documents and Actions. Borrower will, from time to
time, at its expense, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable, or
that Lenders may request, in order to create, perfect and protect any security
interest granted or purported to be granted hereby or pursuant to any other
Agreements or to enable the Lenders to exercise and enforce their rights and
remedies hereunder or under any other Agreements with respect to any Collateral.
Without limiting the generality of the foregoing, Borrower will: (a) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments, documents or notices, as may be necessary or desirable, or as
the Lenders may request, in order to create, perfect and preserve the security
interests granted or purported to be granted hereby or pursuant to any other
Agreements; (b) at any reasonable time, upon demand by the Lenders, exhibit the
Collateral to allow inspection of the Collateral by the Lenders or Persons
designated by the Lenders and to examine and make copies of the records of
Borrower related thereto, and to discuss the Collateral and the records of
Borrower with respect thereto with, and to be advised as to the same by,
Borrower's officers and employees and, after the occurrence and during the
continuance of an Event of Default, in the case of the Accounts,
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Documents, General Intangibles, Instruments and Investment Property with any
Person which is or may be obligated thereon; and (c) upon the Lenders' request,
appear in and defend any action or proceeding that may affect Borrower's title
to or the Lenders' security interest in the Collateral.
6.2. Corporate or Name Change. Borrower will give Lenders at
least thirty (30) days prior written notice of any change in Borrower's name,
identity, mailing address or corporate structure. With respect to any such
change, Borrower will execute such documents and take such actions as the
Lenders reasonably deem necessary or desirable to create, perfect and preserve
the Security Interests.
6.3. Business Locations. Subject to the next sentence,
Borrower will keep the Collateral (other than Collateral in the possession of
the Lenders and cash on deposit in Depository Accounts and other permitted
deposit accounts) at the locations specified on Schedule I. Borrower will give
the Lenders at least thirty (30) days prior written notice of any change in
Borrower's chief executive office or of any new location of business or any new
location for any of the Collateral. With respect to any new location (which in
any event shall be within the continental United States), Borrower will execute
such documents and take such actions as the Lenders deem necessary to perfect
and preserve the Security Interests.
6.4. Bailees. No Collateral shall at any time be in the
possession or control of any warehouseman, bailee or any of Borrower's agents or
processors without Lenders' prior written consent and unless the Lenders, if the
Lenders have so requested, have received warehouse receipts or bailee letters
satisfactory to the Lenders prior to the commencement of such storage. Borrower
shall, upon the request of the Lenders, notify any such warehouseman, bailee,
agent or processor of the Security Interests created hereby and shall instruct
such Person to hold all such Collateral for the Lenders' account subject to the
Lenders' instructions.
6.5. Instruments. Borrower will deliver and pledge to Lenders
all Instruments duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Lenders.
Borrower will also deliver to Lenders all security agreements securing any
Instruments and execute UCC-3 financing statements assigning to Lenders any UCC
financing statements filed by Borrower in connection with such security
agreements. Borrower will mark conspicuously all chattel paper with a legend, in
form and substance satisfactory to Lenders, indicating that such chattel paper
is subject to the Security Interests.
6.6. Filing Requirements. None of the Equipment (other than
motor vehicles not having a market value in excess of $50,000 in the aggregate)
is covered by any certificate of title. Upon request of the Lenders, Borrower
shall promptly deliver to Lenders any and all certificates of title,
applications for title or similar evidence of ownership of all Equipment and
shall cause Lenders to be named as lienholder on any such certificate of title
or other evidence of ownership. None of the Collateral is of a type in which
security interests or liens may be registered, recorded or filed under, or
notice thereof given under, any federal statute or regulation except for
Collateral described on the schedules to any Copyright Mortgage, Patent Mortgage
or any Trademark Mortgage. Borrower shall promptly notify Lenders in writing
upon acquiring any interest hereafter in Collateral that is of a type where a
security interest or lien may be registered, recorded or filed under, or notice
thereof given under, any federal statute or regulation. Borrower shall promptly
inform Lenders of any additions to or deletions from the Equipment and shall not
permit any such items to become Fixtures to real estate other than real estate
subject to mortgages or deeds of trust in favor of Lenders. The legal
description and street address of the property on which any Fixtures are located
is set forth on Schedule I, together with the name and common address of the
record owner of each such property.
6.7. Investment Property Covenants. Borrower will take any and
all actions required or requested by Lenders, from time to time, to (a) cause
Lenders to obtain exclusive Control of any Investment Property owned by Borrower
in a manner acceptable to Lenders and (b) obtain from any issuers of Investment
Property and such other Persons, for the benefit of Lenders, written
confirmation of Lenders' Control over such Investment Property. For purposes of
this subsection 6.7, Lenders shall have exclusive Control of Investment Property
if (i) such Investment Property consists of certificated securities and the
Borrower delivers such certificated securities to Lenders (with appropriate
endorsements if such certificated securities are in registered form); (ii) such
Investment Property consists of uncertificated securities and either (x) the
Borrower delivers such uncertificated securities to Lenders or (y) the issuer
thereof agrees, pursuant to documentation in form and
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substance satisfactory to Lenders, that it will comply with instructions
originated by Lenders without further consent by Borrower; and (iii) such
Investment Property consists of security entitlements and either (x) Lenders
become the entitlement holder thereof or (y) the appropriate securities
intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lenders, that it will comply with entitlement orders originated
by Lenders without further consent by Borrower.
6.8. Account Covenants. Except as otherwise provided in this
subsection 6.8, Borrower shall continue to collect, at its own expense, all
amounts due or to become due to Borrower under the Accounts and apply such
amounts as are so collected to the outstanding balances of said Accounts. In
connection with such collections, Borrower may take (and, at Lenders' direction,
shall take) such action as Borrower or Lenders may deem necessary or advisable
to enforce collection of the Accounts; provided, that Lenders shall have the
right at any time after the occurrence and during the continuance of a Default
or an Event of Default to: (a) notify the customers or obligors under any
Accounts of the assignment of such Accounts to Lenders and to direct such
customers or obligors to make payment of all amounts due or to become due
directly to Lenders; (b) enforce collection of any such Accounts; and (c)
adjust, settle or compromise the amount or payment of such Accounts. After the
occurrence and during the continuance of a Default or an Event of Default, all
amounts and proceeds received by Borrower with respect to the Accounts shall, if
requested in writing by Lenders, be received in trust for the benefit of Lenders
shall be segregated from other funds of Borrower and shall be forthwith paid
over to Lenders in the same form as so received (with any necessary endorsement)
to be held in the Depository Accounts pursuant to Section 7 or applied pursuant
to Section 12. Borrower shall not adjust, settle or compromise the amount or
payment of any Account, or release wholly or partly any customer or obligor
thereof, or allow any credit or discount thereon (other than credits and
discounts in the ordinary course of business and in amounts which are not
material to Borrower) without the prior consent of Lenders.
6.9. Intellectual Property Covenants. Borrower shall
concurrently herewith deliver to Lenders each Copyright Mortgage, Patent
Mortgage and Trademark Mortgage requested by Lenders and all other documents,
instruments and other items as may be necessary for Lenders to file such
mortgages, as applicable, with the U.S. Copyright Office and the U.S. Patent and
Trademark Office. If, before the Secured Obligations are paid in full, Borrower
obtains any new Intellectual Property or rights thereto or becomes entitled to
the benefit of any Intellectual Property not listed on the schedules to a
Copyright Mortgage, Patent Mortgage or Trademark Mortgage, as applicable,
Borrower shall give to Lenders prompt written notice thereof, and shall amend
the schedules to include any such new Intellectual Property. Borrower shall: (a)
prosecute diligently any copyright, patent or trademark application at any time
pending; (b) make application for registration or issuance of all new
copyrights, patents and trademarks as reasonably deemed appropriate by Borrower;
(c) preserve and maintain all rights in the Intellectual Property; and (d) use
its best efforts, at any time after the occurrence and during the continuance of
a Default or an Event of Default, to obtain any consents, waivers or agreements
necessary to enable Lenders to exercise its remedies with respect to the
Intellectual Property. Borrower shall not abandon any material right to file a
copyright, patent or trademark application or shall not abandon any material
pending copyright, patent or trademark application, or Copyright, Copyright
License, Patent, Patent License, Trademark or Trademark License, without the
prior written consent of Lenders. Borrower represents and warrants to Lenders
that the execution, delivery and performance of this Agreement by Borrower will
not violate or cause a default under any of the Intellectual Property or any
agreement in connection therewith.
6.10. Protection of Collateral. Borrower will not do anything
to impair the rights of Lenders in the Collateral. Borrower will at all times
keep the Collateral insured in favor of the Lenders in compliance with the
requirements of the Note Purchase Agreement. Borrower assumes all liability and
responsibility in connection with the Collateral acquired by it, and the
liability of Borrower to pay the Secured Obligations shall in no way be affected
or diminished by reason of the fact that such Collateral may be lost, stolen,
damaged, or for any reason whatsoever unavailable to Borrower.
6.11. Taxes and Claims. Borrower will pay when due all
property and other taxes, assessments and governmental charges imposed upon, and
all claims against, the Collateral; provided that no such tax, assessment or
charge need be paid if Borrower is contesting same in good faith by appropriate
proceedings promptly instituted and diligently conducted and if Borrower has
established such reserve or other appropriate
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provision, if any, as shall be required in conformity with GAAP; and provided
further that the same can be contested without risk of loss or forfeiture or
material impairment of the Collateral or the use thereof.
6.12. Collateral Description. Borrower will furnish to
Lenders, from time to time upon request, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Lenders may reasonably request, all in reasonable
detail. Borrower will, promptly upon request, provide to Lenders all information
and evidence it may reasonably request concerning the Collateral, and in
particular the Accounts, to enable Lenders to enforce the provisions of this
Agreement.
6.13. Records of Collateral. Borrower shall keep full and
accurate books and records relating to the Collateral and shall stamp or
otherwise mark such books and records in such manner as Lenders may reasonably
request indicating that the Collateral is subject to the Security Interests.
6.14. Federal Claims. Borrower shall notify Lenders of any
Collateral having a value in excess of $100,000 which, to its best knowledge,
constitutes a claim against the United States government or any instrumentality
or agency thereof, the assignment of which claim is restricted by federal law.
Upon the request of Lenders, Borrower shall take such steps as may be necessary
to comply with any applicable federal assignment of claims laws.
6.15. Hot Goods. None of the Inventory of Borrower or any
Subsidiary has been or will be produced in violation of any provision of the
Fair Labor Standards Act of 1938, as amended, or in violation of any other law.
7. Bank Accounts; Collection of Accounts and Payments
Lenders and Borrower shall enter into a bank agency agreement
("Bank Agency Agreement"), in a form specified by Lenders, with each financial
institution with which Borrower maintains from time to time any deposit accounts
(general or special). Pursuant to the Bank Agency Agreements, if any, and
pursuant hereto, Borrower grants and shall grant to Lenders, a continuing lien
upon, and security interest in, all such accounts and all funds at any time
paid, deposited, credited or held in such accounts (whether for collection,
provisionally or otherwise) or otherwise in the possession of such financial
institutions, and each such financial institution shall act as Lenders' agent in
connection therewith.
Borrower shall establish lock-box or blocked accounts
(collectively, "Blocked Accounts") in Borrower's name with such banks as are
acceptable to Lenders ("Collecting Banks"), subject to irrevocable instructions
in a form specified by Lenders, to which the obligors of all Accounts shall
directly remit all payments on Accounts and in which Borrower will immediately
deposit all cash payments for Inventory or other cash payments constituting
proceeds of Collateral in the identical form in which such payment was made,
whether by cash or check. In addition, Lenders may establish one or more
depository accounts at each Collecting Bank or at a centrally located bank
(collectively, the "Depository Account"). From and after receipt by any
Collecting Bank of written notice from Lenders to such Collecting Bank that an
Event of Default has occurred and is continuing, all amounts held or deposited
in the Blocked Accounts held by such Collecting Bank shall be transferred to the
Depository Account. Subject to the foregoing, Borrower hereby agrees that all
payments received by Lenders whether by cash, check, wire transfer or any other
instrument, made to such Blocked Accounts or otherwise received by Lenders and
whether on the Accounts or as proceeds of other Collateral or otherwise will be
the sole and exclusive property of Lenders. Borrower, and any of its Affiliates,
employees, agents, other Persons acting for or in concert with Borrower shall,
acting as trustee for Lenders, receive, as the sole and exclusive property of
Lenders, any moneys, checks, notes, drafts or other payments relating to and/or
proceeds of Accounts or other Collateral which come into the possession or under
the control of Borrower or any Affiliates, employees, agent, or other Persons
acting for or in concert with Borrower, and immediately upon receipt thereof
subsequent to the establishment of any Blocked Accounts, Borrower or such
Persons shall deposit the same or cause the same to be deposited in kind in a
Blocked Account.
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8. Lenders Appointed Attorney-in-Fact
Borrower hereby irrevocably appoints Lenders as Borrower's
attorney-in-fact, with full authority in the place and stead of Borrower and in
the name of Borrower, Lenders or otherwise or without the signature of Borrower
where permitted by law, from time to time in Lenders' reasonable discretion to
take any action and to execute any instrument that Lenders may reasonably deem
necessary or advisable to accomplish the purposes of this Agreement.
9. Remedies
(a) If any Event of Default shall have occurred and be
continuing, Lenders may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured
party on default under the UCC (whether or not the UCC applies to the
affected Collateral) and also may: (i) require Borrower to, and
Borrower hereby agrees that it will, at its expense and upon request of
Lenders forthwith, assemble all or part of the Collateral as directed
by Lenders and make it available to Lenders at any reasonable place or
places designated by Lenders, in which event Borrower shall at its own
expense (A) forthwith cause the same to be moved to the place or places
so designated by Lenders and there delivered to Lenders, (B) store and
keep any Collateral so delivered to Lenders at such place or places
pending further action by Lenders, and (C) while the Collateral shall
be so stored and kept, provide such guards and maintenance services as
shall be necessary to protect the same and to preserve and maintain the
Collateral in good condition; (ii) withdraw all cash in the Depository
Accounts and apply such monies in payment of the Secured Obligations;
and (iii) without notice except as specified below, sell, lease or
otherwise dispose of the Collateral or any part thereof in one or more
parcels at public or private sale, and without the necessity of
gathering at the place of sale of the property to be sold, at any of
Lenders' offices or elsewhere, at such time or times, for cash, on
credit or for future delivery, and at such price or prices and upon
such other terms as Lenders may deem commercially reasonable. Borrower
agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days notice to Borrower of the time and place of any
public sale or the time after which any private sale is to be made
shall constitute reasonable notification. At any sale of the
Collateral, if permitted by law, Lenders may bid (which bid may be, in
whole or in part, in the form of cancellation of indebtedness) for the
purchase of the Collateral or any portion thereof for the account of
Lenders. Lenders shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Lenders may adjourn any
public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. To the extent
permitted by law, Borrower hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law
now existing or hereafter enacted.
(b) Upon the occurrence and during the continuance of an Event
of Default, Lenders or its agents or attorneys shall have the right
without notice or demand or legal process (unless the same shall be
required by applicable law), personally, or by agents or attorneys, (i)
to enter upon, occupy and use any premises owned or leased by Borrower
or where the Collateral is located (or is believed to be located) until
the Secured Obligations are paid in full without any obligation to pay
rent to Borrower, to render the Collateral useable or saleable and to
remove the Collateral or any part thereof therefrom to the premises of
Lenders or any agent of Lenders for such time as Lenders may desire in
order to effectively collect or liquidate the Collateral and use in
connection with such removal any and all services, supplies and other
facilities of Borrower; (ii) to take possession of Borrower's original
books and records, to obtain access to Borrower's data processing
equipment, computer hardware and software relating to the Collateral
and to use all of the foregoing and the information contained therein
in any manner Lenders deem appropriate; and (iii) to notify postal
authorities to change the address for delivery of Borrower's mail to an
address designated by Lenders and to receive, open and dispose of all
mail addressed to Borrower.
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(c) Borrower acknowledges and agrees that a breach of any of
the covenants contained in Sections 6, 7 and 9 hereof will cause
irreparable injury to Lenders and that Lenders have no adequate remedy
at law in respect of such breaches and therefore agrees, without
limiting the right of Lenders to seek and obtain specific performance
of other obligations of Borrower contained in this Agreement, that the
covenants of Borrower contained in the Sections referred to in this
Section shall be specifically enforceable against Borrower.
10. Assigned Agreements
If an Event of Default shall have occurred and be continuing,
Borrower hereby irrevocably authorizes and empowers Lenders, without limiting
any other authorizations or empowerments contained in any of the other
Agreements, to assert, either directly or on behalf of Borrower, any claims
Borrower may have, from time to time, against any other party to any of the
agreements to which Borrower is a party or to otherwise exercise any right or
remedy of Borrower under any such agreements (including without limitation, the
right to enforce directly against any party to any such agreement, all of
Borrower's rights thereunder, to make all demands and give all notices and to
make all requests required or permitted to be made by Borrower thereunder).
11. Limitation on Duty of Lenders with Respect to Collateral
Beyond the safe custody thereof, Lenders shall have no duty
with respect to any Collateral in its possession or control (or in the
possession or control of any agent or bailee) or with respect to any income
thereon or the preservation of rights against prior parties or any other rights
pertaining thereto. Lenders shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which it accords
its own property. Lenders shall not be liable or responsible for any loss or
damage to any of the Collateral, or for any diminution in the value thereof, by
reason of the act or omission of any warehouseman, carrier, forwarding agency,
consignee or other agent or bailee selected by Lenders in good faith.
12. Application of Proceeds
Upon the occurrence and during the continuance of an Event of
Default, the proceeds of any sale of, or other realization upon, all or any part
of the Collateral and any cash held in the Depository Accounts shall be applied:
first, to all fees, costs and expenses incurred by Lenders with respect to the
Note Purchase Agreement, the other Agreements, or the Collateral including,
without limitation, those described in Section 13 hereof; second, to accrued and
unpaid interest on the Secured Obligations (including any interest which but for
the provisions of the Bankruptcy Code, would have accrued on such amounts);
third, to the principal amounts of the Secured Obligations outstanding; and
fourth, to any other indebtedness or obligations of Borrower owing to Lenders.
Any balance remaining shall be delivered to Borrower or to whomsoever may be
lawfully entitled to receive such balance or as a court of competent
jurisdiction may direct.
13. Expenses
Borrower shall pay all costs, fees and expenses of protecting,
storing, warehousing, appraising, insuring, handling, maintaining and shipping
the Collateral, all costs, fees and expenses of perfecting, maintaining and
enforcing the Security Interests, and any and all excise, property, sales and
use taxes imposed by any state, federal or local authority on any of the
Collateral, or with respect to periodic appraisals and inspections of the
Collateral as may be required under the terms of the Note Purchase Agreement, or
with respect to the sale or other disposition thereof.
14. Termination of Security Interests; Release of Collateral
Upon payment in full of all Secured Obligations and the
termination of all commitments under the Agreement, including any notice of
default or notice of sale, the Security Interests granted herein shall terminate
and all rights to the Collateral shall revert to Borrower. Upon such termination
of the Security Interests or release of any Collateral, Lenders will, at the
expense of Borrower, execute and deliver to Borrower such documents as Borrower
shall
11
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reasonably request to evidence the termination of the Security Interests or the
release of such Collateral, as the case may be.
15. Notices
Any notice, approval, request, demand, consent or other
communication hereunder, including any notice of default or notice of sale,
shall be given in accordance with the notice provision of the Note Purchase
Agreement.
16. Successors and Assigns
This Agreement is for the benefit of the Lenders and their
respective successors and assigns, and in the event of an assignment of all or
any of the Secured Obligations, the rights hereunder, to the extent applicable
to the Secured Obligations so assigned, may be transferred with such Secured
Obligations. This Agreement shall be binding on Borrower and its successors and
assigns; provided that Borrower may delegate its obligations under this
Agreement without Lenders' prior written consent.
17. Amendments, Waivers and Consents
No consent, amendment, modification, termination or waiver of
any provision of this Agreement shall be effective unless the same shall be in
writing signed by a majority in interest of Lenders and Borrower.
Borrower hereby waives any right to exoneration of sureties
which would otherwise be applicable and waives the benefit of any statute of
limitations to the extent permitted by law.
Borrower agrees that each waiver set forth in this Agreement
is made with full knowledge of its significance and consequences and is, under
the circumstances, reasonable and not contrary to public policy or law. If a
court of competent jurisdiction shall determine that any such waiver is in any
respect contrary to public policy or applicable law, such waiver shall
nevertheless remain effective to the extent not so contrary.
18. Applicable Law
THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
19. Headings
The headings in this Agreement are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose or be given any substantive effect.
20. Survival
All representations and warranties of Borrower shall survive
the execution and delivery of this Agreement.
Witness the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
VALUESTAR, INC.
By:/s/ JAMES STEIN
Name: James Stein
Its: President and Chief Executive Officer
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SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:/s/ JEFFREY J. HOLLAND
Name: Jeffrey J. Holland
Title: Vice President
PACIFIC MEZZANINE fund, a limited
liability company
By: Pacific Private Capital
its general partner
By: /s/ DAVID WOODWARD
Name: David Woodward
Title: General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management LLC
its general partner
By: /s/ MARK P. GILLES
Name: Mark P. Gilles
Title: Vice President
13
EXHIBIT 4.23
TRADEMARK SECURITY AGREEMENT
WHEREAS, ValueStar, Inc., a California corporation ("Grantor"), owns
the trademarks, trademark registrations, and trademark applications listed on
Schedule 1 annexed hereto, and is a party to, or has been assigned the rights by
the party to, the trademark licenses listed on Schedule 1 annexed hereto; and
WHEREAS, Grantor, Seacoast Capital Partners Limited Partnership,
Pacific Mezzanine Fund, L.P. and Tangent Growth Fund, L.P. (collectively,
"Grantee"), are parties to that certain Note Purchase Agreement dated as of the
date hereof (as amended, modified and in effect from time to time, the "Note
Purchase Agreement"), providing for extensions of credit to be made by Grantee
to Grantor; and
WHEREAS, pursuant to the terms of the Note Purchase Agreement, Grantor
has granted to Grantee a security interest in all of the assets of Grantor
including all right, title and interest of Grantor in, to and under all now
owned and hereafter acquired trademarks, together with the goodwill of the
business symbolized by Grantor's trademarks, and all proceeds thereof, to secure
the payment of all amounts owing by Grantor under the Note Purchase Agreement
including, without limitation, the Senior Obligations (as defined in the Note
Purchase Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Trademark Collateral"),
whether presently existing or hereafter created or acquired:
(1) each trademark, trademark registration and trademark
application, including, without limitation, the trademarks,
trademark registrations (together with any reissues,
continuations or extensions thereof) and trademark
applications referred to in Schedule 1 annexed hereto, and all
of the goodwill of the business connected with the use of, and
symbolized by, each trademark, trademark registration and
trademark application;
(2) each trademark license and all of the goodwill of the
business connected with the use of, and symbolized by, each
trademark license; and
(3) all products and proceeds of the foregoing, including,
without limitation, any claim by Grantor against third parties
for past, present or future (a) infringement or dilution of
any trademark or trademark registration including, without
limitation, the trademarks and trademark registrations
referred to in Schedule 1 annexed hereto, the trademark
registrations issued with respect to the trademark
applications referred in Schedule 1 and the trademarks
licensed under any trademark license, or (b) injury to the
goodwill associated with any trademark, trademark registration
or trademark licensed under any trademark license.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Note Purchase Agreement. Grantor
hereby acknowledges and affirms that the rights and remedies of Grantee with
respect to the security interest in the Trademark Collateral made and granted
hereby are more fully set forth in the Note Purchase Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein.
IN WITNESS WHEREOF, Grantor , through its duty authorized officer, has
caused this Trademark Security Agreement to be executed as of the 31st day of
March, 1999.
GRANTOR:
VALUESTAR, INC.
By: /s/ JAMES STEIN
Name: James Stein
Title: President and Chief Executive Officer
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Acknowledged, agreed and accepted as
of the date hereof:
GRANTEE:
SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By: /s/ JEFFREY J. HOLLAND
Name: Jeffrey J. Holland
Title: Vice President
PACIFIC MEZZANINE FUND, L.P., a
limited partnership
By: Pacific Private Capital
its general partner
By: /s/ DAVID WOODWARD
Name: David Woodward
Title: General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management LLC
its general partner
By: /s/ MARK P. GILLES
Name: Mark P. Gilles
Title: Vice President
2
EXHIBIT 4.24
99F- __
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH
THE DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE 76,364 SHARES OF COMMON STOCK
THIS CERTIFIES THAT ___________ and all registered and permitted assigns
("Holder") is entitled to purchase, on or before March 31, 2004, SEVENTY SIX
THOUSAND THREE HUNDRED SIXTY FOUR (76,364) shares of the common stock ("Common
Stock" or "Shares") of VALUESTAR CORPORATION (the "Corporation" or "Company")
upon exercise of this Warrant along with presentation of the full purchase price
as provided herein. The purchase price of the common stock upon exercise (the
"Warrant Shares") is equal to One Dollar and Thirty-Seven and One-Half Cents
($1.375) per share (the "Exercise Price").
1. Exercise.
(a) This Warrant may be exercised one or more times, in whole or minimum
increments of 25,000 shares (or the balance of the Warrant), on any
business day on or before the expiration date listed above by presentation
and surrender hereof to the Corporation at its principal office of a
written exercise request and the Exercise Price in lawful money of the
United States of America in the form of a wire transfer or certified or
official bank check for the Warrant Shares specified in the exercise
request. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant, execute and deliver a new Warrant
evidencing the rights of the Holder hereof to purchase the balance of the
Warrant Shares purchasable hereunder. Upon receipt by the Corporation of an
exercise request and representations, together with proper payment of the
Exercise Price, at such office, the Holder shall be deemed to be the holder
of record of the Warrant Shares, notwithstanding that the stock transfer
books of the Corporation shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to
the Holder. The Corporation shall pay any and all transfer agent fees,
documentary stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of the Warrant Shares.
(b) At any time during the period from issuance to on or before September 30,
1999 (the "Exchange Period"), the Holder may, at its option, exchange this
Warrant, in whole only (a "Warrant Exchange"), into Thirty Eight Thousand
One Hundred Eighty Two (38,182) Warrant Shares by surrendering this Warrant
at the principal office of the Company, accompanied by a written notice
stating such Holder's intent to effect such exchange and the date on which
the Holder requests that such Warrant Exchange occur (the "Notice of
Exchange"). The Warrant Exchange shall take place on the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for
the shares issuable upon such Warrant Exchange shall be issued as of the
Exchange Date and delivered to the Holder within ten (10) days following
the Exchange Date. After the expiration of the Exchange Period, this
Warrant may only be exercised pursuant to Paragraph 1(a) of this agreement.
2. Redemption of Warrants.
The Corporation may elect on one occasion, by written notice as provided herein
(the "Company Notice"), to redeem all of this Warrant, in whole but not in part,
on any date (the "Redemption Date") fixed by the Company at a price of $.01 per
effective Warrant Share (the "Redemption Price") following such time as the
Closing Bid Price (as defined below) of the Company's Common Stock for the ten
(10) consecutive Trading Days (as defined below) equals or exceeds two hundred
percent (200%) of the Warrant Exercise Price; provided, however, that this
Warrant may be exercised by the Holder at any time prior to 5:00 p.m.,
California time, on the business day immediately preceding the Redemption Date.
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For purposes hereof, (i) the term "Trading Day" shall mean any day on which
securities are traded on the applicable securities exchange or in the applicable
securities market; and (ii) the term "Closing Bid Price" in respect of a Trading
Day shall mean the reported last closing bid price, on the principal national
securities exchange on which the Common Stock of the Company is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq Stock Market or, if not admitted to trading
or quoted on the Nasdaq Stock Market, the closing bid price in the
over-the-counter market as furnished by any quotation medium or any member firm
of a national securities exchange or the Nasdaq Stock Market selected from time
to time by the Company for that purpose.
The Company shall provide at least 10 days written notice to the Holder
("Company Notice") prior to the Redemption Date specified in such written
notice.
3. Adjustment of Exercise Price and Number of Shares Deliverable Upon Exercise
of Warrant.
The Exercise Price and the number of Shares purchasable upon the exercise of
this Warrant are subject to adjustment from time to time upon the occurrence of
the events enumerated in this paragraph.
(a) In case the Corporation shall at any time after the date of this Warrant:
(i) Pay a dividend of its shares of its Common Stock or make a
distribution in shares of its Common Stock with respect to its
outstanding Common Stock;
(ii) Subdivide its outstanding shares of Common Stock;
(iii) Combine its outstanding shares of Common Stock; or
(iv) Issue any other shares of capital stock by reclassification of
its shares of Common Stock;
the number of Warrant Shares in effect at the time of the record date of such
dividend, subdivision, combination, or reclassification shall be proportionately
adjusted so that Holder shall be entitled to receive the aggregate number and
kind of shares which, if this Warrant had been exercised prior to such event,
Holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination, or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
If shares of the Corporation's common stock are subdivided into a greater number
of shares of common stock, the Exercise Price for the Warrant Shares upon
exercise of this Warrant shall be proportionately reduced and the Warrant Shares
shall be proportionately increased; and conversely, if shares of the
Corporation's common stock are combined into a smaller number of common stock
shares, the Exercise Price shall be proportionately increased, and the Warrant
Shares shall be proportionately decreased.
(b) In case the Corporation shall fix a record date for the issuance of rights,
options, or warrants or make a distribution of shares of Common Stock to all
(but not less than all) holders of its outstanding Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into shares of Common Stock) at a price per share (or having a conversion price
per share, if a security convertible into Common Stock) less than the market
price of the shares (based on the closing bid price on the record date on NASDAQ
or a listed securities exchange of the Corporation's Common Stock, or if no such
quote is available, the shareholders equity on the date of the last financial
statement divided by the total number of shares outstanding) (the "Market
Price"), the Exercise Price to be in effect after such record date shall be
determined by multiplying the then current Exercise Price in effect immediately
prior to such record date by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
Market Price and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible). Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights or warrants are not so issued, the Exercise Price
shall again be adjusted to be the Exercise Price which would then be in effect
if such record date had not been fixed.
4. Investment Representation.
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Neither this Warrant nor the Warrant Shares issuable upon the exercise of this
Warrant have been registered under the Securities Act of 1933, or any state
securities laws. The Holder acknowledges by acceptance of the Warrant that as of
the date of this Warrant and at the time of exercise (a) he has acquired this
Warrant or the Warrant Shares, as the case may be, for investment and not with a
view to distribution; and either (b) he has a pre-existing personal or business
relationship with the Corporation, or its executive officers, or by reason of
his business or financial experience he has the capacity to protect his own
interests in connection with the transaction; and (c) he is an accredited
investor as that term is defined in Regulation D promulgated under the
Securities Act. The Holder agrees that any Warrant Shares issuable upon exercise
of this Warrant will be acquired for investment and not with a view to
distribution and such Warrant Shares will not be registered under the Securities
Act and applicable state securities laws and that such Warrant Shares may have
to be held indefinitely unless they are subsequently registered or qualified
under the Securities Act and applicable state securities laws or, based on an
opinion of counsel reasonably satisfactory to the Corporation, an exemption from
such registration and qualification is available. The Holder, by acceptance
hereof, consents to the placement of the following restrictive legends, or
substantially similar legends, on each certificate to be issued to the Holder by
the Corporation in connection with the issuance of such Warrant Shares: "THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE
IN CONNECTION WITH THE DISTRIBUTION HEREOF. THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND
ALL APPLICABLE STATE SECURITIES LAWS."
5. Loss, Theft, Destruction or Mutilation of Warrant.
Upon receipt by the Corporation of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of any Warrant or stock certificate, and
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and upon reimbursement to the Corporation of all reasonable
expenses incidental thereto, and upon surrender and cancellation of such Warrant
or stock certificate, if mutilated, the Corporation will make and deliver a new
Warrant or stock certificate of like tenor and dated as of such cancellation, in
lieu of this Warrant or stock certificate.
6. Assignment.
With respect to any offer, sale or other disposition of this Warrant or any
underlying securities, the Holder will give written notice to the Corporation
prior thereto, describing briefly the manner thereof, together with a written
opinion of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
applicable federal or state law then in effect). Furthermore, no such transfer
shall be made unless the transferee meets the same investor suitability
standards set forth in Section 4 of this Warrant. Promptly upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the
Corporation, as promptly as practicable, shall notify such Holder that such
Holder may sell or otherwise dispose of this Warrant or the underlying
securities, as the case may be, all in accordance with the terms of the written
notice delivered to the Corporation. If a determination has been made pursuant
to this Section 6 that the opinion of counsel for the Holder is not reasonably
satisfactory to the Corporation, the Corporation shall so notify the Holder
promptly after such determination has been made. Each Warrant thus transferred
shall bear the same legends appearing on this Warrant, and underlying securities
thus transferred shall bear the legends required by Section 4. The Corporation
may issue stop transfer instructions to its transfer agent in connection with
such restrictions. Warrants and underlying securities issued upon transfers
after the expiration date of the Lock-Up Period shall be issued without the
Lock-Up Legend.
7. Reservation of Shares.
The Company hereby agrees that at all times there shall be reserved for issuance
and delivery upon exercise or exchange of this Warrant all shares of its Common
Stock or other shares of capital stock of the Company from time to time issuable
upon exercise or exchange of this Warrant. All such shares shall be duly
authorized and, when issued upon the exercise or exchange of the Warrant in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale (other than as provided in the
Company's articles of incorporation and any restrictions on sale set forth
herein or pursuant to applicable federal and state securities laws) and free and
clear of all preemptive rights.
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The Holder shall not have any rights as a shareholder of the Company with regard
to the Warrant Shares prior to actual exercise resulting in the purchase of the
Warrant Shares.
8. Arbitration. In the event that a dispute arises between the Corporation and
the holder of this Warrant as to any matter relating to this Warrant, the matter
shall be settled by arbitration in Alameda County, California in accordance with
the Rules of the American Arbitration Association and the award rendered by such
arbitrator(s) shall not be subject to appeal and may be entered in any federal
or state court located in Alameda County having jurisdiction thereof, and
actions or proceedings shall be brought in no other forum or venue.
9. Governing Law.
This Warrant shall be governed by and construed in accordance with the laws of
the State of California applicable to contracts between California residents
entered into and to be performed entirely within the State of California.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by
its duly authorized officers and the corporate seal hereunto affixed on this
31st day of March, 1999.
VALUESTAR CORPORATION ACCEPTANCE BY HOLDER
- ------------------------------ ---------------------
James Stein, President and CEO
- --------------------------
James A. Barnes, Secretary
EXHIBIT 10.13
Company Press Release
ValueStar Closes $2.45 Million Institutional Financing
ValueStar.com to Be Available in Five New Major Markets
ALAMEDA, Calif.--(BUSINESS WIRE)--April 1, 1999--ValueStar Corp. (OTC:VSTR -
news), the pioneer and leader in customer satisfaction ratings of local
companies, has raised gross proceeds of $2.45 million in seven year senior debt
financing with warrants from three institutional investors.
The net proceeds are targeted to expand operations into five new major markets
during the next four months (making a total of eight markets). The company rates
local service and professional businesses in the greater San Francisco, Los
Angeles and Chicago markets.
ValueStar delivers its ratings free to consumers on the Internet at
valuestar.com. Top-rated companies are awarded the ValueStar Certified(R) mark
and use it to differentiate their business from competitors.
The investment was led by Seacoast Capital Partners' $1.5 million investment and
included participation by Pacific Mezzanine Fund and Tangent Growth Fund. All
three institutions are federally licensed SBICs specializing in providing growth
capital for entrepreneurial businesses.
"We are providing an important tool, ValueStar Certified(R), for consumers to
quickly identify the highly-rated service businesses," stated Jim Stein,
ValueStar's president and chief executive officer.
"ValueStar provides Internet content enabling e-commerce for local services on
the Web. ValueStar's content appeals to a wide range of users, like Yahoo! .
And, we are building a powerful recurring revenue model with high renewal rates
like America Online."
"This institutional financing allows us to extend valuestar.com to five new
markets and continue the rapid expansion of ValueStar Certified(R) as the
pioneer brand representing high customer satisfaction."
Jeffrey Holland, managing director of Seacoast Capital adds, "We look for
quality companies with a proven concept that have immediate growth
opportunities.
"We have closely followed ValueStar's growth over the last nine months as they
expanded the program pioneered in San Francisco into Los Angeles and Chicago. We
were attracted by the recurring revenue nature of the ValueStar program and the
benefits it provides to consumers, businesses and local communities by focusing
attention on customer satisfaction and quality services."
About ValueStar
ValueStar commenced operations in the greater San Francisco area in 1992 and
perfected its business model in Northern California. In July 1998, ValueStar
launched its national rollout by expanding to Southern California. In February
1999 the greater Chicago area became the first market region opened outside of
California. Five other regions are targeted for expansion during 1999.
ValueStar uses the Public Research Institute of San Francisco State University
to audit its customer satisfaction studies. Firms independently rated high in
customer satisfaction qualify to use the ValueStar Certified(R) brand, the
symbol of very high customer satisfaction. For more information on ValueStar,
visit www.valuestar.com, or call 510/814-7070.
Forward Looking Statements: This news release contains certain "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which provides a "safe harbor" for these types of statements. To the
extent statements in this news release involve, without limitation, expectations
for growth or new markets, estimates of future revenues, expenses, profits, cash
flow, balance sheet items, forecasts of demand or market trends for the
company's services or any other guidance on future periods, these statements are
forward-looking statements. The company assumes no obligation to update
forward-looking statements. See also the risks and uncertainties described in
the company's annual report on Form 10-KSB and other documents filed with the
Securities and Exchange Commission.
