SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment no. 1)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
ValueStar Corporation
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date filed:
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VALUESTAR CORPORATION
(Logo)
October 8, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of ValueStar Corporation, which will be held at 2:00 p.m. local time on Friday,
November 12, 1999, in the Training Room of ValueStar Corporation, 360 - 22nd
Street, Oakland, California (the "Annual Meeting"). If you need directions or
parking instructions please call Leslie Summers at 510-808-1311.
The principal business of the meeting will be to elect directors for the
ensuing year, to amend the Company's 1997 Stock Option Plan to increase the
shares reserved for grant thereunder from 500,000 to 1,250,000; and, to amend
the Company's Certificate of Incorporation to increase the authorized shares of
the Company's Common Stock from 20,000,000 to 50,000,000. During the meeting, we
will also review the results of the past fiscal year and report on significant
aspects of our operations during the first quarter of fiscal 2000.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and return the enclosed proxy card so that your shares will be voted
at the meeting. If you decide to attend the meeting, you may, of course, revoke
your proxy and personally cast your votes.
Sincerely yours,
/s/ James Stein
PRESIDENT AND CEO
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VALUESTAR CORPORATION
360 - 22nd Street, Suite 210
Oakland, California 94612
510-808-1300
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on November 12, 1999
The Annual Meeting of Stockholders of VALUESTAR CORPORATION ("ValueStar")
will be held on November 12, 1999 at 2:00 o'clock p.m. (Pacific Standard Time)
at the offices of the corporation at 360 - 22nd Street, Suite 210, Oakland,
California 94612, to vote on the following:
1. Election of Directors. For the common stockholders to elect
three directors and the preferred stockholders to elect one
director of ValueStar. Each director to serve until the next
annual meeting of stockholders or until their respective
successors are elected and qualified;
2. Amendment to the 1997 Stock Option Plan. To increase the
number of shares that may be purchased under our 1997 Stock
Option Plan;
3. Amendment to ValueStar's Articles of Incorporation. To
increase the number of shares of common stock, $0.00025 par
value, that ValueStar is authorized to issue from 20,000,000
to 50,000,000.
4. Selection of Independent Auditors. To ratify the selection
of Moss Adams LLP as independent auditors of ValueStar for
the fiscal year ending June 30, 2000; and
5. To transact such other business as may properly come before
the meeting and any adjournment and postponement thereof.
The foregoing items of business are more fully described in the
accompanying Proxy Statement.
The board of directors recommends stockholders vote FOR the approval of
the foregoing items. Only stockholders of record at the close of business on
October 8, 1999 (Record Date) are entitled to vote at the Annual Meeting. The
stock transfer books of ValueStar will not be closed.
All stockholders are cordially invited to attend the meeting in person.
Please complete, date, sign and return the enclosed proxy promptly to ensure
your representation at the meeting. Even if you have given your proxy, you may
still vote in person at the meeting. Your proxy is revocable in accordance with
the procedures set forth in the Proxy Statement. If your shares are held by a
broker, bank or other nominee and you wish to vote at the meeting, you must
obtain a proxy issued in your name prepared by the record holder.
By Order of the board of directors
/s/ JAMES STEIN
James Stein
President
October 8, 1999
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VALUESTAR CORPORATION
360 - 22nd Street, Suite 210
Oakland, California 94612
510-808-1300
P R O X Y S T A T E M E N T
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the board of directors for our annual meeting of the stockholders.
Our annual meeting will be held on Friday, November 12, 1999 at the offices of
the corporation at 360 - 22nd Street, Suite 210, Oakland, California 94612 at
2:00 p.m. (Pacific Standard Time), or any and all postponements and adjournments
thereof.
VOTING RIGHTS AND OUTSTANDING SHARES
The close of business on October 8, 1999 has been fixed by the board of
directors as the record date for determining stockholders entitled to vote at
our annual meeting. ValueStar had 9,374,132 shares of common stock, $0.00025 par
value per share outstanding and entitled to vote at the record date. A total of
225,000 shares of Series A preferred stock were outstanding at the record date
and are entitled to cast five votes per share or 1,125,000 votes in the
aggregate.
Forty percent (40%) of the total voting power on the record date must be
present at the annual meeting in order to constitute a quorum. The total voting
power includes all shares entitled to vote at the annual meeting or the
aggregate of the votes entitled to be cast by common and preferred stockholders.
Stockholders may be present in person or by proxy. Each share of common stock
carries one vote on each proposal and on any other matters which may properly
come before the annual meeting.
Each share of preferred stock is entitled to cast a number of votes equal
to the number of shares of common stock into which the preferred stock is then
convertible. The preferred stockholders are also entitled, voting as a separate
class, to elect one and only one member of ValueStar's board of directors so
long as at least 100,000 shares of Series A Preferred Stock remain issued and
outstanding. A majority of the preferred stockholders have nominated Mr. Fritz
T. Beesemyer as the nominee for election to the board by the preferred
stockholder class. The common stockholders shall elect the three remaining
directors to be elected at this meeting.
The affirmative vote of a majority of the votes cast at the annual meeting
is necessary to approve each proposal, except that (i) cumulative voting shall
apply to the election of directors if invoked at the meeting, and (ii) the
affirmative vote of a majority of the votes cast by the common stock present at
the annual meeting, voting as one class, and the common stock and preferred
stock present at the annual meeting, voting together as one class, is required
to approve Proposal #3 to increase the number of authorized shares of common
stock.
Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
However, broker non-votes are not counted for purposes of determining the number
of votes cast with respect to a particular proposal. In determining whether a
proposal has been approved or ratified, abstentions are counted as votes against
the proposal, and broker non-votes are not counted as votes for or against the
proposal.
All valid proxies received in time for the annual meeting will be voted as
specified. The shares represented by properly executed proxies will be voted FOR
the proposals unless otherwise indicated. Stockholders who execute proxies may
revoke them at any time before they are voted by (a) delivering a written notice
of revocation to Mr. James Stein, President of ValueStar, at the above address,
or (b) submitting a duly executed proxy bearing a later date, or (c) attending
the annual meeting and orally withdrawing the proxy. A Stockholders' attendance
at the annual meeting will not in itself revoke his or her proxy. Management
plans to mail this Proxy Statement and form of proxy to stockholders on or about
October 8, 1999.
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SOLICITATION
ValueStar will pay the entire cost of solicitation of proxies. These costs
will include preparation, assembly, printing and mailing of this proxy
statement, the proxy and any additional information furnished to stockholders.
Copies of such materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of common stock
beneficially owned by stockholders. They will be requested to forward the
materials to the beneficial owners. ValueStar may reimburse these persons for
their costs of forwarding materials to such beneficial owners. The solicitation
of proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of ValueStar. No
additional compensation will be paid to directors, officers or other regular
employees for such services.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for presentation at ValueStar's 1999
annual meeting of stockholders must be received by ValueStar by August 15, 2000
to be included in the proxy statement and proxy relating to the 2000 Annual
Meeting.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
ValueStar's bylaws provide for a variable authorized number of board
members of three to seven directors as the board determines, and the board of
directors has fixed the current authorized number of members of the board at
five, with a total of four being elected at the annual meeting. The preferred
stockholders are entitled, voting as a separate class so long as at least
100,000 shares of Series A Preferred Stock remain issued and outstanding, to
elect one and only one member of ValueStar's board of directors. A majority of
the preferred stockholders have nominated Mr. Fritz T. Beesemyer as the nominee
for election to the board by the preferred stockholder class. The common
stockholders shall elect the three remaining directors to be elected at this
meeting.
All directors are elected for one-year terms at the annual meeting of
stockholders. Directors are elected by plurality vote, meaning that (should more
than one nominee vie for the same seat on the board) the nominee who receives
the most votes will be elected for the term nominated, even if he receives less
than a majority of the votes cast.
Directors continue in office until the next annual meeting of stockholders
and they are either re-elected or their respective successors are elected and
duly qualified. Messrs. Stein, Barnes and Polis have all been nominated by the
board of directors to stand for election to the board and Mr. Beesemyer has been
nominated by a majority of the preferred stockholders to stand for election by
the preferred stockholders to the board. Should a vacancy occur, the successor
director shall be elected in a manner by which his or her predecessor was
elected. If elected, they will each serve one-year terms or until their
respective successors have been elected and qualified.
If a nominee is unable or declines to serve as a director at the time of
the annual meeting, the proxies will be voted for any nominee designated by the
proxy holders to fill such vacancy. However, it is not expected that any nominee
will be unable or will decline to serve as a director. If stockholders nominate
persons other than the ValueStar's nominees for election as directors, the
Common Stock and Series A Preferred Stock proxy holders will vote all proxies
received by them in accordance with applicable law to assure the election of as
many of ValueStar's nominees as possible.
Unless otherwise specified, all proxies received will be voted FOR the
election of all nominees. If any nominee should not stand for election for any
reason, your proxy will be voted for any person or persons designated by the
board of directors or, in the case of Mr. Beesemyer, by the preferred
stockholders to replace such nominee.
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The board has no reason to expect that any of the nominees will not stand
for election or decline to serve if elected. Seacoast Capital Partners Limited
Partnership and Pacific Mezzanine Fund, L.P who hold a majority of senior
secured debt, through a voting agreement with Messrs. Stein, Barnes and Polis,
effectively have the right to designate and elect a total of two directors.
Neither senior debt holder has designated a director to be appointed at the
annual meeting but they may do so in the future. Each of three senior lenders
also have board observer rights. Otherwise there are no arrangements or
understandings between ValueStar and any other person pursuant to which he was
or is to be selected as a director, executive officer or nominee therefor.
There is otherwise no arrangement between any of the directors, the
nominees or executive officers and any other person or persons, pursuant to
which he was or is to be selected as a director, nominee or executive officer.
There is no blood relationship between or among the nominees, directors or
executive officers of ValueStar. Biographical summaries, including the principal
occupation and business experience, concerning the nominees for the board of
directors of ValueStar is set forth below.
James Stein (age 41) has been a director and President and CEO of
ValueStar since 1992 and was a director and executive officer of
ValueStar, Inc. since its inception in September, 1991. Prior to
commencing the ValueStar operations as a sole proprietorship in 1990,
Mr. Stein served as President and CEO from 1983 to 1990 of Direct
Language, Inc., a San Francisco based publisher of Asian and Hispanic
Yellow Pages and El Mensajero, a Spanish-language weekly newspaper.
James A. Barnes (age 44) was elected as a director and appointed
Secretary/Treasurer in July 1995. In March 1997, he resigned as
Secretary but was re-appointed in August 1998. Since 1984, he has been
President of Sunrise Capital, Inc., a wholly owned venture capital and
consulting firm. He previously practiced as a certified public
accountant and management consultant with Ernst & Ernst (1976-1977),
Touche Ross & Co. (1977-1980) and as a principal in J. McDonald & Co.
Ltd., Phoenix, Arizona (1980-1984). He graduated from the University of
Nebraska with a B.A. Degree in Business Administration in 1976. Mr.
Barnes devotes only part-time services to ValueStar.
Jerry E. Polis (age 67) was elected as a director in July 1995. Since
1963 he has been self-employed primarily in real estate investments,
and since 1964 he has owned and operated Polis Realty. From 1968 to the
sale of his ownership in January, 1997, he was active as a 50% owner of
the Taco Bell franchises for the State of Nevada (operated under
privately owned Las Cal Corporation). In 1994 he co-founded Commercial
Bank of Nevada, an unlisted publicly owned bank located in Las Vegas,
Nevada, which was sold through a merger to a NYSE bank group in June
1998. He was a director of Commercial Bank from 1994 and Chairman from
May 1996 until its sale. Mr. Polis graduated from Penn State University
with a B.A. Degree in Commerce in 1953.
Fritz T. Beesemyer (age 47) was appointed a director in July 1999
representing the Series A preferred stockholders. Since 1999 he has
been a principal with Casa Blanca Ventures, an Arizona based LLC
specializing in private equity investments for emerging companies.
Since 1996 he has also been a principal of Beesemyer and Associates, a
firm providing consultation and private equity placements to firms in
the media, communications, and Internet industries. From 1994 to 1996,
Mr. Beesemyer was a Senior Vice President in the Media and
Telecommunications corporate finance group at Oppenheimer and Co. Inc.
in New York City. From 1984 to 1992, he was a Co-founder, General
Partner, and Chief Operating Officer of Citadel Communications
Corporation that owned and operated nine radio stations in the western
US. Previously, he held various senior management positions with
Gannett, Charter Media, and Combined Communications. Mr. Beesemyer
received a BA in Political Science from UCLA in 1974.
In August 1999, Mr. Beesemyer and Mr. Barnes were appointed as the
compensation committee and Mr. Beesemyer and Mr. Polis were appointed to serve
as the audit committee of the board of directors. The compensation committee is
responsible to review and recommend to the board of directors the salaries,
bonuses and prerequisites of ValueStar's executive officers and to administer
the 1992, 1996 and 1997 stock option plans and to review and recommend to the
board any new compensation or retirement plans. The audit committee is
responsible to review ValueStar's audit and control functions, accounting
principles, policies and practices and financial
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reporting, the scope of audit by the independent auditors, the fees and all
non-audit services of the independent auditors and the independent auditors'
opinion and letter of comment to management and management's response thereto.
ValueStar does not have any other committees of the board of directors. There
were no formal committee meetings during the fiscal year ended June 30, 1999.
During the fiscal year ended June 30, 1999, eleven formal meetings of the board
of directors were held which were attended by all directors. The board of
directors took action on four occasions by means of unanimous written consent in
lieu of a meeting after informal discussions, as permitted by law.
No director of ValueStar has resigned or declined to stand for re-election
to the board of directors because of disagreement with ValueStar on any matters
relating to ValueStar's operations, policies or practices, since the date of the
last meeting of stockholders.
Recommendation and Vote - The Board of
Directors recommends a vote in favor of
all the nominees for the Board of
Directors.
PROPOSAL NUMBER 2
TO INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED
UNDER VALUESTAR'S 1997 STOCK OPTION PLAN
Proposed Amendment to Increase the Number of Shares that may be Purchased Under
the 1997 Stock Option Plan
ValueStar is seeking stockholder approval to increase the number of shares
that may be issued under the 1997 Stock Option Plan (the "1997 Plan") from
500,000 common shares to 1,250,000 common shares. This is an increase of 750,000
common shares.
Approval of the amendment requires the affirmative vote of a majority of
the shares entitled to vote represented in person or by proxy and eligible to
vote at the Annual Meeting.
The board of directors has deemed it in the best interests of ValueStar to
amend the 1997 Stock Plan to increase the authorized shares in order to provide
the means for ValueStar to further its efforts to induce persons of outstanding
ability and potential to join and remain with ValueStar and to promote its
future growth and success.
General Description of Stock Option and Stock Compensation Plans
The board of directors and stockholders have adopted and approved the 1992
Incentive Stock Option Plan as amended, and the 1992 Non-Statutory Stock Option
Plan as amended. Both plans expire on May 29, 2002. ValueStar has reserved a
maximum of 500,000 common shares to be issued upon the exercise of options under
these plans of which 30,000 have been issued. At September 15, 1999, ValueStar
had 230,000 options outstanding pursuant to the 1992 ISO Plan exercisable at
prices ranging from $0.40 to $0.50 per share expiring in 2000. ValueStar also
had 220,000 options outstanding pursuant to the 1992 NSO Plan exercisable at
prices ranging from $0.40 to $0.50 per share expiring beginning 2000 through
2001.
The board of directors and stockholders have adopted and approved the 1996
Stock Option Plan, as amended and restated covering an aggregate of 300,000
shares of ValueStar's common stock reserved for issuance upon exercise of
non-qualified options only. At September 15, 1999,ValueStar had 281,000 options
outstanding pursuant to the 1996 Plan exercisable at prices ranging from $0.50
to $1.69 per share expiring beginning 2001 through 2004.
The board of directors and the stockholders have adopted and approved the
1997 Plan, as amended, covering an aggregate of 500,000 shares of ValueStar's
common stock. On August 31, 1999, the board of directors approved an amendment
to the 1997 Plan increasing the aggregate number of shares authorized for
issuance from 500,000 to 1,250,000 shares, subject to stockholder approval. At
September 15, 1999, ValueStar had 259,701 options outstanding pursuant to the
1997 Plan exercisable at prices ranging from $0.75 to $1.92 per share expiring
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beginning 2000 through 2004. The terms of the 1997 Plan provides that all
options granted in excess of 500,000 shares prior to approval by the
stockholders will be voided if approval is not obtained by August 31, 2000.
The 1996 Plan and the 1997 Plan have substantially the same terms and
provisions except that the 1996 Plan is available for non-qualified option
grants only.
In July 1998, in connection with a new three-year employment agreement, we
granted Mr. Stein options on 100,000 shares that became vested and exercisable
after January 7, 1999 and then only upon the achievement of certain future
common share prices commencing at $2.50 per share. In July 1998, directors Polis
and Barnes were each granted options on 50,000 common shares with comparable
provisions.
Material Provisions of the 1997 Plan
The following is a summary of the material provisions of the 1997 Plan.
The 1997 Plan is intended to qualify for the granting of either (a) "incentive
stock options" as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") ("ISO Options") or (b) non-qualified stock options ("NQO
Options"). Unless the context clearly indicates to the contrary, the term
"option" used herein shall mean either an incentive stock option or a
non-statutory stock option and the term "optionee" shall mean any person holding
an option granted under the 1997 Plan. The following summary is qualified in its
entirety by express reference to the text of the 1997 Plan, a copy of each which
will be furnished to any stockholder upon request.
Administration - The 1997 Plan provides for its administration by a
committee. The members of the committee are appointed from time to time by the
board of directors of ValueStar and consist of not less than two (2) directors.
The committee has discretionary authority to determine the individuals to whom
and the times at which stock options will be granted, whether a stock option is
an ISO Option or a NQO Option, the number of shares subject to such options and
the option period. The committee may interpret the 1997 Plan and may adopt such
rules and regulations for carrying out the purposes of the plan. The board may
(subject to certain limitations) make changes in or additions to the 1997 Plan
as it may deem proper and in the best interests of ValueStar and its
stockholders and may also suspend or terminate the plan.
Eligibility - ISO Options shall be granted only to elected or appointed
officers or other key employees of ValueStar (as determined by the committee),
whether full-time or part-time, including members of the board who are also
officers or key employees at the time of grant. NQO Options may be granted to
employees (including officers) and directors of and consultants to ValueStar.
Ceiling of Incentive Stock Option Grants - The aggregate fair market value
(determined at the time the option is granted) of the shares of common stock for
which ISO Options may be exercisable for the first time by any employee during
any calendar year (under all incentive stock options plans of ValueStar) may not
exceed $100,000. Should it be determined that any incentive stock option granted
pursuant to the 1997 Stock Plan exceeds such maximum, such incentive stock
option shall be considered a non-qualified stock option and not qualify for
treatment as an incentive stock option under Section 422 of the Code to the
extent, but only to the extent, of such excess.
Option Price - The option price of the common shares subject to an ISO
Option may not be less than the fair market value of the shares on the date the
option is granted. In the case of an optionee who owns more than 10% of the
outstanding shares of ValueStar of all classes or any parent or subsidiary
thereof, the option price of the shares may not be less than 110% of the fair
market value of ValueStar's shares on the date of grant. The option price of
common shares subject to an NQO Option may not be less than 85% of the fair
market value of ValueStar's shares on the date of grant. If the common shares
are not then quoted on any exchange or quotation medium at the time the option
is granted, then the board of directors or compensation committee will use its
discretion in selecting a good faith value believed to represent fair market
value.
Option Term - No option shall be exercisable after the expiration of ten
years from the date it was granted. Incentive stock options granted to any
employee owning more than 10% of the combined voting power of all classes of
stock of ValueStar will expire five years from the date such option is granted.
However, the committee may designate shorter terms for individual options.
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Termination of Option - Options granted under the 1997 Plan are contingent
upon continued employment by ValueStar or an affiliate of ValueStar or continued
relationship as a director or consultant; however, if the employment or other
relationship is terminated then the optionee has the right to exercise his or
her option at any time within a six (6) month period after such termination, but
only to the extent that the optionee was otherwise entitled to exercise the
option immediately prior to such termination. If the optionee dies, the option
may be exercised at any time within fifteen (15) months following death by the
estate or by person or persons to whom rights under the option pass by law but
only to the extent that such option was exercisable by the optionee on the date
of death.
General Matters - If options granted under the 1997 Plan expire for any
reason without having been exercised in full, the unpurchased shares underlying
such options will be added to the other shares available for the grant of
options under the Plan. Options granted under the 1997 Plan are non-transferable
except by will or the laws of descent and distribution, so that during an
optionee's life only he or she may exercise the options.
Neither the grant of an option nor the existence of an option agreement
with ValueStar shall impose upon ValueStar (or any subsidiary or parent thereof)
an obligation to retain the services of the optionee for any stated period of
time. Further, the grant, holding and exercise of each option shall be subject
to such requirements as may, in the opinion of the Committee, be necessary or
advisable for the purpose of complying with applicable laws, rules and
regulations (including securities laws and regulations) and the rules of any
stock exchange upon which the shares of ValueStar may then be traded.
Amendment; Suspension and Termination of the 1997 Plan - The board may
amend the 1997 Plan at any time or from time to time or may suspend or terminate
the 1997 Plan without approval of the stockholders; provided, however, that
stockholder approval is required for any amendment to the 1997 Plan for which
stockholder approval would be required under applicable law, as in effect at the
time. Any amendment, suspension or termination of the 1997 Plan, including the
amendment to be voted upon at the annual meeting, shall not affect options
already granted, and such options shall remain in full force and effect, unless
mutually agreed otherwise in writing between the optionee and the 1997 Plan
committee. The board may accelerate any option or waive any condition or
restriction pertaining to such option at any time. The board may also substitute
new stock options for previously granted stock options, including previously
granted stock options having higher option prices, and may reduce the exercise
price of any option to the then current fair market value, if the fair market
value of the common stock covered by such option shall have declined since the
date the option was granted. In any event, the 1997 Plan shall terminate in
January 2006. Any options outstanding under the 1997 Plan at the time of its
termination shall remain outstanding until they expire by their terms.
Federal Income Tax Consequences - Federal income tax laws have frequently
been revised and may be changed again in the future. For federal income tax
purposes, an optionee will not realize any taxable income, and ValueStar will
not be entitled to a deduction, at the time an ISO Option is granted. Further,
there is no taxable income to the optionee and no deduction to ValueStar at the
time the ISO is exercised to purchase shares.
With respect to shares purchased upon exercise of an ISO Option,
(a) If the shares are not disposed of within two years after the
date an ISO Option is granted or within 1 year after the shares are
purchased upon exercise of the ISO, the optionee will realize a capital
gain (or loss) equal to the difference between the ISO exercise price and
the amount realized upon sale of the shares, and ValueStar will not be
entitled to any deduction.
(b) If however, such shares are disposed of within two years
after the date the ISO Option is granted or within 1 year after the shares
are purchased upon exercise of the ISO, then the optionee will recognize
ordinary income in the year of disposition (and ValueStar will be entitled
to a corresponding deduction as a compensation expense) equal to the
amount by which the fair market value of the shares at the time of
purchase exceeded the ISO exercise price, or if less (and the sale is to
an unaffiliated purchaser), the amount realized on the disposition over
the ISO exercise price.
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Upon exercise of an ISO Option, certain optionees may become subject to
the federal "alternative minimum tax." The amount, if any, by which the fair
market value of shares purchased upon exercise of an ISO exceeds the ISO
exercise price will constitute an item of tax preference subject to the
alternative minimum tax in the year of exercise. The item of tax preference is
eliminated if the shares are disposed of in a "disqualifying disposition" - that
is, within 1 year of purchasing the shares or 2 years from the date the ISO was
granted. The Code also provides that, for purposes of determining alternative
minimum taxable income, the gain recognized upon a sale or exchange of ISO
shares will be limited to the excess of the amount received in the sale or
exchange over the fair market value of the shares at the time the ISO was
exercised.
If ISO shares are not disposed of in a disqualifying disposition, the
optionee's tax basis will be the ISO exercise price paid for the shares. If
disposed of in a disqualifying disposition, the tax basis will be the fair
market value of the shares on the date purchased. Alternative minimum tax
incurred by reason of exercise of an ISO does not result (for regular income tax
purposes) in an increase in the tax basis of the shares acquired upon exercise.
However, the Code provides that alternative minimum tax attributable to the
exercise of an ISO may be applied as a credit against regular income tax
liability in a subsequent year, subject to certain limitations.
With respect to shares purchased upon exercise of an NQO Option, an
optionee does not recognize taxable income as a result of the grant unless the
option has a readily ascertainable fair market value. Upon the grant of a NQO
Option at fair market value or higher, ValueStar believes that no income will be
recognized by the optionee and ValueStar will not be entitled to a deduction.
This is because such options are not transferable and the fair market value of
the option is not easily ascertainable. The optionee, however, may recognize
ordinary income (subject to tax withholding) upon exercise of the option in an
amount equal to the difference between the fair market value of the common
shares acquired on the date of exercise and the exercise price.
The optionee's tax basis in shares purchased will generally be equal to
the fair market value of the shares purchased (the exercise price of the option
plus the amount included in gross income of the optionee as a result of
exercising the option). Upon disposition of those shares, the optionee will
realize a capital gain (or loss) equal to the difference between the tax basis
and the amount realized upon disposition. The sale of such shares will not
result in any further tax consequences to ValueStar. Exercise of a compensatory
option or sale of shares thus acquired will not subject the optionee to the
federal alternative minimum tax.
So long as the option price is at least equal to the fair market value of
the underlying shares on the date of grant, ValueStar will not be entitled to a
deduction for compensation expenses or otherwise either upon the grant of a NQO
Option or at the time of NQO Option exercise. However, since the Stock Plans
allow the granting of NQO Options with up to a 15% discount from fair market
value, should the Committee grant options exercisable at less than fair market
value, then ValueStar may be entitled to a compensation deduction for the
difference and the optionee may be subject to ordinary income in a like amount.
Any changes in the law concerning the tax treatment of options are beyond
the control of ValueStar and the stockholders and are not subject to stockholder
approval. The foregoing summary of federal income tax aspects is based upon
existing law and interpretations, regulations and rulings, which are subject to
change.
The foregoing summary of material features of the 1997 Plan is not
complete. The complete text of the 1997 Plan will be available for inspection at
the annual meeting and a copy will be furnished to any stockholder upon request.
<TABLE>
Amended Plan Benefits - ValueStar cannot now determine the number of
options to be granted in the future under the 1997 Plan, as proposed to be
amended, to its executive officers, directors or employees. The table under the
caption "Option Grants Table for Fiscal Year Ended June 30, 1999" provides
information with respect to the grant of options to the Named Executive Officers
of the Company during the fiscal year ended June 30, 1999. The following table
sets forth additional information with respect to options granted under the 1997
Plan during the fiscal year ended June 30, 1999:
8
<PAGE>
<CAPTION>
Weighted
--------
Average
-------
Options % of Total Exercise Price
------- ---------- --------------
Identity of Group Granted Options Granted Per Share
----------------- ------- --------------- ---------
<S> <C> <C> <C>
Executive Officers as a group 50,000 33.3% $1.00
Employees that are not Executive Officers, as
a group 100,267 66.7% $1.16
Directors that are not Executive Officers, as
a group -0- -- --
</TABLE>
Recommendation and Vote - The Board of
Directors recommends stockholders vote
to approve the amendment to increase the
number of shares that may be issued
under ValueStar's 1997 Stock Option
Plan.
PROPOSAL 3
AMENDMENT TO VALUESTAR'S ARTICLES OF INCORPORATION
On August 31, 1999, the board of directors unanimously authorized an
amendment, subject to stockholder approval, to ValueStar's certificate of
incorporation to increase the number of shares of common stock the company is
authorized to issue from 20,000,000 to 50,000,000. The board of directors
considers it desirable to have additional shares of common stock available for
issuance from time to time. The failure to approve the amendment could limit
ValueStar's ability to finance expansion in the future and could have a material
adverse effect on ValueStar, its business and results of operations.
Outstanding Shares and Shares Reserved for Future Issuance
As of October 8, 1999, ValueStar had 9,374,132 shares of common stock
outstanding. An additional 8,932,734 shares are reserved for future issuance
under the stock option plans, convertible securities and warrants as summarized
below:
Authorized Shares
Reserved for Issuance
---------------------
Reserved under stock option plans:
1992 ISO Plan 235,000
1992 NSO Plan 250,000
1996 Stock Plan 285,000
1997 Stock Plan 1,250,000
Other stock options 200,000
Convertible securities:
6% convertible notes 594,110
8% convertible Series A preferred stock 1,125,000
Stock purchase warrants 4,993,624
---------
Total 8,932,734
=========
Accordingly, ValueStar has either outstanding or reserved an aggregate of
18,306,866 of the 20,000,000 authorized shares of common stock.
ValueStar has not granted options on all of the authorized shares under
the stock options described above. The total for the 1997 Stock Plan assumes the
approval of proposal number 2 above. The amount reserved for the convertible
notes assumes the notes are converted with accrued interest at the term date of
June 30, 2001.
9
<PAGE>
The actual shares issuable for the outstanding securities listed above
could be more or less depending on a variety of factors. For example, the
preferred stock and a portion of outstanding warrants have antidilution clauses
and other provisions that could result in the issuance of additional shares of
common stock. The preferred stock also provides for future dividends payable in
additional shares of convertible preferred stock requiring reservation of
additional shares at future dates. A number of warrants are exercisable at
prices in excess of current prices, making future exercise uncertain.
ValueStar cannot issue any significant additional shares of common stock
at this time other than through the exercise or conversion of existing
securities. ValueStar is limited in its options to raise additional money, make
acquisitions or take any other action requiring the issuance of its common stock
unless the authorized number of shares of common stock is increased. Management
anticipates the need for future financing due to continued operating losses.
Reasons for the Increasing the Number of Authorized Shares of Common Stock
The board of directors believes there are a number of important business
reasons for increasing the number of shares of common stock available.
The authorized number of shares of common stock are not sufficient to
enable to ValueStar to negotiate new financing without special consideration for
the lack of authorized shares available. For example, an equity based financing
may have to provide for limitations on conversion based on the availability of
sufficient shares of common stock. This factor places ValueStar at a distinct
disadvantage in negotiating any future transactions by negatively impacting
pricing and marketability of securities sold. As a result, this could increase
the effective dilution to existing stockholders.
The authorized number of shares of common stock currently available is not
sufficient to enable ValueStar to respond to potential business opportunities
and to pursue important objectives that may be anticipated. Accordingly, the
board of directors believes that it is in ValueStar's best interests to increase
the number of authorized shares of common stock. The board of directors also
believes that the availability of such shares will provide ValueStar with the
flexibility to issue common stock for proper corporate purposes that may be
identified by the board of directors from time to time, such as stock dividends
(including stock splits in the form of stock dividends), financings,
acquisitions, or strategic business relationships.
Further, the board of directors believes the availability of additional
shares of common stock will help enable ValueStar to attract and retain talented
employees through the grant of stock-based incentives. An important component of
the ValueStar's business strategy is to expand to new regions and to develop and
market new products and services. These efforts will require recruitment of
additional personnel which may be in high demand and short supply. The
availability of stock-based incentives is a critical element in attracting,
motivating and retaining technical and executive talent. The board of directors
may be required to grant stock based incentives outside of the existing stock
option plans to hire key persons.
Except as disclosed in the Proxy, ValueStar does not, as of the date of
this proxy statement, have any agreements with respect to future acquisitions or
stock-based incentives that would require the issuance of shares of the
ValueStar's common stock.
The board of directors believes the availability of authorized but unissued
common stock can be of considerable value. Because of ValueStar's existing
contractual requirements and its current financial condition, the unavailability
of authorized but unissued common stock could have a material adverse impact on
ValueStar and its business.
Consequences of Failure to Increase the Number of Authorized Shares of Common
Stock
The board of directors believes that ValueStar could be at a disadvantage
in negotiating the terms of any required fundings due to the lack of sufficient
shares of common stock. The board of directors also believes it may be unable to
attract new key personnel without an increase in the authorized shares. The
uncertainty regarding the
10
<PAGE>
availability of shares of common stock, ValueStar's losses and lack of
collateral makes the prospects of future financings unlikely without additional
authorized common stock.
Effect of Amendment on Existing Stockholders
The increase of authorized shares of common stock will not alter the par
value of the common stock or the rights of stockholders.
Authorized but unissued shares may be issued at such time or times, to such
person or persons and for such consideration as the board of directors
determines to be in the best interests of ValueStar, without further
authorization from ValueStar's stockholders except as may be required by the
rules of any stock exchange or national securities association trading system on
which the common stock may be listed or traded. Upon issuance, such shares will
have the same rights as the outstanding shares of common stock. The
authorization of additional shares of common stock will not, by itself, have any
effect on the rights of holders of existing shares. Depending on the
circumstances, issuance of additional shares of common stock could result in
substantial dilution of the existing stockholders' ownership interests in
ValueStar. The board of directors does not intend to issue any shares of common
stock except to meet its obligations and on terms which the board deems to be in
the best interests of ValueStar and its then existing stockholders. The common
stockholders do not have pre-emptive rights to purchase additional shares of
common stock nor will they have any such rights as a result of this proposal.
Vote Required; Board Recommendation
The approval of the Amendment to the Articles of Incorporation to increase
the number of authorized shares of common stock requires the affirmative vote of
a majority of both the common stock, voting as one class, and the common stock
and preferred stock, voting together as one class.
Recommendation and Vote - The Board of
Directors recommends a vote in favor of
approving the amendment to the articles
of incorporation to increase the number
of authorized shares of common stock.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The board of directors has selected Moss Adams LLP as ValueStar's
independent auditors for the fiscal year ending June 30, 2000 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the annual meeting. Moss Adams LLP has
audited ValueStar's financial statements since 1997. A representative of Moss
Adams LLP is not expected to be present at the annual meeting.
Stockholder ratification of the selection of Moss Adams LLP is not
required by ValueStar's Bylaws or otherwise. However, the board is submitting
the selection of Moss Adams LLP to the stockholders for ratification as a matter
of good corporate practice. If the stockholders fail to ratify the selection,
the board will consider whether or not to retain that firm. Even if the
selection is ratified, the board in its discretion may direct the appointment of
different independent auditors at any time during the year if it determines that
such a change would be in the best interest of ValueStar and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the annual meeting will
be required to ratify the selection of Moss Adams LLP.
Recommendation and Vote - The Board of
Directors recommends a vote in favor of
Proposal 4.
11
<PAGE>
ADDITIONAL INFORMATION
Management
The following table lists the current directors and officers of ValueStar:
Name Age Position and Offices
James Stein 41 Director, President and CEO
James A. Barnes 44 Director, Treasurer and Secretary
Jerry E. Polis 67 Director
Fritz T. Beesemyer 47 Director
Robert J. Muller 45 Chief Information Officer
Michael J. Kelly 29 Controller
Guy Sherman 51 Vice President of Operations (1)
(1) A key employee of ValueStar.
See Proposal 1 above for information on director nominees, Messrs. Stein,
Barnes, Polis and Beesemyer.
Robert J. Muller was appointed Chief Information Officer in August 1998.
From July 1995 to August 1998 he was founder and a partner in Poesys Associates,
a San Francisco systems and software consultancy company. Also from September
1997 to August 1998 he served as Senior Software Engineer and Engineering
Project Manager for Aurigin Systems Inc., an intellectual property management
company. From July 1993 to July 1995 he served as Product Development Manager
and Technical Documentation Manager for Blyth Software, Inc. Dr. Muller's prior
experience includes positions as Engineering Manager for Symantec Corporation,
Product Manager and Customer Service Representative for Oracle Corporation and
Statistical Computing Consultant for the Massachusetts Institute of Technology.
Dr. Muller has an A.B. in Political Science from the University of California,
Berkeley (1976) and an S.M. in Political Science (1978) and a Ph.D. in Political
Science (1983) from the Massachusetts Institute of Technology. He is also the
author or co-author of seven books and other publications on Oracle and other
database systems and project management.
Michael J. Kelly was appointed controller in August 1998. From October
1995 to August 1998 he was Operations Manager and Network Administrator for
Silicon Valley Shelving, San Jose, California, a privately held distributor of
material handling equipment and static control products. From October 1994 to
October 1995 he was a sales representative for Innerspace Engineering of San
Mateo, California and from June 1992 to October 1994 he was Operations Manager
and Controller for James A. Old & Son of Hayward, California, both companies
being distributors of material handling equipment. Mr. Kelly obtained a B.A. in
Economics and a B.A. in Russian Studies from the University of Notre Dame in
1992.
Guy Sherman was appointed Vice President of Operations in January 1999.
Prior to joining ValueStar in November 1998, he was a partner in a privately
held sportswear wholesale business, Liz Willard and Company, during 1997 and
1998. From 1992 to 1997 he was president of two privately held medical
companies, Penny Saver Medical Supply, Inc. and Colorado Portable X-Ray, Inc.
From 1986 to 1992 he was region vice president for Tru Green Corporation, a
subsidiary of Waste Management, Inc. Previous positions include financial
positions at Scientific-Atlanta and auditing experience with Deloitte Haskins &
Sells. Mr. Sherman received a B.S. in Business with a concentration in
accounting from State University of New York-Albany in 1975.
12
<PAGE>
<TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Common Stock
The following table sets forth, as of the record date, the common stock
ownership of each nominee for director, the Named Executive officer of ValueStar
(as defined below under the heading "Executive Compensation Compensation of
Executive Officers"), all executive officers and directors of ValueStar as a
group, and each person known by ValueStar to be a beneficial owner of 5% or more
of its common stock. Except as otherwise noted, each person listed below is the
sole beneficial owner of the shares and has sole investment and voting power as
to such shares.
<CAPTION>
Name and Address Amount & Nature
of Beneficial of Beneficial Percent
Owner Ownership of Class
------------- --------- --------
<S> <C> <C> <C>
James Stein 1,629,276 (1) 16.7%
360 - 22nd Street, #210
Oakland, California 94612
James A. Barnes 1,412,198 (2) 14.6%
8617 Canyon View Drive
Las Vegas, Nevada 89117
Jerry E. Polis 970,417 (3) 10.0%
980 American Pacific Drive, #111
Henderson, Nevada 89104
Fritz T. Beesemyer 201,364 (4) 2.1%
5101 N. Casa Blanca Drive, #219
Scottsdale, Arizona 85253
Bryant I. Pickering 579,496 (5) 6.2%
9012 Opus Drive
Las Vegas, Nevada 89117
Robert M. Brennan 1,333,333 (6) 14.2%
6446 Shearwater Ct.
Avila Beach, California
Seacoast Capital Partners 1,899,528 (7) 16.8%
Limited Partnership
One Sansome St., #2100
San Francisco, California 94104
Pacific Mezzanine Fund, L.P. 659,812 (8) 6.6%
2200 Powell Street, #1250
Emeryville, California 94608
All directors & executive officers 4,229,922 39.8%
as a group (6 persons)
13
<PAGE>
<FN>
(1) Includes 325,000 common shares issuable upon the exercise of
outstanding stock options within 60 days and 62,500 common shares
issuable upon the exercise of a stock purchase warrant. Includes
3,000 common shares held by his wife and minor children.
(2) Represents 388,510 shares held of record by Sunrise Capital, Inc.
("SCI"), 605,225 shares held of record by Tiffany Investments
("TI"), 97,629 shares held of record by Tiffany Investments Limited
Partnership ("TILP"), 13,334 shares held of record by Sunrise
Management, Inc. Profit Sharing Plan ("SMIPS"), 125,000 shares
issuable upon the exercise of outstanding stock options within 60
days, 107,500 common shares issuable upon the exercise of stock
purchase warrants and 75,000 shares issuable on conversion of
Series A preferred stock. Mr. Barnes is President and owner of SCI,
General Partner of TI and TILP and Trustee of SMIPS and has
investment and voting power over these shares.
(3) Includes 371,667 shares held of record by the Jerry E. Polis
Family Trust, 5,000 shares held by his spouse and 150,000 shares
held by record by Davric Corporation over which Mr. Polis exercises
voting and investment power. Also includes 110,000 shares issuable
upon the exercise of outstanding stock options within 60 days,
157,500 common shares issuable upon the exercise of stock purchase
warrants and 100,000 shares issuable on conversion of Series A
preferred stock.
(4) Includes warrants to purchase 101,364 shares and 75,000 shares
issuable upon the conversion of Series A preferred stock.
(5) Includes 544,496 shares held by Odne Limited Partnership all these
shares of which Dr. Pickering exercises voting and investment power
and 25,000 shares issuable upon conversion of Series A preferred
stock.
(6) As reported by Mr. Brennan who has represented that he has sole
voting and investment power with respect to 1,263,333 shares and
shares voting and investment power with his spouse with respect to
70,000 shares.
(7) Includes 1,399,528 shares issuable upon exercise of warrants and
500,000 shares issuable on conversion of Series A preferred stock.
(8) Includes 559,812 shares issuable upon exercise of warrants and
100,000 shares issuable on conversion of Series A preferred stock.
</FN>
</TABLE>
Three institutional holders of senior debt were granted warrants
exercisable into 2,285,896 common shares. The warrants have 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) 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 ValueStar or substantially all of our 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 warrant holders based on a revenue based valuation.
This could reduce the proceeds available to other common stockholders. The
warrant holders in certain instances as described below may also initiate a
sale.
Three of our directors, James Stein, James A. Barnes and Jerry E. Polis
have pledged an aggregate of 2,861,557 common shares to secure obligations
related to the issuance of the senior notes and warrants. The agreements limit
resale of the directors' shares in the open market and grant certain first
refusal and co-sale rights to the senior note holders. The three directors are
also obligated to vote their common shares to elect one director each for the
two largest note holders (Seacoast Capital Partners Limited Partnership and
Pacific Mezzanine Fund, L.P.), if so designated by them. These provisions
generally terminate upon completion of a qualifying public offering, a
qualifying stock market listing or the sale of 80% of the shares underlying the
warrants.
The senior debt warrant holders were also granted certain "Drag Along
Rights". Until a qualifying public offering or sale is completed by ValueStar or
a qualifying market listing is achieved, then upon either (a) a change in
control (three directors, Stein, Polis and Barnes collectively owning less than
20% of ValueStar on a fully diluted basis), or (b) the loss of Mr. Stein as
President without a replacement acceptable to the warrant holders, or (c) a
non-qualifying public offering, or (d) certain defaults under the senior notes,
and (e) at any time between April 2004 and April 2009 (unless the rights are
earlier terminated), the warrant holders may seek a buyer for ValueStar or its
assets and ValueStar and the three directors are obligated to cooperate and take
actions to complete a sale, consistent with
14
<PAGE>
their fiduciary duties. Upon a sale, the warrants may be exercised for
additional common shares as described above resulting in additional dilution to
existing stockholders of ValueStar. This dilution could be material should the
Drag Along Rights become exercisable and subsequently exercised by the warrant
holders.
The same three institutional entities currently control a majority of the
senior debt warrants and our Series A preferred stock and therefore have the
ability to effectively appoint three directors. With the number of directors
currently set at five, if they exercised all their rights, these entities could
effectively change control of the board of directors. Other than described
above, we are aware of no other arrangements that may result in a change in
control of ValueStar.
Preferred Stock
<TABLE>
The following security ownership information is set forth as of the record
date with respect to each nominee for director and to certain persons or groups
known to ValueStar to be beneficial owners of more than 5% of ValueStar's
outstanding Series A preferred stock. The amount represents the number of
preferred shares held at the record date.
<CAPTION>
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
- ------------------- -------------------- -----
<S> <C> <C> <C>
Seacoast Capital Partners 100,000 44.4%
Limited Partnership
One Sansome St., #2100
San Francisco, California 94104
Tangent Growth Fund, L.P. 30,000 13.3%
1 Union Square
180 Geary Street, Suite 500
San Francisco, California 94108
Pacific Mezzanine Fund, L.P. 20,000 8.9%
2200 Powell Street, #1250
Emeryville, California 94608
James A. Barnes 15,000 (1) 6.7%
8617 Canyon View Drive
Las Vegas, Nevada 89117
Jerry E. Polis 20,000 (2) 8.9%
980 American Pacific Drive, #111
Henderson, Nevada 89104
Fritz T. Beesemyer 15,000 (3) 6.7%
5101 N. Casa Blanca Drive, #219
Scottsdale, Arizona 85253
<FN>
(1) Shares held by Tiffany Investments of which Mr. Barnes is general
partner.
(2) Shares held by the Polis Family Trust of which Mr. Polis is Trustee.
(3) Shares held by Casa Blanc Ventures, LLC of which Mr. Beesemyer is a
principal.
</FN>
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors and
persons who own more than 10% of a class of ValueStar's securities registered
under Section 12(g) of the Exchange Act to file reports of ownership and changes
in ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than
15
<PAGE>
10% stockholders are required by SEC regulation to furnish ValueStar with copies
of all Section 16(a) forms they file.
Based solely on a review of copies of reports furnished to us and written
representations that no other reports were required during the fiscal year ended
June 30, 1999, we believe that all persons subject to the reporting requirements
pursuant to Section 16(a) filed the required reports on a timely basis with the
SEC except that we believe that Seacoast Capital Partners Limited Partnership
has not filed a Form 3 statement of beneficial ownership respecting its greater
than 10% beneficial ownership.
EXECUTIVE COMPENSATION
Compensation of Directors
ValueStar has no standard arrangements for direct or indirect remuneration
to the directors in their capacity as directors other than the granting of stock
options from time to time. No direct or indirect remuneration other than in the
form of reimbursement of expenses of attending directors' meetings was paid to
directors for their services as directors during the fiscal year ended June 30,
1999. In July 1999 each of the three directors (Stein, Barnes and Polis) was
granted an option on 10,000 shares exercisable at $1.50 per share until July
2004 for services as directors for the fiscal year ended June 30, 1999. It is
anticipated that during the next twelve months ValueStar will not pay any direct
or indirect remuneration to any directors of ValueStar in their capacity as
directors other than in the form of reimbursement of expenses of attending
directors' or committee meetings and the granting of stock options from time to
time.
Compensation of Executive Officers
<TABLE>
There is shown below information concerning the compensation of our chief
executive officer (the "Named Officer") for the fiscal years ended June 30,
1999, 1998 and 1997. No other executive officer's salary and bonus exceeded
$100,000 during the fiscal year ended June 30, 1999.
<CAPTION>
Summary Compensation Table
--------------------------
Long Term
Annual Compensation Compensation
------------------- ------------
Name and Fiscal Options
Principal Position Year Salary Bonus (# of Shares)
- ------------------ ---- ------ ----- -------------
<S> <C> <C> <C> <C>
James Stein, Chief Executive 1999 $120,000 $20,000 100,000
Officer and President 1998 $90,000 -0- 50,000
1997 $90,000 -0- -0-
</TABLE>
Option Grants
<TABLE>
Shown below is further information on grants of stock options to the Named
Officer reflected in the Summary Compensation Table shown above for the fiscal
year ended June 30, 1999.
<CAPTION>
Option Grants Table for Fiscal Year Ended June 30, 1999
-------------------------------------------------------
Number of Shares Percent of Total
Underlying Options Options Granted Exercise Expiration
Name Granted to Employees in Fiscal Year Price Date
---- ------- --------------------------- ----- ----
<S> <C> <C> <C> <C> <C>
James Stein 100,000 (1) 25.3% $1.25 June 30, 2003
<FN>
(1) These options vest and become exercisable only upon the achievement of
future common stock prices, one-third each at prices of $2.50, $5.00 and $7.50
per share, respectively.
</FN>
</TABLE>
Aggregated Option Exercises and Fiscal Year-End Values
There were no options exercised by the Named Officer during the fiscal year
ended June 30, 1999. The following table provides information on unexercised
options at June 30, 1999:
16
<PAGE>
Fiscal Year-End Option Values
-----------------------------
Number of Unexercised Value of Unexercised
Options Held At In-The-Money Options At
June 30, 1999 June 30, 1999 (1)
------------- -----------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
James Stein 315,000 100,000 $255,937 $6,250
(1) At June 30, 1999 the last sale price was $1.3125 per share.
We do not have any stock appreciation rights plans in effect and have no
long-term incentive plans, as those terms are defined in Securities and Exchange
Commission regulations. During the fiscal year ended June 30, 1999, we did not
adjust or amend the exercise price of stock options awarded to the Named Officer
nor other persons, and we have no defined benefit or actuarial plans covering
any person.
Employment Agreement
Mr. Stein is compensated through our subsidiary pursuant to a contract
with ValueStar. Effective July 1, 1998, we entered into a new employment
agreement with Mr. Stein for a term of three years. The terms of the agreement
include Mr. Stein serving as President and CEO and includes termination,
confidentiality, indemnification and non-competition clauses customary in these
agreements. The contract provides for compensation of $10,000 per month, with
bonuses and increases at the discretion of the board of directors. We may
terminate the employment with or without good cause (as defined), but
termination without good cause (other than disability or death) results in a
severance payment equal to twelve months of the then monthly base salary and
prorated earned bonus payable in one lump sum. Likewise, upon a change in
control, as defined in the agreement, Mr. Stein may elect to terminate
employment and obtain a payment equal to the remaining months of the agreement
multiplied by the base salary and any earned but unpaid bonus payable in one
lump sum.
Exclusion of Director Liability
Pursuant to the Colorado Business Corporation Act, ValueStar's Articles of
Incorporation exclude personal liability on the part of its directors to
ValueStar or its stockholders for monetary damages based upon any violation of
their fiduciary duties as directors, except as to liability for any breach of
the duty of loyalty to ValueStar or its stockholders, acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, acts in violation of Section 7-5-114 of the Colorado Business Corporation
Act, as it now exists or may hereafter be amended, or transactions from which
the director derives an improper personal benefit.
CERTAIN TRANSACTIONS
During the last two fiscal years there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
ValueStar was or is to be a party in which the amount involved exceeds $60,000
and in which any director, executive officer or holder of more than 5% of our
common stock had or will have a direct or indirect material interest other than
(a) compensation arrangements that are described above, (b) the transactions
described above as they involve Seacoast Capital Partners Limited Partnership
and Pacific Mezzanine Fund, L.P and (c) the transactions described below.
Certain of the our stockholders, including officers and directors, have
from time to time, provided short-term interest bearing advances to ValueStar.
At June 30, 1999, no advances were outstanding. On December 9, 1997 ValueStar
granted Stock Purchase Warrants on 250,000 shares exercisable at $1.25 per share
to four persons for a bank guarantee. Among the four guarantors were
officers/directors James Stein and James A. Barnes and director Jerry E. Polis.
Management believes ValueStar would have been unable to obtain the line of
credit without the inducement of the personal guarantees by these officers and
directors.
17
<PAGE>
On March 31, 1998, ValueStar issued 91,250 shares for services valued at
$88,398 in connection with a debt financing. A total of 76,250 of these shares
were issued to Mr. Polis, a director, and 5,000 shares issued to Mr.
Barnes, an officer and director.
In July 1998, in connection with a new three-year employment agreement,
ValueStar granted Mr. Stein options on 100,000 shares that became vested and
exercisable after January 7, 1999 and then only upon the achievement of certain
future common share prices commencing at $2.50 per share. In July 1998,
directors Polis and Barnes were each granted options on 50,000 common shares
with comparable provisions.
In July 1998, ValueStar restructured the due date on $100,000 of 12% notes
due September 30, 1998 and extended the date to March 31, 2001 and granted the
two holders thereof an aggregate of 50,000 non-detachable warrants to purchase
common stock at $1.25 per share. One holder of a $50,000 note and 25,000
warrants is the spouse of Mr. Polis, a director.
In August 1998, ValueStar obtained an $85,000 five year term loan secured
by certain equipment and software from Davric Corporation, a company affiliated
with Mr. Polis, a director. In June 1999, we obtained a $160,000 three year term
loan secured by certain equipment and software from Davric. Also in June 1999,
ValueStar renegotiated the due date on a $300,000 note due to Davric, extending
the date to June 30, 2000. In connection with this extension, ValueStar granted
Davric warrants to purchase 30,000 shares at $1.50 per share for five years.
Management believes the terms of these loans are comparable to those that could
have been obtained from an independent party.
Certain conflicts of interest may arise between ValueStar and its
directors due to the fact that they have other employment or business interests
to which they devote attention, and they are expected to continue to do so.
ValueStar has not established policies or procedures for the resolution of
current or potential conflicts of interest between ValueStar and its management
or management-affiliated entities. There can be no assurance that members of
management will resolve all conflicts of interest in our favor. The officers and
directors are accountable to ValueStar as fiduciaries, which means that they are
legally obligated to exercise good faith and integrity in handling our affairs.
Failure by them to conduct our business in our best interests may result in
liability to them. Our Articles of Incorporation provide that directors have the
right to contract with ValueStar if any financial interest is disclosed or the
transaction is fair or reasonable to ValueStar.
FINANCIAL AND OTHER INFORMATION
ValueStar is subject to the reporting requirements of Section 15(d) or 13
of the Securities Exchange Act of 1934 and files annual, quarterly and other
reports with the Securities and Exchange Commission. ValueStar's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 1999 will accompany this Proxy
Statement.
OTHER MATTERS
The board of directors knows of no other matters to be brought before the
Annual Meeting. However, if any matters other than those referred to herein
should properly come before the Annual Meeting, it is the intention of the proxy
holders to vote such proxy in accordance with his or her best judgment.
By Order of the Board of Directors
/s/ JAMES STEIN
James Stein
October 8, 1999 President
18
<PAGE>
PROXY PROXY
VALUESTAR CORPORATION
THIS PROXY RELATES TO THE ANNUAL MEETING OF THE STOCKHOLDERS
TO BE HELD NOVEMBER 12, 1999
The undersigned hereby appoints JAMES STEIN and JAMES A. BARNES or either
of them, with full power of substitution, as attorneys and proxies to vote all
shares of Series A preferred stock that the undersigned is entitled to vote,
with all powers that the undersigned would possess if personally present, at the
Annual Meeting of Stockholders of VALUESTAR CORPORATION ("ValueStar") to be held
at 2:00 p.m. (Pacific Standard Time) at the at the offices of the corporation at
360 - 22nd Street, Suite 210, Oakland, California 94612 and any postponements
and adjournments thereof, as follows:
1. TO ELECT FRITZ T. BEESEMEYER TO THE BOARD OF DIRECTORS.
___ FOR the nominee listed above ___ WITHHOLD AUTHORITY
(to vote for the nominee listed above)
2. PROPOSAL TO INCREASE THE NUMBER OF SHARES AUTHORIZED TO BE ISSUED
PURSUANT TO VALUESTAR'S 1997 STOCK OPTION PLAN.
___ FOR ___ AGAINST ___ ABSTAIN
3. PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED SHARES OF COMMON STOCK.
___ FOR ___ AGAINST ___ ABSTAIN
4. TO RATIFY THE SELECTION OF MOSS ADAMS LLP AS INDEPENDENT AUDITORS OF
VALUESTAR FOR ITS FISCAL YEAR ENDING JUNE 30, 1999.
___ FOR ___ AGAINST ___ ABSTAIN
This proxy has been solicited by the board of directors of ValueStar. I
understand that I may revoke this proxy as set forth in the proxy statement.
DATED: _________________, 1999 Signature(s) X _____________________________
Print Name _____________________________
(Please date and sign exactly as name or names appear on your stock
certificate(s). When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
the corporate name by President or other authorized officer. If a partnership,
please sign in the partnership name by authorized person. IF THE STOCK IS HELD
JOINTLY, BOTH OWNERS MUST SIGN.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS SPECIFIED THIS PROXY WILL BE VOTED FOR THE PROPOSALS NOTED ABOVE
AND, AS TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING, AS
SAID PROXIES DEEM ADVISABLE.
Mail or Deliver this Proxy to:
VALUESTAR CORPORATION
360 - 22nd Street, Suite 210
Oakland, California 94612
19
<PAGE>
PROXY PROXY
VALUESTAR CORPORATION
THIS PROXY RELATES TO THE ANNUAL MEETING OF THE STOCKHOLDERS
TO BE HELD NOVEMBER 12, 1999
The undersigned hereby appoints JAMES STEIN and JAMES A. BARNES or either
of them, with full power of substitution, as attorneys and proxies to vote all
shares of common stock that the undersigned is entitled to vote, with all powers
that the undersigned would possess if personally present, at the Annual Meeting
of Stockholders of VALUESTAR CORPORATION ("ValueStar") to be held at 2:00 p.m.
(Pacific Standard Time) at the at the offices of the corporation at 360 - 22nd
Street, Suite 210, Oakland, California 94612 and any postponements and
adjournments thereof, as follows:
1. TO ELECT THE BOARD OF DIRECTORS.
___ FOR all nominees listed below ___ WITHHOLD AUTHORITY
(except as marked to the (to vote for the nominees
contrary below) listed below)
(INSTRUCTION: To withhold authority to vote for any individual nominee
write that nominee's name on the line)
------------------------------------------------
James Stein, James A. Barnes, Jerry E. Polis
2. PROPOSAL TO INCREASE THE NUMBER OF SHARES AUTHORIZED TO BE ISSUED
PURSUANT TO VALUESTAR'S 1997 STOCK OPTION PLAN.
___ FOR ___ AGAINST ___ ABSTAIN
3. PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED SHARES OF COMMON STOCK.
___ FOR ___ AGAINST ___ ABSTAIN
4. TO RATIFY THE SELECTION OF MOSS ADAMS LLP AS INDEPENDENT AUDITORS OF
VALUESTAR FOR ITS FISCAL YEAR ENDING JUNE 30, 1999.
___ FOR ___ AGAINST ___ ABSTAIN
This proxy has been solicited by the board of directors of ValueStar. I
understand that I may revoke this proxy as set forth in the proxy statement.
DATED: _________________, 1999 Signature(s) X _____________________________
Print Name _____________________________
(Please date and sign exactly as name or names appear on your stock
certificate(s). When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
the corporate name by President or other authorized officer. If a partnership,
please sign in the partnership name by authorized person. IF THE STOCK IS HELD
JOINTLY, BOTH OWNERS MUST SIGN.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS SPECIFIED THIS PROXY WILL BE VOTED FOR THE PROPOSALS NOTED ABOVE
AND, AS TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING, AS
SAID PROXIES DEEM ADVISABLE.
Mail or Deliver this Proxy to:
VALUESTAR CORPORATION
360 - 22nd Street, Suite 210
Oakland, California 94612
20
