<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
VALUESTAR CORPORATION
(Name of Issuer)
SERIES B CONVERTIBLE PREFERRED STOCK
(Title of Class of Securities)
919910 10 9
(CUSIP Number)
EBEN S. MOUTON
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP
55 FERNCROFT ROAD
DANVERS, MASSACHUSETTS 01923
TELEPHONE (978) 750-1300
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
DECEMBER 8, 1999
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box
[ ].
Check the following box if a fee is being paid with the statement [X].
(A fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent of
the class of securities described in Item 1; and (2) has filed no amendment
subsequent thereto reporting beneficial ownership of five percent or less of
such class.) (See Rule 13d-7).
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE> 2
CUSIP No. 919910 10 9
- --------------------------------------------------------------------------------
(1) Name of Reporting Persons. I.R.S. Identification Nos. of
Above Persons (entities only)
Seacoast Capital Partners Limited
Partnership; 04-3232653
- --------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member of a Group (a) [X]
(b) [ ]
- --------------------------------------------------------------------------------
(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of Funds WC
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(5) Check Box if Disclosure of Legal Proceedings is Required [ ]
Pursuant To Items 2(d) or 2(e)
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(6) Citizenship or Place of Organization Delaware
- --------------------------------------------------------------------------------
Number of Shares (7) Sole Voting Power 2,400,818
Beneficially Owned by ---------------------------------------------------
Each Reporting Person (8) Shared Voting Power 0
With ---------------------------------------------------
(9) Sole Dispositive Power 2,400,818
---------------------------------------------------
(10) Shared Dispositive Power 0
- --------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting 2,400,818
Person
- --------------------------------------------------------------------------------
(12) Check Box if the Aggregate Amount in Row (11) Excludes [ ]
Certain Shares
- --------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11) 18.8
- --------------------------------------------------------------------------------
(14) Type of Reporting Person PN
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PAGE 2 OF 11
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CUSIP No. 919910 10 9
- --------------------------------------------------------------------------------
(1) Name of Reporting Persons. I.R.S. Identification Nos. of
Above Persons (entities only)
Eben S. Moulton
- --------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member of a Group (a) [X]
(b) [ ]
- --------------------------------------------------------------------------------
(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of Funds AF
- --------------------------------------------------------------------------------
(5) Check Box if Disclosure of Legal Proceedings is Required [ ]
Pursuant To Items 2(d) or 2(e)
- --------------------------------------------------------------------------------
(6) Citizenship or Place of Organization United States
- --------------------------------------------------------------------------------
Number of Shares (7) Sole Voting Power 2,400,818*
Beneficially Owned by ------------------------------------------------
Each Reporting Person (8) Shared Voting Power 0
With ------------------------------------------------
(9) Sole Dispositive Power 2,400,818*
------------------------------------------------
(10) Shared Dispositive Power 0
- --------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting 2,400,818*
Person
- --------------------------------------------------------------------------------
(12) Check Box if the Aggregate Amount in Row (11) Excludes [ ]
Certain Shares
- --------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11) 18.8
- --------------------------------------------------------------------------------
(14) Type of Reporting Person IN
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* Mr. Moulton disclaims beneficial ownership of these securities.
PAGE 3 OF 11
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CUSIP No. 919910 10 9
- --------------------------------------------------------------------------------
(1) Name of Reporting Persons. I.R.S. Identification Nos.
of Above Persons (entities only)
Walter H. Leonard
- --------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member of a Group (a) [X]
(b) [ ]
- --------------------------------------------------------------------------------
(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of Funds AF
- --------------------------------------------------------------------------------
(5) Check Box if Disclosure of Legal Proceedings is Required [ ]
Pursuant To Items 2(d) or 2(e)
- --------------------------------------------------------------------------------
(6) Citizenship or Place of Organization United States
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Number of Shares (7) Sole Voting Power 2,400,818*
Beneficially Owned by ------------------------------------------------
Each Reporting Person (8) Shared Voting Power 0
With ------------------------------------------------
(9) Sole Dispositive Power 2,400,818*
------------------------------------------------
(10) Shared Dispositive Power 0
- --------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting 2,400,818*
Person
- --------------------------------------------------------------------------------
(12) Check Box if the Aggregate Amount in Row (11) Excludes [ ]
Certain Shares
- --------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11) 18.8
- --------------------------------------------------------------------------------
(14) Type of Reporting Person IN
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* Mr. Leonard disclaims beneficial ownership of these securities.
PAGE 4 OF 11
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CUSIP No. 919910 10 9
- --------------------------------------------------------------------------------
(1) Name of Reporting Persons. I.R.S. Identification Nos. of
Above Persons (entities only)
Jeffrey J. Holland
- --------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member of a Group (a) [X]
(b) [ ]
- --------------------------------------------------------------------------------
(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of Funds AF
- --------------------------------------------------------------------------------
(5) Check Box if Disclosure of Legal Proceedings is Required [ ]
Pursuant To Items 2(d) or 2(e)
- --------------------------------------------------------------------------------
(6) Citizenship or Place of Organization United States
- --------------------------------------------------------------------------------
Number of Shares (7) Sole Voting Power 2,400,818*
Beneficially Owned by ------------------------------------------------
Each Reporting Person (8) Shared Voting Power 0
With ------------------------------------------------
(9) Sole Dispositive Power 2,400,818*
------------------------------------------------
(10) Shared Dispositive Power 0
- --------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting 2,400,818*
Person
- --------------------------------------------------------------------------------
(12) Check Box if the Aggregate Amount in Row (11) Excludes [ ]
Certain Shares
- --------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11) 18.8
- --------------------------------------------------------------------------------
(14) Type of Reporting Person IN
- --------------------------------------------------------------------------------
* Mr. Hulecki disclaims beneficial ownership of these securities.
PAGE 5 OF 11
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CUSIP No. 919910 10 9
- --------------------------------------------------------------------------------
(1) Name of Reporting Persons. I.R.S. Identification Nos. of
Above Persons (entities only)
Lexington Capital Partners III, L.P. 06-1535745
- --------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member of a Group (a) [X]
(b) [ ]
- --------------------------------------------------------------------------------
(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of Funds AF
- --------------------------------------------------------------------------------
(5) Check Box if Disclosure of Legal Proceedings is Required [ ]
Pursuant To Items 2(d) or 2(e)
- --------------------------------------------------------------------------------
(6) Citizenship or Place of Organization Delaware
- --------------------------------------------------------------------------------
Number of Shares (7) Sole Voting Power 2,400,818*
Beneficially Owned by ------------------------------------------------
Each Reporting Person (8) Shared Voting Power 0
With ------------------------------------------------
(9) Sole Dispositive Power 2,400,818*
------------------------------------------------
(10) Shared Dispositive Power 0
- --------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting 2,400,818*
Person
- --------------------------------------------------------------------------------
(12) Check Box if the Aggregate Amount in Row (11) Excludes [ ]
Certain Shares
- --------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11) 18.8
- --------------------------------------------------------------------------------
(14) Type of Reporting Person CO
- --------------------------------------------------------------------------------
* Lexington Capital Partners III, L.P. disclaims beneficial ownership of these
securities.
PAGE 6 OF 11
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ITEM 1 SECURITY AND ISSUER
The class of securities to which this statement relates is 2,400,818 shares (the
"Shares") of common stock, par value $.00025 per share (the "Common Stock"), of
Valuestar Corporation, a Colorado corporation (the "Issuer"), the principal
executive offices of which are located at 360-22nd Street, Suite 210, Oakland,
California 94612. 500,000 of the Shares are issuable upon conversion of certain
shares of Series A Preferred Stock, par value $.00025 per share, of the Issuer
(the Series A "Preferred Stock") issued to Seacoast Capital Partners Limited
Partnership, a Delaware limited partnership ("Seacoast"). 501,290 of the shares
are issuable upon conversion of certain shares of Series B Preferred Stock, par
value $.00025 per share, of the Issuer (the "Series B. Preferred Stock") issued
to Seacoast. The remaining 1,399,528 Shares are issuable upon the exercise of
warrants to purchase Common Stock held by Seacoast.
ITEM 2 IDENTITY AND BACKGROUND
(a) This statement is being filed on behalf of Seacoast, Eben S. Moulton,
Walter H. Leonard, Jeffrey J. Holland (Messrs. Moulton, Leonard and
Holland are collectively referred to as the "Individual Control
Persons") and Lexington Capital Partners III, L.P., a Delaware limited
partnership ("Lexington" and, collectively with the Individual Control
Persons, the "Control Persons"). Each of the Individual Control Persons
are the members of Seacoast Capital Managers, L.L.C., a Delaware
limited liability company and the sole general partner of Seacoast
("SCC"). As a result, each Control Person may be deemed a beneficial
owner of the Shares, although each Control Person disclaims such
beneficial ownership.
(b) The principal office of Seacoast is located at 55 Ferncroft Road,
Danvers, Massachusetts 01923. The principal office of Lexington is
located at 660 Madison Avenue, 23rd Floor, New York, New York 10021.
The business address of each of the Individual Control Persons is 55
Ferncroft Road, Danvers, Massachusetts 01923.
(c) Seacoast is engaged in the principal business of acquiring and holding
securities for investment purposes. Each of the Individual Control
Persons is primarily engaged as an investment principal for Seacoast.
Lexington is engaged in the principal business of acquiring and holding
securities for investment purposes.
(d) None.
(e) None.
ITEM 3 SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Beneficial ownership of the reported securities was acquired by Seacoast
through the utilization of working capital derived from contributions of
capital by its partners and in consideration for an investment in the Issuer.
ITEM 4 PURPOSE OF TRANSACTION
Seacoast acquired the Shares for investment purposes.
ITEM 5 INTEREST IN SECURITIES OF THE ISSUER
The following item sets forth certain information regarding the beneficial
ownership of the Shares by Seacoast. Each Control Person can be deemed to
beneficially own the Shares only through its affiliation with Seacoast.
(a) Seacoast beneficially owns 2,400,818 shares of Common Stock, which
represents 18.8 percent of the total shares of Common Stock outstanding
(according to the Issuer there were 12,781,224 shares of Common Stock
issued and outstanding on December 6, 1999 [including Series A and
Series B Preferred Convertible Stock converted into shares of Common
Stock]).
(b) Seacoast exercises sole voting power with regard to 2,400,818 shares of
Common Stock and shares voting power with respect to none of such
shares. Seacoast exercises sole dispositive power with regard to
2,400,818 shares of Common Stock and shares dispositive power with
respect to none of such shares.
PAGE 7 OF 11
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(c) None
(d) None
(e) Not applicable
ITEM 6 CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
The relative rights and preferences of the Preferred Stock are set forth in a
Certificate of Designation dated July 21, 1999 (the "Series A Certificate of
Designation"). The relative rights and preferences of the Series B Preferred
Stock are set forth in a Certificate of Designation dated December 7, 1999 (the
"Series B Certificate of Designation"). Seacoast and the Issuer, among others,
have entered into a Warrant Purchase Agreement dated March 31, 1999 (the
"Warrant Agreement"); (b) a Shareholder Agreement dated March 31, 1999, as
amended on July 22, 1999 (the "Shareholder Agreement"); (c) a Registration
Rights Agreement and Shareholder Agreement Amendment dated as of July 21, 1999
(the "Registration Agreement"); (d) an Investor Rights Agreement dated as of
December 8, 1999 ("the Second Amendment to Shareholder Agreement" and,
collectively with the Series A Certificate of Designation, Series B Certificate
of Designation, Warrant Agreement, Shareholder Agreement, the Registration
Agreement, Investor Rights Agreement and the Second Amendment to Shareholder
Agreement, the "Agreements").
The Agreements grant Seacoast the right to designate a member of the Issuer's
board of directors until (a) Seacoast holds less than 20 percent of the
warrants issued pursuant to the Warrant Agreement (the "Warrants") and the
shares of Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares") or (b) the occurrence of certain liquidity events as set forth in the
Agreements. In addition, each party to the Shareholder Agreement has agreed to
vote its shares of Common Stock for the slate of directors of the Issuer
nominated in accordance with the provisions of the Shareholder Agreement. The
Agreements also require that the Issuer will not enter into any agreement other
that the Agreements modifying or restricting the rights of any securities
holder to vote securities of the Issuer.
The Agreements grant Seacoast the preemptive right to purchase, pro rata in
accordance with its equity ownership of the Issuer, any securities issued by
the Issuer. The Agreements forbid the declaration or payment of any dividend
without the consent of Seacoast. If any dividend is paid by the Issuer, the
Agreements require the Issuer to pay Seacoast a dilution fee.
The Agreements provide that, under certain circumstances, Seacoast has the
right to require certain other parties to the Shareholder Agreement to sell
their shares of Common Stock to a buyer designated by Seacoast. In addition,
under certain circumstances, the Issuer has the right to require Seacoast to
sell the Shares to the Issuer at a price determined by reference to certain
financial data of the Issuer. The Agreements also provide that Seacoast has a
right of first refusal regarding and a right to participate in any proposed
sales by other parties to the Shareholder Agreement.
The Agreements include provisions that the Issuer will not issue any capital
stock other than Common Stock and Common Stock equivalents, and will not permit
any subsidiary of the Issuer to issue capital stock other than shares of
capital stock owned, directly or indirectly, by the Issuer. Further, the Issuer
will not (A) issue its capital stock or capital stock of any subsidiary, other
than pursuant to the Agreements; (B) dissolve, liquidate or effect any
consolidation or merger of the Issuer or any of its subsidiaries; or (C) effect
any reclassification, corporate reorganization, stock split or reverse stock
split, or other change in any capital stock.
The foregoing is intended to be only a summary of certain provisions of the
Agreements and is qualified in its entirety by reference to such Agreements,
copies of which are filed as Exhibits to this Schedule and are incorporated
herein by reference.
PAGE 8 OF 11
<PAGE> 9
ITEM 7 MATERIAL TO BE FILED AS EXHIBITS
99.5 Series B Preferred Stock Agreement, dated as of December 8, 1999,
among the Issuer, Seacoast and the other parties thereto.
99.6 Certificate Of Designation of Series B Convertible Preferred
Stock of the Issuer dated December 8, 1999.
99.7 Investor Rights Agreement, dated as of December 8, 1999, among
the Issuer, Seacoast and the other parties thereto.
99.8 Second Amendment to Agreement and Shareholder Agreement, dated as
of December 8, 1999, among the Issuer, Seacoast and the other
parties thereto.
PAGE 9 OF 11
<PAGE> 10
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP
By: Seacoast Advisors, LLC,
its general partner
By: /s/ Eben S. Moulton
--------------------------------------
Name: Eben S. Moulton
Title: Manager
Date: February 17, 2000
By: /s/ Eben S. Moulton
-----------------------------------
Name: Eben S. Moulton
Date: February 17, 2000
By: /s/ Walter H. Leonard
-----------------------------------
Name: Walter H. Leonard
Date:
By: /s/ Jeffrey J. Holland
-----------------------------------
Name: Jeffrey J. Holland
Date: February 17, 2000
LEXINGTON CAPITAL PARTNERS III, L.P.
By: Lexington Associates III, L.L.C.
its general partner
By: Lexington Advisors, Inc.
its managing partner
By: /s/ Richard C. Lichter
--------------------------------------
Name: Richard C. Lichter
Title: Vice President
Date: February 17, 2000
PAGE 10 OF 11
<PAGE> 11
ATTACHED EXHIBITS
99.5 Series B Preferred Stock Agreement, dated as of December 8, 1999,
among the Issuer, Seacoast and the other parties thereto.
99.6 Certificate Of Designation of Series B Convertible Preferred
Stock of the Issuer dated December 8, 1999.
99.7 Investor Rights Agreement, dated as of December 8, 1999, among
the Issuer, Seacoast and the other parties thereto.
99.8 Second Amendment to Shareholder Agreement, dated as of
December 8, 1999, among the Issuer, Seacoast and the other
parties thereto.
PAGE 11 OF 11
<PAGE> 1
EXHIBIT 99.5
VALUESTAR CORPORATION
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
-------------------------
DECEMBER 8, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. DEFINITIONS .............................................................4
II. SALE AND ISSUANCE OF SERIES B STOCK .....................................5
2.1 Purchase and Sale of Series B Stock ................................5
2.2 Issuance and Payment ...............................................6
2.3 Subsequent Sale of Series B Preferred Stock ........................6
III. CONDITIONS OF THE PURCHASERS' OBLIGATIONS ...............................6
3.1 Representations and Warranties .....................................6
3.2 Closing Documents ..................................................6
3.3 Proceedings ........................................................7
3.4 Examination of Books and Records ...................................7
3.5 Suits/Proceedings ..................................................7
3.6 Authorization of Issuance ..........................................7
3.7 Reservation of Stock ...............................................7
3.8 Capital Outstanding ................................................8
3.9 Consent ............................................................8
3.10 SBA Documents ......................................................8
3.11 Purchasers' Legal Fees .............................................8
IV. CONDITIONS OF THE CORPORATION'S OBLIGATIONS .............................8
4.1 Performance ........................................................8
4.2 Representations and Warranties .....................................8
4.3 Instruments and Documents ..........................................8
4.4 Suits/Proceedings ..................................................8
4.5 Covenants ..........................................................9
V. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION .......................9
5.1 Corporate Existence and Authority ..................................9
5.2 Financial Statements and Reports ...................................9
5.3 Default ...........................................................10
5.4 Authorization and Compliance with Laws and Materials Agreements ...10
5.5 Environmental Condition of the Property ...........................10
5.6 Litigation and Judgments ..........................................11
5.7 Rights in Properties; Liens .......................................11
5.8 Enforceability ....................................................12
5.9 Indebtedness ......................................................12
5.10 Taxes .............................................................12
5.11 Use of Proceeds; Margin Securities ................................12
5.12 ERISA .............................................................12
5.13 Disclosure ........................................................13
5.14 Subsidiaries and Capitalization ...................................13
5.15 Current Locations .................................................13
5.16 Investment Corporation Act ........................................13
5.17 Public Utility Holding Corporation Act ............................13
5.18 Securities Laws ...................................................14
5.19 No Labor Disputes .................................................14
5.20 Brokers ...........................................................14
5.21 Insurance .........................................................14
5.22 Conduct of Business ...............................................14
</TABLE>
2
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<TABLE>
<S> <C>
5.23 Small Business Concern ............................................14
5.24 Survival of Representations .......................................14
VI. REPRESENTATIONS AND WARRANTIES OF PURCHASERS ...........................14
6.1 Investment ........................................................14
6.2 Rule 144 ..........................................................15
6.3 Access to Data ....................................................15
6.4 Knowledge and Experience ..........................................15
6.5 Requisite Power ...................................................15
6.6 Duly Authorized ...................................................15
6.7 Accredited Investor ...............................................15
6.9 Resident ..........................................................16
VII. RESTRICTIONS ON TRANSFER OF SECURITIES .................................16
VII. AFFIRMATIVE COVENANTS ..................................................17
8.1 Financial Statements ..............................................17
8.2 Books and Records .................................................18
IX. NEGATIVE COVENANTS .....................................................18
X. INVESTORS RIGHTS AGREEMENT .............................................19
XI. MISCELLANEOUS ..........................................................19
11.1 Remedies ..........................................................19
11.2 Consent to Amendments .............................................19
11.3 Survival of Representations and Warranties ........................19
11.4 Successors and Assigns ............................................19
11.5 Severability ......................................................19
11.6 Counterparts ......................................................19
11.7 Descriptive Headings ..............................................19
11.8 Notices ...........................................................19
11.9 Governing Law .....................................................20
11.10 Schedules and Exhibits ............................................20
11.11 Litigation Costs ..................................................20
11.12 Final Agreement ...................................................20
11.13 Confidentiality ...................................................21
11.14 Public Disclosure .................................................21
</TABLE>
EXHIBITS
A Certificate of Designation
B Investors Rights Agreement
3
<PAGE> 4
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
dated for reference purposes only as of December 8, 1999, by and between
VALUESTAR CORPORATION, a Colorado corporation (the "Corporation"), and those
investors set forth on Schedule 1 attached hereto (individually, a "Purchaser"
and collectively, the "Purchasers").
R E C I T A L S:
A. The Corporation, through its subsidiary, Valuestar, Inc., a
California corporation, is in the business of rating and certifying customer
satisfaction of commercial businesses.
B. The Purchasers are interested in investing capital in the
Corporation and the Corporation desires to obtain capital from the Purchasers on
the terms and conditions hereinafter set forth.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the above recitals and the mutual
agreements, covenants, representations and warranties contained below in this
Agreement, the parties agree as follows:
I. DEFINITIONS.
"Agreement" means, and the words "herein", "hereof", "hereunder" and
words of similar import refer to, this instrument and any amendments hereto.
"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.
"Certificate of Designation" means the Certificate of Designation of
the Corporation attached hereto as Exhibit A, which sets forth the rights,
privileges and preferences of the Series B Convertible Preferred Stock.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, and the regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute which replaces said Exchange Act and the rules
and regulations of the SEC thereunder, all as the same shall be in effect at the
time.
"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.
4
<PAGE> 5
"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.
"Investors Rights Agreement" means the Investors Rights Agreement
attached hereto as Exhibit B.
"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 Corporation or, as the case may be, Corporation and the Subsidiary, 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.
"Other Agreements" means the Investors Rights Agreement and all other
agreements, instruments and documents and all renewals, amendments,
modifications and extensions thereof, whether heretofore, now or hereafter
executed by or on behalf of the Corporation or Subsidiary and delivered to and
for the benefit of Purchaser under this Agreement.
"Party" or "parties" means the Corporation and/or any Purchaser.
"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.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute which replaces such Securities Act and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at the
time.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means Valuestar, Inc., a California corporation.
"Series B Stock" means the shares of Series B Convertible Preferred
Stock of the Corporation issued to the Purchasers pursuant to this Agreement.
II. SALE AND ISSUANCE OF SERIES B STOCK
2.1 PURCHASE AND SALE OF SERIES B STOCK. The Corporation agrees to sell
to each Purchaser meeting the suitability standards set forth in Article VI,
and, subject to the terms and conditions set forth herein, each such Purchaser
agrees to purchase from the Corporation, the Series B Stock set forth opposite
its name in Schedule 1 attached hereto at a per share purchase price of $17.50
per share.
2.2 ISSUANCE AND PAYMENT. The initial closing of the sale and purchase
of at least Five Hundred Fourteen Thousand Two Hundred Ninety Eight (514,298)
shares of the Series B
5
<PAGE> 6
Stock will take place at the offices of BAY VENTURE COUNSEL, LLP, 1999 Harrison
Street, Suite 1300, Oakland, California 94612, at 10:00 a.m. on December 8,
1999, or such other time and place as the parties may mutually agree (the
"Initial Closing"). At each "Closing" (as defined in Section 2.3), the
Corporation will deliver to each Purchaser a duly issued and executed
certificate of the Series B Stock to be purchased by it, registered in the
Purchaser's name, against payment of the purchase price thereof as set forth in
Schedule 1, by certified check, by wire transfer of immediately available funds,
cancellation of any indebtedness owed by the Corporation to Purchaser or by any
combination of the foregoing.
2.3 SUBSEQUENT SALE OF SERIES B PREFERRED STOCK. The Corporation may
sell up to an additional Two Hundred Eighty Five Thousand Seven Hundred Two
(285,702) shares of Series B Stock to such Persons as the Corporation may
determine at any time after the Initial Closing and on, or before, December 31,
1999, at no less than $17.50 per share and otherwise upon the same terms and
conditions as those contained herein. Any such sale which is upon the same terms
and conditions as those contained herein shall entitle such persons or entities
to become parties to this Agreement and the Investors Rights Agreement, each
dated as of even date herewith, by and among the Corporation and the Purchasers,
and shall have the rights and obligations of a Purchaser hereunder and
thereunder. The Initial Closing and each subsequent closing shall be referred to
herein as a "Closing."
III. CONDITIONS OF THE PURCHASERS' OBLIGATIONS.
The obligation of each Purchaser to consummate the transactions
contemplated herein at the Closing is subject to the satisfaction on or before
the date of the Closing of the following conditions, all or any of which may be
waived in writing by each Purchaser as to its obligation to consummate the
transaction so contemplated:
3.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Corporation contained in this Agreement, including without
limitation those in Article V, and in any other documents delivered by the
Corporation to the Purchasers at or prior to the Initial Closing will be true
and correct at and as of the date of the Initial Closing as though then made,
except to the extent of changes caused by the transactions expressly
contemplated herein; the Corporation's business and assets shall not have been
adversely affected in any material way prior to the Closing; and the Corporation
shall have performed all obligations and conditions herein required to be
performed or observed by the Corporation on or prior to the Closing; and the
Corporation shall have delivered a certificate executed by the President or
Secretary of the Corporation to such effect.
3.2 CLOSING DOCUMENTS. The Corporation will have delivered to the
Purchasers copies of the following specifically named documents referenced in
this Agreement or the Schedules hereto, including but not limited to a fully
executed Investors Rights Agreement, and all of the following documents:
(a) an Officer's Certificate from the Corporation dated the
date of the Initial Closing, stating that all the preconditions specified in
this Article III have been satisfied;
(b) correct and complete copies of the resolutions adopted by
the board of directors of the Corporation certified to such effect on the date
of the Initial Closing by the Secretary of the Corporation authorizing the
execution, delivery and performance of this Agreement and any other agreements
contemplated hereby, and authorizing all other transactions contemplated by this
Agreement;
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(c) correct and complete copies of the Corporation's Bylaws,
as amended, and Certificate of Designation and all currently contemplated or
proposed amendments thereto, as approved by the board of directors and
shareholders of the Corporation, all certified to such effect on the date of the
Initial Closing by the Secretary of the Corporation;
(d) a good standing certificate dated within ten (10) business
days of the Initial Closing issued by the Colorado Secretary of State;
(e) an opinion of counsel from the Corporation's counsel, Bay
Venture Counsel, LLP dated the date of the Initial Closing, reasonably
acceptable to Purchasers;
(f) evidence reasonably acceptable to the Purchaser's that
each of the Corporation's key employees has executed a non-disclosure and
assignment of inventions agreement; and
(g) such other documents referenced within any Schedule or
relating to the transactions contemplated by this Agreement as the Purchasers
may reasonably request.
3.3 PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby to be consummated
at or prior to the Initial Closing and all documents incident thereto or
required to be delivered prior to or at the Closing will be satisfactory in form
and substance to the Purchasers. Without limiting the generality of the
preceding sentence, the Board of Directors of the Corporation immediately
following the Initial Closing shall consist of seven members, two of which shall
have been nominated and/or elected, as appropriate, by a majority of the holders
of Series B Stock at any time on or after the Initial Closing in accordance with
the Certificate of Designation.
3.4 EXAMINATION OF BOOKS AND RECORDS. The Corporation shall have made
available to the Purchasers (who may appoint representatives to perform such
inspection) during normal business hours, for inspection and copying, all of the
Corporation's books, records, contracts and documents of or relating to the
Corporation.
3.5 SUITS/PROCEEDINGS. No action, suit, proceeding or investigation by
or before any court, administrative agency or other governmental authority shall
have been instituted or threatened to restrain, prohibit or invalidate the
transactions contemplated by this Agreement.
3.6 AUTHORIZATION OF ISSUANCE. The Corporation's board of directors
will have authorized the issuance and sale by it to the Purchasers pursuant to
this Agreement of the Series B Stock.
3.7 RESERVATION OF STOCK. The Corporation's board of directors will
have reserved sufficient shares of its authorized but unissued Common Stock for
the exclusive purpose of issuance upon conversion of the Series B Stock.
3.8 CAPITAL OUTSTANDING. As of the Initial Closing (but without giving
effect thereto), the Corporation will have a total of no more than that number
of shares of Preferred Stock and Common Stock issued and outstanding as listed
and described in Schedule 5.12(b). The Corporation will have outstanding no
options, convertible securities or warrants other than as listed and described
on Schedule 5.12(c) as of the Initial Closing.
3.9 CONSENT. The Corporation shall have obtained any and all consents
(including all governmental or regulatory consents, approvals or authorizations
required in connection with
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the valid execution and delivery of this Agreement), permits and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement.
3.10 SBA DOCUMENTS. The Corporation shall have provided each Purchaser
that is a Small Business Investment Company (a) with all information and
documentation that such Purchaser shall have requested in connection with the
preparation and completion of the Portfolio Financing Report on SBA Form 1031,
and (b) originals executed by the Corporation of each of (i) an SBA Letter in
form and substance previously delivered to certain purchasers of the Series A
Convertible Preferred Stock, (ii) the Size Status Declaration on SBA Form 480,
and (iii) the Assurance of Compliance on SBA Form 652.
3.11 PURCHASERS' LEGAL FEES AND EXPENSES. The Corporation will have
paid or provided for, as of the Initial Closing, the fees and disbursements of
counsel for the eCompanies Venture Group, L.P., Howard, Rice, Nemerovski,
Canady, Falk & Rabin, P.C., in an amount not to exceed $15,000.
IV. CONDITIONS OF THE CORPORATION'S OBLIGATIONS.
The obligation of the Corporation to issue the Series B Stock with
respect to any one Purchaser is subject to the satisfaction on or before the
date of the Closing of the following conditions with respect to such Purchaser,
all or any of which may be waived in writing by the Corporation:
4.1 PERFORMANCE. Each such Purchaser shall have duly performed and
complied in all material respects with each of the terms, agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing.
4.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of each Purchaser contained in Article VI and in any other documents delivered
at or prior to the Closing shall be true and accurate on and as of the Closing
with the same effect as though made on and as of the date of the Closing.
4.3 INSTRUMENTS AND DOCUMENTS. All instruments and documents required
to carry out this Agreement or incidental thereto shall be reasonably
satisfactory to the Corporation and its counsel.
4.4 SUITS/PROCEEDINGS. No action, suit, proceeding or investigation by
or before any court, administrative agency or other governmental authority shall
have been instituted or threatened to restrain, prohibit or invalidate the
transactions contemplated by this Agreement.
4.5 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
V. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
Except as set forth on any Schedules attached hereto and incorporated
herein by reference, the Corporation hereby represents and warrants to each
Purchaser as of the date hereof and as of the Initial Closing as follows:
5.1. CORPORATE EXISTENCE AND AUTHORITY.
(a) The Corporation (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
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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 Corporation 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 Subsidiary (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.
5.2 FINANCIAL STATEMENTS AND REPORTS. The Corporation has timely filed
all required forms, reports, statements and documents with the SEC, all of which
have complied in all material respects with all applicable requirements of the
Exchange Act and the Securities Act, as the case may be. The Corporation has
delivered or made available to each Purchaser true and complete copies of (i)
the Corporation's Annual Report on Form 10-KSB for the fiscal year ended June
30, 1999, (ii) its proxy statement relating to the Corporation's annual
stockholders meeting held November 19, 1999, (iii) all other forms, reports,
statements and documents filed by the Corporation with the SEC pursuant to the
Exchange Act since June 30, 1999, and (iv) all reports, statements and other
information provided by the Corporation to its stockholders since January 1,
1999 (collectively, the "SEC Reports"). As of their respective dates, the SEC
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Each of the consolidated financial statements of the
Corporation included or incorporated by reference in the SEC Reports (including
any such SEC Report filed after the date of this Agreement until the Initial
Closing) were prepared in accordance with GAAP applied on a consistent basis
(except as otherwise stated in such financial statements or, in the case of
audited statements, the related report thereon of independent certified public
accounts), and present fairly the financial position and results of operations,
cash flows and of changes in stockholders' equity of the Corporation and its
consolidated subsidiaries as of the dates and for the periods indicated,
subject, in the case of unaudited interim financial statements, to normal
year-end audit adjustments, and except that the unaudited interim financial
statements do not contain all of the disclosures required by GAAP. Since June
30, 1999 there has been no change in any of the significant accounting
(including tax accounting) policies, practices, or procedures of the Corporation
or any of its consolidated subsidiaries. The Corporation is and has been subject
to the reporting requirements of the Exchange Act and has timely filed with the
SEC all periodic reports required to be filed by it pursuant thereto and all
reports required to be filed under Sections 13, 14 or 15(d) of the Exchange Act
since June 30, 1999.
5.3 DEFAULT. Except as disclosed on Schedule 5.3, neither the
Corporation nor the Subsidiary 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
Corporation is paying its debts as they become due.
5.4 AUTHORIZATION AND COMPLIANCE WITH LAWS AND MATERIAL AGREEMENTS.
Except as set forth on Schedule 5.4, the execution, delivery and performance by
the Corporation 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 Corporation and
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do not and will not violate the Certificate of Designation, or the Corporation's
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 upon any assets of the Corporation pursuant to the provisions of any loan
agreement, indenture, mortgage, security agreement, franchise, permit, license
or other instrument or agreement by which the Corporation or any of its
properties is bound. Except as set forth on Schedule 5.4, 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 Corporation 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 5.4 have been obtained. The Corporation 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 Corporation 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 Corporation.
5.5 ENVIRONMENTAL CONDITION OF THE PROPERTY. Except as disclosed on
Schedule 5.5:
(a) The location, construction, occupancy, operation and use
of the Corporation's properties 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 such properties,
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 5.5, collectively,
"applicable laws") where such violation would cause a Material Adverse Effect;
(b) Without limitation of clause (a) of this Section 5.5,
neither the Corporation, the Subsidiary nor such properties are 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;
(c) Neither the Corporation nor the Subsidiary is subject to
any liability or obligation relating to (i) the environmental conditions on,
under or about such properties, including, without limitation, the soil and
ground water conditions at such properties, 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
such properties which would cause a Material Adverse Effect;
(e) The Corporation and/or the Subsidiary, 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 their properties by the Corporation or the
Subsidiary, and the use which the Corporation and/or the Subsidiary makes and
intends to make of such properties does not and will not result in the disposal
or other release of any Polluting Substances on, onto, into or from such
properties; and
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(f) The Corporation and/or the Subsidiary, whichever is
applicable, have been issued all required federal, state and local licenses,
certificates or permits relating to, and their properties, the Corporation, the
Subsidiary and the Corporation's and the Subsidiary'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.
5.6 LITIGATION AND JUDGMENTS. Except as disclosed on Schedule 5.6,
there is no suit, action, proceeding or investigation pending or, to the best
knowledge of the Corporation, threatened against or affecting the Corporation or
the Subsidiary, the outcome of which, in the reasonable judgment of the
Corporation, is likely to have a Material Adverse Effect, nor is there any
judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person outstanding against the Corporation or the
Subsidiary having, or which is reasonably likely to have, a Material Adverse
Effect.
Except for litigation disclosed in the as disclosed on Schedule 5.6,
there is no action, suit, proceeding or investigation before any court,
governmental authority or arbitrator pending, or to the knowledge of the
Corporation threatened, against or affecting the Corporation, the Subsidiary,
this Agreement and/or the Other Agreements. Except as disclosed on Schedule 5.6,
there are no outstanding judgments against the Corporation or the Subsidiary.
None of the matters listed on Schedule 5.6 could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.
5.7 RIGHTS IN PROPERTIES; LIENS. Except as disclosed on Schedule 5.7,
the Corporation and the Subsidiary 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. The Corporation and the Subsidiary
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 Corporation and the Subsidiary have the exclusive
right to use all of the Intellectual Property necessary to their business as
presently conducted, and the Corporation's and the Subsidiary'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 Corporation's knowledge, no other Person is infringing the
rights of the Corporation or the Subsidiary in any of the Intellectual Property.
Neither the Corporation nor the Subsidiary owe any royalties, honoraria or fees
to any Person by reason of its use of the Intellectual Property.
5.8 ENFORCEABILITY. This Agreement and the Other Agreements to which
the Corporation is a party, when delivered, shall constitute the legal, valid
and binding obligations of the Corporation, enforceable against the Corporation
in accordance with their respective terms.
5.9 INDEBTEDNESS. Except as disclosed on the financial statements
identified in Section 5.2 and on Schedule 5.9, neither the Corporation nor the
Subsidiary have any Indebtedness. All Indebtedness owed by the Corporation or
the Subsidiary to any Affiliate is set forth on Schedule 5.9.
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5.10 TAXES. Except as set forth on Schedule 5.10, the Corporation and
the Subsidiary 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 Corporation or the Subsidiary 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. Neither the Corporation
nor the Subsidiary know of any pending investigation of the Corporation or the
Subsidiary by any taxing authority or pending but unassessed tax liability of
the Corporation or the Subsidiary, except as disclosed on Schedule 5.10. The
Corporation and the Subsidiary 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 Corporation nor the Subsidiary are a party to any
tax-sharing agreement.
5.11 USE OF PROCEEDS; MARGIN SECURITIES. Neither the Corporation nor
the Subsidiary 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 Corporation, the Subsidiary 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.
5.12 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 Corporation 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 5.12,
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.
5.13 DISCLOSURE. No representation or warranty made by the Corporation
in this Agreement or in any of the documents, instruments, or other information
furnished to the Purchaser by the Corporation, 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 Corporation in this Agreement, the Investors Rights
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,
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properties, or prospects of the Corporation or any of its Subsidiaries that has
not been disclosed in the documents provided to Purchaser.
5.14 SUBSIDIARIES AND CAPITALIZATION. The Corporation has no
Subsidiaries, other than the Subsidiary. All the issued and outstanding shares
of capital stock of the Corporation are duly authorized, validly issued, fully
paid and nonassessable. The capitalization of the Corporation on the Initial
Closing Date is set forth on Schedule 5.14 (b). No violation of any preemptive
rights of shareholders of the Corporation has occurred by virtue of the
transactions contemplated under this Agreement or any Other Agreement. There are
no outstanding contracts, options, warrants, instruments, documents or
agreements binding upon the Corporation granting to any Person or group of
Persons any right to purchase or acquire shares of the Corporation's capital
stock other than as set forth on Schedule 5.14(c).
5.15 CURRENT LOCATIONS. Schedule 5.15 identifies (a) the Corporation's
principal place of business and chief executive office, (b) all the locations
where the Corporation maintains any books or records relating to any of its
assets, (c) all other locations where the Corporation has a place of business,
and (d) each address where any of the Corporation's assets are located. Schedule
5.15 accurately indicates whether each such location is owned or leased, and, if
leased, identifies the owner of such location. No Person other than the
Corporation has possession of any material amount of the assets of the
Corporation except as disclosed on Schedule 5.15.
5.16 INVESTMENT CORPORATION ACT. Neither the Corporation, the
Subsidiary nor any company controlling the Corporation or the Subsidiary is
required to be registered as an "investment company" within the meaning of the
Investment Corporation Act of 1940, as amended.
5.17 PUBLIC UTILITY HOLDING CORPORATION ACT. Neither the Corporation
nor the Subsidiary 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 Corporation Act of 1935, as
amended.
5.18 SECURITIES LAWS. Assuming the truthfulness and accuracy of each
Purchaser's representations and warranties in Article 6, the Corporation has
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 Series B Stock.
5.19 NO LABOR DISPUTES. Neither the Corporation nor the Subsidiary is
involved in any labor dispute. The Corporation is not a party to any collective
bargaining agreement, and there are no strikes or walkouts or union organization
of any of the Corporation's or the Subsidiary's employees threatened or in
existence and no labor contract is scheduled to expire during the term of this
Agreement.
5.20 BROKERS. Except as described in Schedule 5.20, Neither the
Corporation 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 Corporation or any of its
shareholders under any obligation to pay any broker's fee or commission in
connection with such transactions.
5.21 INSURANCE. The amount and types of insurance carried by the
Corporation and the Subsidiary, and the terms and conditions thereof, are
substantially similar to the coverage maintained by companies in the same or
similar business as the Corporation and the Subsidiary and similarly situated.
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5.22 CONDUCT OF BUSINESS. On the Initial Closing Date, the Corporation
and the Subsidiary are engaged only in businesses of the type described in
Schedule 5.22.
5.23 SMALL BUSINESS CONCERN. The Subsidiary 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.
5.24 SURVIVAL OF REPRESENTATIONS. All representations made by the
Corporation in or under this Agreement shall be true and accurate as of the
Initial Closing and shall survive the Initial Closing for a period of two (2)
years thereafter (except for those changes contemplated in and provided for by
this Agreement).
VI. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
As of the Closing, each Purchaser represents and warrants to the
Corporation as to itself that:
6.1 INVESTMENT. The Purchaser is acquiring the Series B Stock and any
Common Stock issuable upon conversion of the Series B Stock for investment
purposes only for its own account, and not with a view to, or for resale in
connection with, any distribution thereof, and it has no present intention of
selling or distributing any such securities. Purchaser understands that the
Series B Stock (and any shares of Common Stock issued upon conversion of the
Series B Stock) have not been registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment as
expressed herein. All such securities are hereinafter collectively referred to
as the "Securities".
6.2 RULE 144. The Purchaser acknowledges that because the Securities
have not been registered under the Securities Act, the Securities must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. It is aware of the provisions of
Rule 144 promulgated under the Securities Act which permits limited resale of
shares purchased in a private placement under certain circumstances.
6.3 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the
Corporation's business, management and financial affairs with its management and
to obtain any additional information necessary or appropriate for deciding
whether or not to purchase the Securities.
6.4 KNOWLEDGE AND EXPERIENCE. Purchaser has such knowledge and
experience in financial and business matters, including investments in other
companies that are in a financial condition substantially similar to the
Corporation's financial condition immediately prior to the Initial Closing, that
it is capable of evaluating the merits and risks of the investment in the
Securities, and it is able to bear the economic risk of such investment.
Further, the individual executing this Agreement has such knowledge and
experience in financial and business matters that he or she is capable of
utilizing the information made available to him or her in connection with the
offering of the Securities, of evaluating the merits and risks of an investment
in the Securities and of making an informed investment decision with respect to
the Securities.
6.5 REQUISITE POWER. The Purchaser has all requisite power and
authority necessary to enter into and to carry out the provisions of this
Agreement and the transactions contemplated hereby.
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6.6 DULY AUTHORIZED. All action on the part of the Purchaser necessary
for the purchase of its Series B Stock and the performance of the Purchaser's
obligations hereunder has been taken or will be taken prior to the Closing. This
Agreement is a legal, valid and binding obligation of the Purchaser enforceable
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws and equitable
principles relating to or affecting the enforcement of creditors' rights in
general and by general principles of equity.
6.7 ACCREDITED INVESTOR. Purchaser is an "accredited investor" as that
term is defined in Regulation D promulgated by the Securities and Exchange
Commission. The term "Accredited Investor" under Regulation D refers to:
(i) A person or entity who is a director or executive officer
of the Corporation;
(ii) Any bank as defined in Section 3(a)(2) of the Securities
Act, or any savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to Section 15 of
the Exchange Act; insurance Corporation as defined in Section 2(13) of the
Securities Act; investment Corporation registered under the Investment
Corporation Act of 1940; or a business development Corporation as defined in
Section 2(a)(48) of that Act; Small Business Investment Corporation licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such Act, which is
either a bank, savings and loan association, insurance Corporation, or
registered investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment decision
made solely by persons that are accredited investors;
(iii) Any private business development Corporation as defined
in Section 202(a)(22) of the Investment Advisers Act of 1940;
(iv) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the Securities
offered, with total assets in excess of $5,000,000;
(v) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his purchase exceeds
$1,000,000;
(vi) Any natural person who had an individual income in excess
of $200,000 during each of the previous two years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the Securities offered, whose
purchase is directed by a person who has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of the prospective investment; or
(viii) Any entity in which all of the equity owners are
accredited investors.
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<PAGE> 16
As used in this Section 6.8, the term "net worth" means the
excess of total assets over total liabilities. For the purpose of determining a
person's net worth, the principal residence owned by an individual should be
valued at fair market value, including the cost of improvements, net of current
encumbrances. As used in this Section 6.8, "income" means actual economic
income, which may differ from adjusted gross income for income tax purposes.
Accordingly, the undersigned should consider whether it should add any or all of
the following items to its adjusted gross income for income tax purposes in
order to reflect more accurately its actual economic income: Any amounts
attributable to tax-exempt income received, losses claimed as a limited partner
in any limited partnership, deductions claimed for depletion, contributions to
an IRA or Keogh retirement plan, and alimony payments.
6.9 RESIDENT. Purchaser has its, his or her principal residence in the
state indicated on Schedule 1.
VII. RESTRICTIONS ON TRANSFER OF SECURITIES.
The Securities are not transferable except upon the conditions
specified in this Article VII, which conditions are intended to ensure
compliance with the provisions of the Securities Act and state securities laws
in respect of the transfer of any of such securities. Each instrument
representing the Securities shall be stamped or otherwise imprinted with legends
substantially in the following form until such time as the conditions set forth
in such legends have been met:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, OR THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THE SECURITIES STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND THE
QUALIFICATION REQUIREMENTS UNDER STATE LAW."
The Corporation shall be entitled to enter stop transfer notices on its
stock books with respect to the Securities until the conditions as set forth in
the legend above with respect to the transfer of such securities have been met.
VIII. AFFIRMATIVE COVENANTS
The Corporation covenants and agrees that so long any Purchaser holds
at least twenty percent (20%) of all shares of the Series B Stock issued and
sold in the Closings, the Corporation shall furnish the following to such
Purchaser until the conversion of such Series B Stock into common stock:
8.1 FINANCIAL STATEMENTS.
(a) As soon as available, and in any event within ninety (90)
days after the end of each fiscal year of the Corporation, beginning with the
fiscal year ending June 30, 2000, (i) a copy of the annual audit report of the
Corporation for such fiscal year containing a balance sheet, statement of
income, statement of stockholders' equity, and statement of cash flow as
16
<PAGE> 17
at the end of such fiscal year and for the fiscal year then ended, all in
reasonable detail and audited and certified by independent certified public
accountants of recognized standing.
(b) 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 Corporation 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).
(c) So long as the Corporation is obligated to provide the
following financial statements to the holders of the Corporation's senior
subordinated 8% debt, as soon as available, and in any event within thirty (30)
days after the end of each calendar month, a copy of an unaudited financial
report of the Corporation as of the end of such calendar month and for the
portion of the fiscal year then ended, 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 Corporation for such period.
(d) On or before thirty (30) days after receipt by Corporation
of written request for such information, which request may only be given during
the last quarter of any fiscal year of the Corporation, an annual budget or
business plan of the Corporation for the next fiscal year approved by a majority
of the Board of Directors.
(e) Promptly upon receipt thereof, any written report
submitted to the Corporation by independent public accountants in connection
with an annual or interim audit of the books of the Corporation made by such
accountants.
(f) Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Corporation, any technology or patent rights that it has, or any
other material assets of the Corporation, or any key employee or officer (in
their capacities as such) the outcome of which could reasonably have a Material
Adverse Effect.
8.2 BOOKS AND RECORDS. The Corporation 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.
IX. NEGATIVE COVENANTS. Without the approval of the holders of at least a
majority of the shares of Series B Stock voting together as a class, except as
otherwise required by applicable law, the Corporation will not take any action
that:
(i) except for a "Qualified Liquidation Event" (as defined in the
Certificate of Designation) effects a sale of all or substantially all of the
Corporation's assets or which results
17
<PAGE> 18
in the holders of the Corporation's capital stock prior to the transaction
owning less than 50% of the voting power of the Corporation's capital stock
after the transaction,
(ii) alters or changes the rights, preferences or privileges of the
Series B Stock so as to materially and adversely affect such shares,
(iii) increases or decreases the number of authorized shares of Series
B Stock,
(iv) authorizes the issuance of securities having a preference over or
on parity with the Series B Stock,
(v) redeems shares (excluding Common Stock repurchased upon termination
of an officer, employee, director or consultant pursuant to a restricted stock
purchase agreement or other compensatory plan or agreement),
(vi) amends or repeals any provision of, or adds any provision to, the
Corporation's Articles of Incorporation or Bylaws if such action would alter or
change the rights, preferences, privileges or restrictions of the Series B
Stock, so as to affect adversely such shares,
(vii) authorizes the payment of dividends to Common Stock, or
(viii) except for a Qualified Liquidation Event, consummates a
transaction subject to Section 305 of the Code.
X. INVESTORS RIGHTS AGREEMENT.
The Corporation shall at the Initial Closing enter into the Investors
Rights Agreement in form and substance substantially as attached hereto as
Exhibit B granting each Purchaser the registration rights set forth therein.
XI. MISCELLANEOUS.
11.1 REMEDIES. Any Person having any rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages by reason of any breach of any provision of this Agreement, and to
exercise all other rights granted by law, which rights may be exercised
cumulatively and not alternatively.
11.2 CONSENT TO AMENDMENTS. Except as otherwise expressly provided
herein, the provisions of this Agreement and any exhibit attached hereto may be
amended and the Corporation may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if it has obtained
the written consent of Purchasers holding at least sixty-six and two-thirds
percent (66-2/3%) or more of the outstanding shares of Series B Stock. No course
of dealing between the Corporation and any Purchaser or any delay in exercising
any rights hereunder or under the Corporation's Articles of Incorporation will
operate as a waiver of any rights of any such Purchaser. Notwithstanding the
foregoing, this Section 11.2 shall not be amended without the consent of all
Purchasers holding Series B Stock.
11.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein or made in writing by any party in connection
herewith will survive the execution and delivery of this Agreement for a period
of two (2) years after the Initial Closing.
11.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties
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<PAGE> 19
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not.
11.5 SEVERABILITY. Each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
11.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts when taken together shall constitute one and
the same Agreement.
11.7 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
11.8 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
Schedule I hereto or to such other address as such Purchaser may in writing
designate, or (b) if to the Corporation, addressed to the Corporation at the
address set forth below or to such other address as the Corporation 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.
IF TO PURCHASERS: To the Addresses set forth on
Schedule 1
WITH A COPY TO: Howard, Rice, Nemerovski,
Canady, Falk & Rabkin,
A Professional Corporation
Attn. Denis T. Rice, Esq.
3 Embarcadero Center, 6th Floor
San Francsico, CA 94111
FAX: (415) 217-5910
Patton Boggs LLP
Attn: Charles P. Miller
2001 Ross Avenue, Suite 3000
Dallas, Texas 75201
FAX: (214) 871-2688
IF TO THE CORPORATION: Valuestar Corporation
Attn: Jim Stein
360 - 22nd Street, Suite 210
Oakland, CA 94612
FAX: (510) 808-1400
WITH A COPY TO: Bay Venture Counsel, LLP
Attn: Donald C. Reinke, Esq.
1999 Harrison Street, Suite 1300
Oakland, CA 94612
FAX: (510) 834-7440
19
<PAGE> 20
11.9 GOVERNING LAW. The validity, meaning and effect of this Agreement
shall be determined in accordance with the laws of California applicable to
contracts made and to be performed entirely in California as if by and between
California residents.
11.10 SCHEDULES AND EXHIBITS. All schedules and exhibits are an
integral part of this Agreement.
11.11 LITIGATION COSTS. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
therein shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
11.12 FINAL AGREEMENT. This Agreement and the exhibits and schedules
attached hereto constitute the only agreement of the parties concerning the
matters herein, and supersedes, merges and renders void all prior written/oral,
and/or contemporaneous agreements and understandings related thereto.
11.13 CONFIDENTIALITY. Each Purchaser agrees to keep confidential any
information delivered by the Corporation or Subsidiary to such Purchaser under
this Agreement that the Corporation or Subsidiary clearly indicates in writing
to be confidential information; provided, however, that nothing in this Section
11.13 will prevent such Purchaser from disclosing such information (a) to any
Affiliate of such Purchaser or any actual or potential purchaser, participant,
assignee, or transferee of such Purchaser's rights or obligations hereunder that
agrees to be bound by the terms of this Section 11.13, (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 Purchaser, (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 Purchaser, (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 Purchaser. The
Corporation agrees that such Purchaser will be presumed to have met its
obligations under this Section 11.13 to the extent that it exercises the same
degree of care with respect to information provided by the Corporation or
Subsidiary as it exercises with respect to its own information of similar
character.
11.14 PUBLIC DISCLOSURE. Except as may be required to comply with
applicable law, no Purchaser shall make or cause to be made any press release or
similar public announcement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the respective Closing dates.
(SIGNATURES FOLLOW ON NEXT PAGE)
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<PAGE> 21
\SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the Corporation and each Purchaser identified on
Schedule 1 have caused this Agreement to be executed and delivered by their
respective officers thereunto duly authorized.
CORPORATION:
VALUESTAR CORPORATION
By: /s/ JAMES STEIN
-----------------------------------
Name: James Stein
Its: President and Chief Executive Officer
S-1
<PAGE> 22
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASER:
eCOMPANIES VENTURE GROUP, L.P.
By:
-----------------------------------
its general partner
By: /s/ STEVE LEDGER
-----------------------------------
Name: Steve Ledger
Title: Managing General Partner
SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By: /s/ JEFFREY J. HOLLAND
-----------------------------------
Name: Jeffrey J. Holland
Title: Vice President
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
S-2
<PAGE> 23
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASER:
eCOMPANIES VENTURE GROUP, L.P.
By:
-----------------------------------
its general partner
By:
-----------------------------------
Name: Steve Ledger
Title: Managing General Partner
SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:
-----------------------------------
Name: Jeffrey J. Holland
Title: Vice President
PACIFIC MEZZANINE FUND, L.P.
By: Tangent Fund Management LLC
its general partner
By: /s/ ANDREW B. DUMKE
-----------------------------------
Name: Andrew B. Dumke
Title: Managing General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management LLC
its general partner
By:
-----------------------------------
Name: Mark P. Gilles
Title: Vice President
S-2
<PAGE> 24
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
ROBERT S. LONDON
---------------------------------------
Name of Holder
/s/ ROBERT S. LONDON
---------------------------------------
Authorized Signature
ROBERT S. LONDON
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 25
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
JOSHUA M. FELSER
---------------------------------------
Name of Holder
/s/ JOSHUA M. FELSER
---------------------------------------
Authorized Signature
JOSHUA M. FELSER
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 26
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
DAVID SAMUEL
---------------------------------------
Name of Holder
/s/ DAVID SAMUEL
---------------------------------------
Authorized Signature
DAVID SAMUEL
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 27
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
CASA BLANCA VENTURES, LLC
---------------------------------------
Name of Holder
/s/ FRITZ T. BEESEMYER
---------------------------------------
Authorized Signature
FRITZ T. BEESEMYER, MANAGING MEMBER
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 28
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
DOUBLE BOGEY LLC
---------------------------------------
Name of Holder
/s/ [ILLEGIBLE]
---------------------------------------
Authorized Signature
JOHN MCSORLEY - President
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 29
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THE BESSEMYER FAMILY TRUST
---------------------------------------
Name of Holder
/s/ RICHARD L. BEESEMYER
---------------------------------------
Authorized Signature
RICHARD L. BEESEMYER
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 30
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
CHARLES A. GREENBERG
---------------------------------------
Name of Holder
/s/ CHARLES A. GREENBERG
---------------------------------------
Authorized Signature
CHARLES A. GREENBERG
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 31
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
JEROME H. ATCHLEY
---------------------------------------
Name of Holder
/s/ JEROME H. ATCHLEY
---------------------------------------
Authorized Signature
JEROME H. ATCHLEY AS AN INDIVIDUAL
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 32
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
DANA LYON
---------------------------------------
Name of Holder
/s/ DANA LYON
---------------------------------------
Authorized Signature
DANA LYON
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 33
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
JUDSON C. BALL
---------------------------------------
Name of Holder
/s/ JUDSON C. BALL
---------------------------------------
Authorized Signature
JUDSON C. BALL
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 34
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Frederick M. Pistilli & Rodney M. Pistilli, General Partners of
Pistilli Diversified Partners, L.P.
---------------------------------------
Name of Holder
/s/ FREDERICK M. PISTILLI /s/ RODNEY M. PISTILLI
--------------------------------------- ---------------------------
Authorized Signature
RODNEY M. PISTILLI
FREDERICK M. PISTILLI - GENERAL PARTNER GENERAL PARTNER
--------------------------------------- ---------------------------
Print Name and Title of Signatory
S-3
<PAGE> 35
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
DALE PISTILLI
---------------------------------------
Name of Holder
/s/ DALE PISTILLI
---------------------------------------
Authorized Signature
DALE PISTILLI
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 36
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
DAVID WOODWARD
---------------------------------------
Name of Holder
/s/ DAVID WOODWARD
---------------------------------------
Authorized Signature
DAVID WOODWARD
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 37
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
---------------------------------------
Name of Holder
/s/ JOHNATHAN A. BERG
---------------------------------------
Authorized Signature
---------------------------------------
Print Name and Title of Signatory
Cathy Fassel
[ILLEGIBLE]
501 N. Broadway
St. Louis, MO 63102
S-3
<PAGE> 38
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
JONATHAN A. BERG
---------------------------------------
Name of Holder
/s/ JONATHAN A. BERG
---------------------------------------
Authorized Signature
JONATHAN A. BERG
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 39
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
DONALD REINKE
---------------------------------------
Name of Holder
/s/ DONALD REINKE
---------------------------------------
Authorized Signature
DONALD REINKE
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 40
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
JAMES L. BERG
---------------------------------------
Name of Holder
/s/ JAMES L. BERG
---------------------------------------
Authorized Signature
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 41
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
GREG BUTTIE
---------------------------------------
Name of Holder
/s/ GREG BUTTIE
---------------------------------------
Authorized Signature
GREG BUTTIE
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 42
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
ValueStar Embarcadero Investors
---------------------------------------
Name of Holder
/s/ Denis T. Rice
---------------------------------------
Authorized Signature
Denis T. Rice General Partner
---------------------------------------
Print Name and Title of Signatory
S-3
<PAGE> 43
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE I
TO
PURCHASE AGREEMENT
INFORMATION CONCERNING PURCHASER
<TABLE>
<CAPTION>
PURCHASER: eCOMPANIES VENTURE GROUP, L.P.
<S> <C>
Number of Shares
Series B Stock: 345,715
Investment Amount: $6,050,000
Address for notices: eCompanies Venture Group, L.P.
2120 Colorado Boulevard
Santa Monica, CA 90404
Attn: Steve Ledger
Facsimile: (310) 586-4425
PURCHASER: SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP
Number of Shares
Series B Stock: 50,129
Investment Amount: $877,245
($265,000 Cash; $612,245 Senior Debt)
Address for notices: Seacoast Capital Partners Limited Partnership
c/o Seacoast Capital Corporation
55 Ferncroft Road
Danvers, Massachusetts 01923
Attn: Walter Leonard
Facsimile: (508) 750-1301
Seacoast Capital Partners Limited Partnership
c/o Seacoast Capital Corporation
One Sansome St., Suite 2100
San Francisco, CA 94104
Attn: Jeff Holland
Facsimile: (415) 956-1459
With a copy to:
Patton Boggs LLP
2200 Ross Ave., Suite 900
Dallas, Texas 75201
Attn: Charlie Miller, Esq.
Facsimile: (214) 871-2688
</TABLE>
S-4
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SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE I
TO
PURCHASE AGREEMENT
INFORMATION CONCERNING PURCHASER
<TABLE>
<CAPTION>
PURCHASER: TANGENT GROWTH FUND, L.P.
<S> <C>
Number of Shares
Series B Stock: 11,021
Investment Amount: $192,857
($50,000 Cash; $142,57 Senior Debt)
Address for notices: Tangent Growth Fund, L.P.
1 Union Square
180 Geary Street, Suite 500
San Francisco, CA 94108
Attn: Mark Gilles
Facsimile: (415) 392-1928
With a copy to:
Patton Boggs LLP
2200 Ross Ave., Suite 900
Dallas, Texas 75201
Attn: Charlie Miller, Esq.
Facsimile: (214) 871-2688
PURCHASER: PACIFIC MEZZANINE FUND, L.P.
Number of Shares
Series B Stock: 19,138
Investment Amount: $334,898
($90,000 Cash; $244,898 Senior Debt)
Address for notices: Pacific Mezzanine Fund, L.P.
2200 Powell Street, Suite 1250
Emeryville, CA 94608
Attn: Andrew B. Dumke
Facsimile: (510) 595-9801
</TABLE>
S-5
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SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE I
TO
PURCHASE AGREEMENT
INFORMATION CONCERNING PURCHASER
<TABLE>
<CAPTION>
PURCHASER: DOUBLE BOGEY, LLC
<S> <C>
Number of Shares
Series B Stock: 3,000
Investment Amount: $52,500
Address for notices: Double Bogey, LLC
76 Moncada Way
San Rafael, CA 94901
Attn: John McSorley
Facsimile: (415) 460-0215
Tel: (415) 460-6541
PURCHASER: CASA BLANCA VENTURES, LLC
Number of Shares
Series B Stock: 9,000
Investment Amount: $157,500
Address for notices: Casa Blanca Ventures, LLC
5101 North Casa Blanca Drive
Suite 219
Scotsdale, AZ 85253
Attn: Fritz Beesemyer, Managing Member
Facsimile: (480) 9475-2095
Tel: (480) 947-3362
PURCHASER: THE BEESEMYER FAMILY TRUST U/A/D 10/28/96
Number of Shares
Series B Stock: 2,858
Investment Amount: $50,000
Address for notices: The Beesemyer Family Trust U/A/D 10/28/96
The Kalil Company
3444 North Country Club
Tucson, AZ 85716
Attn: Richard L. Beesemyer, Trustee
Facsimile: (520) 332-0584
Tel: (520) 795-1050
</TABLE>
S-6
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SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE I
TO
PURCHASE AGREEMENT
INFORMATION CONCERNING PURCHASER
<TABLE>
<CAPTION>
PURCHASER: ROBERT S. LONDON
<S> <C>
Number of Shares Series B Stock: 28,572
Investment Amount: $500,000
Address for notices: Robert S. London
c/o Cruttenden Roth
809 Presidio Avenue, Suite B
Santa Barbara, CA 93101
Facsimile: (805) 966-9302
PURCHASER: JOSHUA MARTIN FELSER
Number of Shares Series B Stock: 8,572
Investment Amount: $150,000
Address for notices: Joshua Martin Felser
1960 Baker Street
San Francisco, CA 94115
Facsimile: (415) 703-0979
PURCHASER: CHARLES AND KAREN GREENBERG, JOINT
TENANTS
Number of Shares Series B Stock: 5,715
Investment Amount: $100,000
Address for notices: Charles and Karen Greenberg
5541 E. Paseo Bueno
Tucson, AZ 85720
Facsimile: (520) 577-6231
</TABLE>
S-7
<PAGE> 47
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE I
TO
PURCHASE AGREEMENT
INFORMATION CONCERNING PURCHASER
<TABLE>
<CAPTION>
PURCHASER: JEROME H. ATCHLEY
<S> <C>
Number of Shares Series B Stock: 2,858
Investment Amount: $50,000
Address for notices: Jerome H. Atchley
One East Palisades Dr.
Little Rock, AR 72207-1903
Facsimile: (501) 615-1515
PURCHASER: DANA J. LYON
Number of Shares Series B Stock: 1,429
Investment Amount: $25,000
Address for notices: Dana J. Lyon
3471 Jackson Street
San Francisco, CA 94118
Facsimile: ( ) -
PURCHASER: JUDSON C. BALL
Number of Shares Series B Stock: 1,429
Investment Amount: $25,000
Address for notices: Judson C. Ball
2415 E. Camelback Road, #700
Phoenix, AZ 86016
Facsimile: (602) 508-6051
</TABLE>
S-8
<PAGE> 48
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE I
TO
PURCHASE AGREEMENT
INFORMATION CONCERNING PURCHASER
<TABLE>
<CAPTION>
PURCHASER: PISTILLI DIVERSIFIED PARTNERS, L.P.
<S> <C>
Number of Shares Series B Stock: 5,715
Investment Amount: $100,000
Address for notices: Pistilli Diversified Partners, L.P.
Rodney M. Pistilli, General Partner
Frederick M. Pistilli, General Partner
9095 Etching Overlook
Duluth, GA 30097
With a copy to: Pistilli Diversified Partners, L.P.
c/o Susan Sasser or Steve Carroll
Sun Trust Bank, Atlanta Investment
Advisor for Frederick M. Pistilli and
Rodney M. Pistille
U/A Dated 5/1/98
P. O. Box 4655 - Center 214
Atlanta, GA 30302
Facsimile: (404) 588-7711
PURCHASER: DALE H. PISTELLI
Number of Shares Series B Stock: 2,858
Investment Amount: $50,000
Address for notices: Dale H. Pistelli
78 Toledo Way
San Francisco, CA 94123
Facsimile: (415)
</TABLE>
S-9
<PAGE> 49
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE I
TO
PURCHASE AGREEMENT
INFORMATION CONCERNING PURCHASER
<TABLE>
<CAPTION>
PURCHASER: DAVID WOODWARD
<S> <C>
Number of Shares Series B Stock: 1,715
Investment Amount: $30,000
Address for notices: David C. Woodward
324 Locust Street
San Francisco, CA 94118
Facsimile: (415)
PURCHASER: JONATHAN A. BERG, IRA #1499-2225
Number of Shares Series B Stock: 2,858
Investment Amount: $50,000
Address for notices: Jonathan A. Berg, IRA #1499-2225
c/o Stifel, Nicolaus & Co., Inc.
Attn: Cathy Fassel, Manager
501 North Broadway
St. Louis, MO 63102
Facsimile: (314) 342-2806
PURCHASER: JONATHAN A. BERG
Number of Shares Series B Stock: 2,858
Investment Amount: $50,000
Address for notices: Jonathan A. Berg
c/o Berg Capital
914 Broadway
New York, NY 10010
Facsimile: (212) 982-1488
</TABLE>
S-10
<PAGE> 50
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE I
TO
PURCHASE AGREEMENT
INFORMATION CONCERNING PURCHASER
<TABLE>
<CAPTION>
PURCHASER: DONALD C. REINKE
<S> <C>
Number of Shares
Series B Stock: 2,000
Investment Amount: $35,000
Address for notices: Donald C. Reinke
c/o Bay Venture Counsel, LLP
1999 Harrison Street, Suite 1300
Oakland, CA 94612
Facsimile: (510) 834-7440
PURCHASER: JAMES L. BERG
Number of Shares
Series B Stock: 858
Investment Amount: $15,000
Address for notices: James L. Berg
c/o Bay Venture Counsel, LLP
3600 West Bayshore, Suite 101
Palo Alto, CA 94303
Facsimile: (650) 854-8797
PURCHASER: GREGORY L. BEATTIE
Number of Shares
Series B Stock: 286
Investment Amount: $5,000
Address for notices: Gregory L. Beattie
c/o Bay Venture Counsel, LLP
1999 Harrison Street, Suite 1300
Oakland, CA 94612
Facsimile: (510) 834-7440
</TABLE>
S-11
<PAGE> 51
SIGNATURE PAGES TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE I
TO
PURCHASE AGREEMENT
INFORMATION CONCERNING PURCHASER
<TABLE>
<CAPTION>
PURCHASER: DAVID SAMUEL
<S> <C>
Number of Shares Series B Stock: 5,715
Investment Amount: $100,000
Address for notices: David Samuel
c/o Spinner.com
375 Alabama Street, #350
San Francisco, CA 94110
Facsimile: (415) 703-0979
PURCHASER: VALUESTAR EMBARCADERO INVESTORS
Number of Shares Series B Stock: 2,858
Investment Amount: $50,000
Address for notices: ValueStar Embarcadero Investors
Paul R. Rogers, General Partner
c/o Howard, Rice, Nemerovski, Canady,
Falk & Rabkin
3 Embarcadero Center, Seventh Floor
San Francisco, CA 94111
Facsimile: (415) 217-5910
</TABLE>
S-12
<PAGE> 52
VALUESTAR CORPORATION
DISCLOSURE SCHEDULE TO
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
December 8, 1999
In connection with the execution and delivery of that certain Series B
Preferred Stock Purchase Agreement (the "Agreement") dated as of December 8,
1999 by and among Valuestar Corporation, a Colorado corporation (the
"Corporation"), and the Purchasers identified on Schedule 1 of the Agreement,
the Corporation, the Corporation hereby delivers this Disclosure Schedule (this
"Schedule") to the Company's representations and warranties given in Section 5
of the Agreement. References to any document do not purport to be complete and
are qualified in their entirety by the document itself. Unless the context
otherwise requires, all capitalized terms used in this Schedule shall have the
respective meanings assigned to them in the Agreement.
No reference to or disclosure of any item or other matter in this
Schedule shall be construed as an admission or indication that such item or
other matter is material or that such item or other matter is required to be
referred or disclosed in this Schedule. No reference in this Schedule to any
agreement or document shall be construed as an admission or indication that such
agreement or document is enforceable or currently in effect or that there are
any obligations remaining to be performed or any rights that may be exercised
under such agreement or document. No disclosure in this Schedule relating to any
possible breach or violation of any agreement, law or regulation shall be
construed as an admission or indication that any such breach or violation exists
or has actually occurred.
This Schedule and the information and disclosures contained herein are
intended only to list those items required to be listed in Section 5 of the
Agreement, and to qualify and limit the representations, warranties and
covenants of the Company contained in the Agreement and shall not be deemed to
expand in anyway the scope or effect of any of such representations, warranties
or covenants.
Notwithstanding anything to the contrary contained in this Schedule or
in the Agreement, the information and disclosures contained in each section of
this Schedule shall be deemed to be disclosed and incorporated by reference in
each of the other sections of this Schedule as though fully set forth in such
other sections (whether or not specific cross references are made).
The headings contained in this Schedule are included for convenience
only, and are not intended to limit the effect of the disclosures contained in
this Schedule or to expand the scope of the information required to be disclosed
in this Schedule.
<PAGE> 53
SCHEDULE 5.2
TO
STOCK PURCHASE AGREEMENT
Disclosures For Previous Financial Statements
NONE
<PAGE> 54
SCHEDULE 5.3
TO
STOCK PURCHASE AGREEMENT
Defaults under Existing Agreements
Pursuant to the terms of a Waiver Agreement effective as of June 30, 1999,
Seacoast Capital Partners Limited Partnership, Pacific Mezzanine Fund, LP and
Tangent Growth Fund, LP waived certain defaults by the Corporation under Section
7.9 of the Note Purchase Agreement that requires the Corporation to obtain a
minimum EBITDA of ($800,000) and a loss of no more than ($1,000,000) for the
fiscal quarter ending June 30, 1999. ValueStar Corporation had an EBITDA and a
lower net income than these minimums. The Senior Lenders also amended financial
covenants by the First Amendment to Note Purchase Agreement dated September 9,
1999 and by Second Amendment to Note Purchase Agreement dated December __, 1999.
<PAGE> 55
SCHEDULE 5.4
TO
STOCK PURCHASE AGREEMENT
Authorizations, Approvals, Consents and Filings
NONE (other than by Seacoast Capital Partners Limited Partnership, Pacific
Mezzanine Fund, L.P., Tangent Growth Fund, L.P. and the holders of a majority of
the Series A Preferred Stock).
<PAGE> 56
SCHEDULE 5.5
TO
STOCK PURCHASE AGREEMENT
Environmental Condition of Property
NONE
<PAGE> 57
SCHEDULE 5.6
TO
STOCK PURCHASE A2REEMENT
Litigation and Judgments
NONE
<PAGE> 58
SCHEDULE 5.7
TO
STOCK PURCHASE AGREEMENT
Please see the attachments to Schedule 11.1(b) of the Note Purchase Agreement.
Additionally, the company has leased an additional $250,964.50 of computer,
voice and office equipment through various sources since the March 31 closing.
Liens have been placed or are pending on the equipment detailed below:
<TABLE>
<CAPTION>
LEASING/LENDING LEASE #'S EQUIP DESCRIPTION BUYOUT
INSTITUTION COST INFO
-------------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
PREFERRED CAPITAL 316-0373214-001 20,880.50 DELL SRVR, 1 LAPTOP, 6 $1 BUYOUT
CLIENTS
905 N. LAKE BLVD. 316-0373214-002 11,284.00 2 DELL SERVERS $1 BUYOUT
TAHOE CITY, CA 96145
(COLONIAL PACIFIC
DOES THE BILLING)
NEW CAL INDUSTRIES NOT YET ASSIGNED 26,000.00 2 KONICA 7033 DIGITAL FMV
COPIERS
2061 CHALLENGER DR.
ALAMEDA, CA 94501
KONICA LEASING NOT YET ASSIGNED 13,000.00 1 KONICA 7033 DIGITAL FMV
COPIER
PO BOX 7023
TROY, MI 48007-7023
PACIFICA CAPITAL NOT YET ASSIGNED 19,800.00 12 400 MHZ CELERONS FMV
4 VENTURE, STE. 260 1 INSPIRON 3700 LAPTOP
IRVINE, CA 92618 1 POWEREDGE 2300 SERVER
DAVRIC CORPORATION NOTE PAYABLE 160,000.00 SIEMENS TELEPHONE SWITCH FULL
OWNERSHIP
</TABLE>
<PAGE> 59
SCHEDULE 5.9
TO
STOCK PURCHASE AGREEMENT
Permitted Indebtedness
Reference is made to that Note Purchase Agreement ("Note Purchase Agreement")
dated as of March 31, 1999, as amended, by and among Valuestar, Inc., the
Corporation's wholly-owned subsidiary, Seacoast Capital Partners Limited
Partnership ("Seacoast"), Pacific Mezzanine Fund, L.P. ("Pacific"), and Tangent
Growth Fund, L.P. ("Tangent"), pursuant to which Valuestar, Inc. issued and sold
to each of Seacoast, Pacific and Tangent (collectively, the "Holders") senior,
secured 8% notes ("Senior Notes") in the principal amount of $2,450,000, with
detachable warrants. As set forth more fully in the Note Agreement, the Senior
Notes are secured by substantially all assets of the Corporation and Valuestar,
Inc., including a key person life insurance, as well as the pledge by Jim Stein,
James A. Barnes and Jerry E. Polis (the "Shareholders") of an aggregate of
2,861,557 shares of Common Stock (which does not include any Series A Stock (or
Common Stock issuable upon conversion thereof) purchased by any entity
controlled or owned by any Shareholder under the Purchase Agreement). 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 following is a list of Subordinated Lenders and the principal amount of the
debt as of the date hereof:
AS OF NOVEMBER 30,1999
<TABLE>
<CAPTION>
Payee (short name) Date Principal
<C> <C> <C>
12% SUBORDINATED NOTES DUE JUNE 30, 2000
Canusa Trading Ltd 12/5/1997 $ 50,000
Neo Optics Ltd 11/25/1997 $ 50,000
Guy Aach 12/30/1997 $ 50,000
Jerry E. Polis, Trustee 12/30/1997 $ 50,000
Herbert Fischer 12/30/1997 $ 50,000
Gerald L. Ehrens 1/5/1998 $ 25,000
Amgest Ltd. Properties Nevada One Account 1/5/1998 $ 35,000
David A. Polis 1/5/1998 $ 12,500
Mark E. Silvert 1/8/1998 $ 25,000
Harold S. Orchow, M.D. Profit Sharing Trust 1/9/1998 $100,000
David Rosenblatt 1/15/1998 $ 25,000
Charles W. Zumpft, M.D. Ltd. Money 1/15/1998 $ 35,000
Purchase Pension Plan and Trust
Shirlee A. Helton 1/20/1998 $ 50,000
Dawayne Jacobs 1/22/1998 $ 50,000
Mike Silvert 1/23/1998 $ 25,000
Judith Buckingham Trust 1/26/1998 $ 50,000
The Herbert Stein and Marlene Stein 1/25/1998 $ 12,500
1993 Living Trust, Dated January 25, 1993
Eric M. Polis 2/15/1998 $ 25,000
Robyn B. Townsend 2/24/1998 $ 50,000
William Bannen 3/4/1998 $ 25,000
Nancy Reynolds 3/13/1998 $ 25,000
Lana B. Carter 3/17/1998 $ 50,000
Dean P. Studer 3/24/1998 $ 18,750
Thomas S. Fischer 3/26/1998 $ 50,000
Jerry E. Polis, Trustee 3/26/1998 $ 5,000
The Polis Family LLC 4/13/1998 $ 25,000
</TABLE>
<PAGE> 60
<TABLE>
<S> <C> <C>
$ 968,750
12% SUBORDINATED NOTES W WARRANTS DUE MARCH 31, 2001
Evelyn House 7/6/1998 $ 50,000
Charlotte O. Polis 7/6/1998 $ 50,000
$ 100,000
8% SENIOR DEBT W WARRANTS DUE DECEMBER 31, 2005
Seacoast Capital 3/31/1999 $1,500,000
Pacific Mezzanine Fund 3/31/1999 $ 650,000
Tangent Management Fund 3/31/1999 $ 300,000
$2,450,000
</TABLE>
<TABLE>
<CAPTION>
Payee (short name) Date Principal
<S> <C> <C>
DAVRIC 15% NOTE DUE JUNE 30, 2000, AS AMENDED
Davric Corporation 11/15/1998 $300,000
DAVRIC SECURED 15% EQUIPMENT TERM NOTE MATURING 8/14/2003
Davric Corporation 8/14/1998 $ 69,275
DAVRIC SECURED 15% EQUIPMENT TERM NOTE MATURING 6/23/2002
Davric Corporation 6/23/1999 $131,830
LEASE OBLIGATIONS $151,040
10% CONVERTIBLE DEBT (TO CONVERT TO SERIES B) 11/24/99 $250,000
</TABLE>
<PAGE> 61
SCHEDULE 5.10
TO
STOCK PURCHASE AGREEMENT
Taxes
The tax returns listed below are filed, but they were not timely filed by the
previous controller. To the best of our knowledge, all other tax returns for
activities from January 1, 1997 have been filed in a timely manner. All tax
returns for activity through December 31, 1996 are, to the best of our
knowledge, filed. We have no information as to the timeliness of filings prior
to December 31, 1996.
TAX RETURNS NOT TIMELY FILED:
ValueStar Corporation and Subsidiary June 30, 1997 Federal
Income Tax Return
ValueStar, Inc. California State Income Tax Return for June 30,
1997
ValueStar Corporation Colorado State Income Tax Return for June
30, 1997
1997 3rd Qtr California DE6 Wage & Withholding Report
1997 4th Qtr California DE6 Wage & Withholding Report
1997 Form DE7 California Annual Reconciliation
1997 Form 1042 Annual Withholding Tax Return
2nd Qtr 1998 California State Sales Tax Return
1998 1st Qtr California DE6 Wage & Withholding Report
1998 2nd Qtr California DE6 Wage & Withholding Report
The Corporation has no outstanding penalties or assessments. The Corporation
does not believe any additional penalties or assessments will arise from late
filings described above.
<PAGE> 62
SCHEDULE 5.13
TO
STOCK PURCHASE AGREEMENT
Disclosure
Reference is made to the Note Purchase Agreement, described more fully in
Schedule 5.9.
Reference is made to that Warrant Purchase Agreement dated as of March 31, 1999
by and among the Corporation, and each of the Holders, pursuant to which the
Corporation issued and sold to the Holders (i) A Warrants to purchase, at an
exercise price of $1.00 per share, up to an aggregate of 1,527,250 shares of the
Corporation's Common Stock, (ii) B Warrants to purchase, at an exercise price of
$0.00025 per share, up to an aggregate of 527,514 shares of the Corporation's
Common Stock, and (iii) C Warrants to purchase, at an exercise price of $1.00
per share, up to an aggregate of 231,132 shares of the Corporation's Common
Stock. Each of the A Warrants, B Warrants and C Warrants (collectively, the
"Warrants") is exercisable on or prior to the earlier of(i) six years after the
date of full payment of the Senior Note, or (ii) March 31, 2009. The C Warrants
or underlying shares of Common Stock may be repurchased by the Corporation at
$6.00 per share (less any unpaid exercise price) on an all or none basis until
March 31, 2004 as long as the Corporation is not in default with respect to the
Senior Note or related agreements. The Warrants may be exercised by payment of
cash, cancellation of debt or on a cashless basis. The Warrant Purchase
Agreement contains provisions which provide the Holders with certain
antidilution protection such that 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
Corporation 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.
Reference is made to that Shareholder Agreement dated as of March 31, 1999 by
and among the Corporation, each of the Holders, Jim Stein, James Barnes, and
Jerry Polis, pursuant to which the Corporation (i) granted to each Holder
preemptive rights to purchase, pro rata, any New Securities (as defined in the
Shareholder Agreement) issued and sold by the Corporation, (ii) agreed not to
incur any other additional debt, other than as permitted under and pursuant to
the terms of the Shareholder Agreement, (iii) as more fully described in
Articles IV and V of the Shareholder Agreement and below, granted to each Holder
certain drag-along rights and call option rights with respect to certain of the
Corporation's securities held by each of them, and (iv) as more fully described
in the Shareholder Agreement, granted to each of Holder certain rights of first
refusal, co-sale rights and registration rights (which registration rights have
been amended as set forth in the Registration Rights Agreement and Shareholder
Agreement Amendment). Furthermore, the Shareholder Agreement, the Corporation's
three directors, Jim Stein, James A. Barnes and Jerry E. Polis (the
"Shareholders"), pledged an aggregate of 2,861,557 shares of Common Stock of the
Corporation to secure obligations related to the issuance of the Senior Notes
and Warrants. The Shareholder Agreement also (i) limits resales by the
Shareholders of their shares in the open market and, as disclosed above, grants
certain first refusal and co-sale rights to the Holders, and (ii) obligates the
Shareholders to vote their shares of Common Stock to elect one director each for
Seacoast and Pacific if so designated by them. These provisions generally
terminate upon completion of a qualifying public offering by the Corporation, a
qualifying stock market listing or the sale of 80% of the Holders shares of
Common Stock
<PAGE> 63
underlying the warrants. In addition, the "drag-along-rights" granted under the
Shareholder Agreement provide that until a qualifying public offering or sale is
completed by the Corporation or a qualifying market listing is achieved, then
upon either (i) a change in control (the Shareholders owning less than 20% of
the Corporation on a fully diluted basis), 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 Corporation or its
assets and the Corporation 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 Corporation.
References is made to that Stock Purchase Warrant issued to Davric Corporation
dated effective June 30, 1999 pursuant to which the Corporation issued Davric
Corporation a four-year warrant to purchase up to 30,000 shares of its Common
Stock at a per share price of $1.50 per share.
Reference is made to the Second Amendment to the Shareholder Agreement
terminating certain "drag-along" rights.
<PAGE> 64
SCHEDULE 5.14(b)
TO
STOCK PURCHASE AGREEMENT
Outstanding documents regarding the capital stock of the Corporation
The capitalization of ValueStar, Inc. consists of 3,000,000 shares of no par
value common stock of which 1,000,000 shares are outstanding owned by ValueStar
Corporation.
The capitalization of ValueStar Corporation (Parent) consists of 55,000,000
shares of which 50,000,000 shares having a par value of $0.00025 per share are
Common Stock and 5,000,000 shares having a par value of $0.00025 per share are
designated as Preferred Stock, of which 1,000,000 shares having a par value of
$0.00025 per share are designated Series A Preferred Stock.
At December 6, 1999 there were 10,380,406 common shares outstanding and 225,000
Series A Preferred Stock shares were outstanding.
At December 6, 1999 the following summarizes agreements binding upon the Parent
granting Persons the right to purchase or acquire shares of the Parent's capital
stock:
<TABLE>
<S> <C>
Outstanding stock option purchase agreements 2,060,701
Stock purchase warrant agreements 4,548,624
Series A Convertible stock 1,125,000
Undeclared dividends on Series A 32,959
</TABLE>
Some of the above instruments contain certain adjustment provisions standard to
warrant agreements.
Reference is made to the First Amendment dated effective June 30, 1999, to the
15% Subordinated Promissory Note Dated November 15, 1999, issued to Davric
Corporation in the principal amount of $300,000.
Reference is made to the First Amendment to Stock Purchase Warrant dated
effective July 15, 1999 by and between Valuestar Corporation and Fritz T.
Beesemyer.
Reference is made to the First Amendment to Stock Purchase Warrant dated
effective July 15, 1999 by and between Valuestar Corporation and Jack McSorley.
References is made to that Stock Purchase Warrant issued to Davric Corporation
dated effective June 30, 1999, pursuant to which the Corporation issued Davric
Corporation a four-year warrant to purchase up to 30,000 shares of its Common
Stock at a per share price of $1.50 per share.
Reference is made to 10% Convertible Debt agreements.
<PAGE> 65
SCHEDULE 5.14(c)
TO
STOCK PURCHASE AGREEMENT
Contract, Warrants, Options,
See summary on Schedule 5.14(b)
Reference is made to the Note Purchase Agreement, Warrant Purchase Agreement and
Shareholder Agreement.
<PAGE> 66
SCHEDULE 5.15
TO
STOCK PURCHASE AGREEMENT
Current Locations
a. Principal place of business:
ValueStar Home Office
360 22nd St., 2nd Floor
Oakland, CA 94612
Leased from: Broadlake Plaza, a California Limited Partnership
b. All locations where the Corporation maintains books or records relating to
assets: See a. above
c. All other locations where the Corporation has a place of business:
Branch Offices:
ValueStar Chicago Market Office
8410 W Bryn Mawr Ave., Ste. 115
Chicago, IL 60631
Leased from: OmniOffices, Inc.
ValueStar Southern California Market Office
5230 Pacific Concourse Dr., Ste 350
Los Angeles, CA 90045
Leased from: OmniOffices, Inc.
ValueStar Dallas Market Office
5001 LBJ Freeway, Suite 875
Dallas, TX 75244
Leased from OmniOffices, Inc.
ValueStar Atlanta Market Office
1201 Peachtree Street, NE
400 Colony Square, Suite 200
Atlanta, GA 30361
Leased from OmniOffices, Inc.
ValueStar Seattle Market Office
Two Union Square, 42nd Floor
601 Union St.
Seattle, WA 98101
Leased from OmniOffices, Inc.
ValueStar Philadelphia Market Office
Chesterbrook Corporate Center
1400 Morris Dr.
Wayne, PA 19087
<PAGE> 67
Leased from OmniOffices, Inc.
ValueStar Washington DC Market Office
Oakbranch Plaza, 4th Floor
1801 Robert Fulton Dr.
Reston, VA 22091
Leased from OmniOffices, Inc.
d. Each address of the company where assets are located: See a. above.
<PAGE> 68
SCHEDULE 5.20
TO
STOCK PURCHASE AGREEMENT
Brokers
Reference is made to the Series B term sheet wherein the Company described that
it is obligated to pay one of its financial advisors, Jonathan Berg, an
aggregate of 75,000 warrants exercisable at $2.50 per share plus a consultancy
fee of $2,500 per month for twelve months.
<PAGE> 69
SCHEDULE 5.22
TO
STOCK PURCHASE AGREEMENT
Conduct of Business
The Corporation, through its subsidiary, Valuestar, Inc., is engaged in the
businesses of the type described below:
Consumer and market research.
Ratings, licensing and certifications.
Sales of ancillary materials and related materials and information.
Providing Internet and advertising services to customers.
<PAGE> 1
EXHIBIT 99.6
CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
VALUESTAR CORPORATION
VALUESTAR CORPORATION, a corporation organized and existing under the
Colorado Business Corporation Act (the "Corporation"), in accordance with Colo.
Rev. Stat. Section 7-106-102,
HEREBY CERTIFIES:
1. The name of the Corporation is: Valuestar Corporation.
---------------------
2. The text of the amendment determining the designations, preferences,
limitations, and relative rights of the class or series of shares is as
set forth on Exhibit "A", attached hereto and by this reference
incorporated herein.
3. This amendment was adopted on December 7, 1999.
4. This amendment was duly adopted by the Board of Directors of the
Corporation.
The undersigned does hereby confirm, under penalties of perjury, that
the foregoing Certificate of Designation of Valuestar Corporation constitutes
the act and deed of the Corporation, and that the facts stated herein are true.
Executed at Oakland, California on December 7, 1999
------------------------------
James Stein, Chief Executive
Officer
<PAGE> 2
Exhibit "A"
RESOLVED, that pursuant to the authority granted to the Board of
Directors by Article THIRD, Paragraph I of the Articles of Incorporation of the
Corporation, as amended (the "Articles"), Certificate there is hereby created,
and the Corporation be, and it hereby is, authorized to issue Eight Hundred
Thousand (800,000) shares of a series of convertible preferred stock, designated
"SERIES B CONVERTIBLE PREFERRED STOCK," which Series B Convertible Preferred
Stock (also referred to herein as "Series B Stock" or "Series B Preferred
Stock") shall have, in addition to the rights, restrictions, preferences and
privileges set forth in the Articles, the following terms, conditions, rights,
restrictions, preferences and privileges:
"A. DIVIDENDS.
1. GENERALLY. Subject to the preferential dividend rights of
the holders of the Corporation's Series A Convertible Preferred Stock ("Series A
Stock"), each holder of outstanding shares of Series B Stock shall be entitled
to receive, when and if declared by the Board of Directors and out of any funds
legally available therefor, non-cumulative dividends at the annual rate of $1.40
per share (the "Series B Preferential Dividend"), and in preference to any
declaration or payment (payable other than in Common Stock) of dividends with
respect to the Common Stock. No cash dividends shall be declared and paid on the
Common Stock or any other equity of the Company except the Series A Stock as
contemplated above unless a like cash dividend amount has been paid to the
Series B Stock on an as converted basis.
2. PAYMENT OTHER THAN CASH. If the Corporation shall declare a
distribution payable in securities of persons other than this Corporation,
evidences of indebtedness issued by the Corporation or other persons, assets
(excluding cash dividends) or options or rights to purchase any such securities
or evidences of indebtedness, then, in each such case, the holders of Series B
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though the holders of Series B Preferred Stock were the holders
of the number of shares of Common Stock of the Corporation into which their
respective shares of Series B Preferred Stock are convertible as of the record
date fixed for the determination of the holders of Common Stock of the
Corporation who are entitled to receive such distribution.
3. DIVIDEND ADJUSTMENT. The Series B Preferential Dividend
shall be appropriately adjusted for any stock splits, dividends, combinations,
recapitalizations and the like ("Appropriately Adjusted").
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B. PREFERENCE ON LIQUIDATION.
1. PREFERENCE PRICE. Except upon a "Qualified Liquidation
Event," in the event of any liquidation, dissolution or winding up of this
Corporation, whether voluntary or involuntary, the holders of the outstanding
shares of Series B Stock shall be entitled to be paid out of the assets of this
Corporation available for distribution to its shareholders, whether from
capital, surplus funds or earnings, after payment of the preferential amount is
made in respect of the shares of Series A Stock (the "Series A Preference
Price") and before any payment is made in respect of the shares of Common Stock,
in an amount equal to $17.50 per share (Appropriately Adjusted), together with
any declared and unpaid dividends thereon (the "Series B Preference Price").
After payment of the Series B Preference Price to the holders of Series B Stock,
the holders of outstanding shares of Series B Stock and Common Stock shall be
paid, on a pro rata as-converted basis, from the remaining assets of the
Corporation until such time that the holders of Series B Stock shall have
received, including any payment of the Series B Preference Price, $30.00 per
share of Series B Stock (Appropriately Adjusted) (the "Series B Liquidation
Amount"). After payment of the Series B Liquidation Amount to the holders of
outstanding shares of Series B Stock, the remaining assets of the Corporation
shall be distributed ratably solely among the holders of the outstanding shares
of Common Stock in an equal amount per share.
2. PARTIAL PAYMENT. If, upon any such liquidation, dissolution
or winding up of this Corporation, whether voluntary or involuntary, the assets
of this Corporation available for distribution to its shareholders shall be
insufficient to pay in full the Series B Preference Price required to be paid to
the holders of the outstanding shares of Series B Stock after payment in full of
the Series A Preference Price, then all of the assets of this Corporation
legally available for distribution to the holders of equity securities shall be
distributed ratably among the holders of the outstanding shares of Series B
Stock in proportion to the Series B Preference Price upon liquidation that each
Series B Stock holder is otherwise entitled to receive.
3. CERTAIN TRANSACTIONS. The following shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section B with
respect to the Series B Stock: (A) a sale of all or substantially all of the
Corporation's assets; or (B) a consolidation, merger or reorganization of the
Corporation with or into any other corporation or corporations if the
Corporation's shareholders do not control a majority of the outstanding voting
securities of such consolidated, merged or reorganized corporation(s). The
Corporation shall provide
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written notice of each of the above transactions to each holder of Series B
Stock at least ten (10) days prior to such transaction in accordance with
Section D.14 (below).
4. LIQUIDATION ADJUSTMENT. The Series B Preference Price shall
be Appropriately Adjusted.
C. VOTING.
1. GENERALLY. Except as otherwise required by law or expressly
provided herein, each share of Series B Preferred Stock shall be entitled to
vote on all matters submitted or required to be submitted to a vote of the
shareholders of the Corporation and shall be entitled to the number of votes
equal to the number of whole shares of Common Stock into which such shares of
Series B Preferred Stock are convertible pursuant to the provisions hereof, at
the record date for the determination of shareholders entitled to vote on such
matters or, if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited. In each such case,
except as otherwise required by law or expressly provided herein, the holders of
shares of Series A Stock, Series B Stock and Common Stock shall vote together
and not as separate classes.
2. SPECIAL VOTING FOR THE ELECTION OF DIRECTORS. The Board of
Directors shall be elected as follows:
(i) So long as at least One Hundred Thousand (100,000)
shares of Series A Preferred Stock are issued and outstanding (Appropriately
Adjusted), the holders of Series A Preferred Stock shall be entitled, voting as
a separate class, to elect one (1) and only one (1) member to the Corporation's
Board of Directors;
(ii) So long as at least Two Hundred Thousand (200,000)
shares of Series B Preferred Stock are issued and outstanding (Appropriately
Adjusted), the holders of Series B Preferred Stock shall be entitled, voting as
a separate class, to elect two (2) and only two (2) members to the Corporation's
Board of Directors;
(ii) The remaining authorized members of the Board of
Directors not entitled to be elected by any series of Preferred Stock then
outstanding from time to time shall be elected by the holders of Common Stock.
3. REMOVALS OR RESIGNATIONS. Any vacancy created on the
Corporation's Board of Directors shall be filled by a successor Director who
shall be elected in a manner by which his or her predecessor was elected as
provided
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above. Any Director who has been elected to the Corporation's Board of Directors
as provided above may be removed during his term of office in accordance with
the Business Corporation Act of the State of Colorado, and any vacancy thereby
created shall be filled as provided in this subparagraph.
D. CONVERSION. The holders of the outstanding shares of Series
B Stock shall have the following conversion rights (the "Conversion Rights"):
1. RIGHT TO CONVERT. Each share of Series B Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such shares, at the office of this Corporation or any transfer agent
for the Corporation's shares into that number of shares of Common Stock which is
equal to the quotient obtained by dividing $17.50 for each share of Series B
Stock by the Series B Conversion Price (as such term is hereinafter defined) in
effect immediately prior to the time of such conversion. The initial price at
which shares of Common Stock shall be deliverable upon conversion of shares of
Series B Stock shall be $1.75 (as adjusted from time to time as herein provided,
the "Series B Conversion Price").
2. MECHANICS OF CONVERSION. Each holder of outstanding
shares of Series B Stock who desires to convert the same into shares of Common
Stock shall surrender the certificate or certificates therefor, duly endorsed,
at the office of this Corporation or of any transfer agent for the Corporation's
shares and shall give written notice to this Corporation at such office that
such holder elects to convert the same and shall state therein the number of
shares of Series B Stock being converted. Thereupon, this Corporation shall
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and
shall promptly pay all declared but unpaid dividends on the shares being
converted. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the certificate or
certificates representing the shares to be converted, and the person entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of Common Stock on
such date.
3. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If this
Corporation at any time or from time to time after the date that this
Certificate of Designation was filed with the Colorado Secretary of State (the
"Filing Date") effects a division of the outstanding shares of Common Stock, the
Series B Conversion Price shall be proportionately decreased and, conversely, if
this Corporation at any time, or from time to time, after the Filing Date
combines the outstanding shares of Common Stock, the Series B Conversion Price
shall be
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proportionately increased. Any adjustment under this Section D.3 shall
be effective on the close of business on the date such division or combination
becomes effective.
4. ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. If this
Corporation at any time or from time to time after the Filing Date pays or fixes
a record date for the determination of holders of shares of Common Stock
entitled to receive a dividend or other distribution in the form of shares of
Common Stock, or rights or options for the purchase of, or securities
convertible into, Common Stock, then in each such event the Series B Conversion
Price shall be decreased, as of the time of such payment or, in the event a
record date is fixed, as of the close of business on such record date, by
multiplying the Series B Conversion Price by a fraction (i) the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the time of such payment or the close of business on such
record date and (ii) the denominator of which shall be (A) the total number of
shares of Common Stock outstanding immediately prior to the time of such payment
or the close of business on such record date plus (B) the number of shares of
Common Stock issuable in payment of such dividend or distribution or upon
exercise of such option or right of conversion; provided, however, that if a
record date is fixed and such dividend is not fully paid or such other
distribution is not fully made on the date fixed therefor, the Series B
Conversion Price shall not be decreased as of the close of business on such
record date as hereinabove provided as to the portion not fully paid or
distributed and thereafter the Series B Conversion Price shall be decreased
pursuant to this Section 4 as of the date or dates of actual payment of such
dividend or distribution.
5. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If this
Corporation at any time or from time to time after the Filing Date pays, or
fixes a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution in the form of securities
of this Corporation other than shares of Common Stock or rights or options for
the purchase of, or securities convertible into, Common Stock, then in each such
event provision shall be made so that the holders of outstanding shares of
Series B Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of this
Corporation that they would have received had their respective shares of Series
B Stock been converted into shares of Common Stock on the date of such event and
had such holders thereafter, from the date of such event to and including the
actual date of conversion of their shares, retained such securities, subject to
all other adjustments called for during such period under this Section D with
respect to the rights of the holders of the outstanding shares of Series B
Stock.
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6. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If, at any time or from time to time after the Filing Date, the number of shares
of Common Stock issuable upon conversion of the shares of Series B Stock is
changed into the same or a different number of shares of any other class or
classes of stock or other securities, whether by recapitalization,
reclassification or otherwise (other than a recapitalization, division or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section D), then
in any such event each holder of outstanding shares of Series B Stock shall have
the right thereafter to convert such shares of Series B Stock into the same kind
and amount of stock and other securities receivable upon such recapitalization,
reclassification or other change, as the maximum number of shares of Common
Stock into which such shares of Series B Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein.
7. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If, at any time or from time to time after the Filing Date, there is a
capital reorganization of the Common Stock (other than a recapitalization,
division, combination, reclassification or exchange of shares provided for
elsewhere in this Section D) or a merger or consolidation of this Corporation
into or with another corporation or a sale of all or substantially all of this
Corporation's properties and assets to any other person, then, as a part of such
capital reorganization, merger, consolidation or sale, provision shall be made
so that the holders of outstanding shares of Series B Stock shall thereafter
receive upon conversion thereof the number of shares of stock or other
securities or property of this Corporation, or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of the
number of shares of Common Stock into which their shares of Series B Stock were
convertible would have been entitled on such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section D with respect to the rights
of the holders of the outstanding shares of Series B Stock after the capital
reorganization, merger, consolidation, or sale to the end that the provisions of
this Section D (including adjustment of the Series B Conversion Price and the
number of shares into which the shares of Series B Stock may be converted) shall
be applicable after that event and be as nearly equivalent to such Conversion
Prices and number of shares as may be practicable.
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8. SALE OF SHARES BELOW CONVERSION PRICE.
(i) If, at any time or from time to time after the Filing
Date, this Corporation issues or sells, or is deemed by the express provisions
of this Section 8 to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined) for an Effective Price (as hereinafter defined) less than
the then current Series B Conversion Price, other than (A) as a dividend or
other distribution on any class of stock as provided in Section D.4 above or (B)
upon a division or combination of shares of Common Stock as provided in Section
D.3 above, then, in any such event, the Series B Conversion Price shall be
reduced, as of the close of business on the date of such issuance or sale, to an
amount determined by multiplying the Series B Conversion Price by a fraction (A)
the numerator of which shall be (x) the number of shares of Common Stock
outstanding at the close of business on the day immediately preceding the date
of such issuance or sale, plus (y) the number of shares of Common Stock which
the aggregate consideration received (or by the express provisions hereof deemed
to have been received) by this Corporation for the total number of Additional
Shares of Common Stock so issued or sold would purchase at such Series B
Conversion Price and (B) the denominator of which shall be the number of shares
of Common Stock outstanding at the close of business on the date of such
issuance or sale after giving effect to such issuance or sale of Additional
Shares of Common Stock. For the purpose of the calculation described in this
Section 8, the number of shares of Common Stock outstanding shall include, in
addition to the number of shares of Common Stock actually outstanding, (A) the
number of shares of Common Stock into which the then outstanding shares of
Series A Stock and Series B Stock could be converted if fully converted on the
day immediately preceding the issuance or sale or deemed issuance or sale of
Additional Shares of Common Stock; and (B) the number of shares of Common Stock
which would be obtained through the exercise or conversion of all rights,
options and Convertible Securities (as hereinafter defined) outstanding on the
day immediately preceding the issuance or sale or deemed issuance or sale of
Additional Shares of Common Stock.
(ii) For the purpose of making any adjustment required
under this Section 8, the consideration received by this Corporation for any
issuance or sale of securities shall (A) to the extent it consists of property
other than cash, be the fair value of that property as reasonably determined in
good faith by a disinterested majority of the Board of Directors; and (B) if
Additional Shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares of Common
Stock or Convertible Securities are issued or sold together with other stock or
securities or other assets of this Corporation for a consideration which covers
both, be the portion of the
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consideration so received reasonably determined in good faith by a disinterested
majority of the Board of Directors to be allocable to such Additional Shares of
Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under this
Section 8, if this Corporation issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being hereinafter referred to
as "Convertible Securities") and if the Effective Price (as defined in Clause
(v) below) of such Additional Shares of Common Stock is less than the then
current Series B Conversion Price, this Corporation shall be deemed to have
issued, at the time of the issuance of such rights, options or Convertible
Securities the maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion thereof and to have received as consideration therefor an
amount equal to (A) the total amount of the consideration, if any, received by
this Corporation for the issuance of such rights or options or Convertible
Securities plus (B) in the case of such rights or options, the minimum amount of
consideration, if any, payable to this Corporation upon the exercise of such
rights or options or, in the case of Convertible Securities, the minimum amount
of consideration, if any, payable to this Corporation upon the conversion
thereof. Thereafter, no further adjustment of the Series B Conversion Price
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire or
otherwise terminate without having been exercised, the Series B Conversion Price
shall thereafter be the Series B Conversion Price that would have been in effect
had an adjustment been made on the basis that the only Additional Shares of
Common Stock so issued were the Additional Shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such Convertible Securities, and were issued or sold for the
consideration actually received by this Corporation upon such exercise plus (A)
the consideration, if any, actually received for the granting of all such rights
or options, whether or not exercised, (B) the consideration, if any, actually
received by issuing or selling the Convertible Securities actually converted and
(C) the consideration, if any, actually received on the conversion of such
Convertible Securities. However, if any such rights or options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Series B Conversion Price for the Series B
Stock, and any subsequent adjustments based thereon, shall upon any such
increase or decrease becoming effective be recomputed to reflect such increase
or
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decrease insofar as it affects such rights, options or the rights of conversion
or exchange under such Convertible Securities.
(iv) For the purpose of any adjustment required under this
Section D.8, if (a) this Corporation issues or sells any rights or options for
the purchase of Convertible Securities and (b) if the Effective Price of the
Additional Shares of Common Stock underlying such Convertible Securities is less
than the Series B Conversion Price, then in each such event this Corporation
shall be deemed to have issued at the time of the issuance of such rights or
options the maximum number of Additional Shares of Common Stock issuable upon
conversion of the total number of Convertible Securities covered by such rights
or options (as set forth in the legal instruments setting forth the terms of
such Convertible Securities) and to have received as consideration for the
issuance of such Additional Shares of Common Stock an amount equal to the amount
of consideration, if any, received for the issuance of such rights or options
plus (A) the minimum amount of consideration, if any, payable upon the exercise
of such rights or options and (B) the minimum amount of consideration, if any,
payable upon the conversion of such Convertible Securities. No further
adjustment of the Series B Conversion Price shall be made as a result of the
actual issuance of the Convertible Securities upon the exercise of such rights
or options or upon the actual issuance of Additional Shares of Common Stock upon
the conversion of such Convertible Securities. The provisions of Section
D.8.(iii) for the adjustment of the Series B Conversion Price upon the
expiration of rights or options or the rights of conversion of Convertible
Securities shall apply mutatis mutandis upon the expiration of the rights,
options and Convertible Securities referred to in this Clause D.8.(iv).
(v) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued or deemed to be issued under this Section D.8
after the Filing Date, other than (A) shares of Common Stock issued upon
conversion of the shares of Series A Stock or the Series B Stock; (B) shares of
Common Stock (or options, warrants or rights therefor) granted or issued
subsequent to the Filing Date to employees, officers, directors of the
Corporation or any subsidiary pursuant to incentive agreements, stock purchase
or stock option plans, stock bonuses or awards, warrants, contracts or other
arrangements that are approved by the Board of Directors; (C) securities issued
by the Corporation representing in the aggregate five percent (5%) or less of
the then outstanding shares of Common Stock, on a fully-diluted basis, to
contractors, consultants, advisers to, or vendors of, the Corporation or in
connection with any credit, financing or leasing agreements or similar
instruments with equipment lessors or other persons providing equipment lease or
other equipment financing; (D) securities issued in connection with or pursuant
to the acquisition of all or any
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portion of another company by the Company whether by merger or any other
reorganization or by the purchase of all or any portion of the assets of another
company, pursuant to a plan, agreement or other arrangement approved by the
Board of Directors; (E) securities issued to or in connection with an
arrangement or venture with a strategic partner of the Company, provided such
issuance is unanimously approved by the Board of Directors; (F) shares of Common
Stock or Preferred Stock issued or issuable upon the exercise of any warrants,
options or other rights that are outstanding as of the Filing Date (or issued or
issuable after the reissuance of any such expired or terminated options,
warrants or rights and net of any such issued shares repurchased by the
Corporation); (G) the reissuance or assignment by the Corporation of any shares
of Common Stock outstanding as of the Filing Date to a different person from the
holder of such shares; (H) securities issued pursuant to any anti-dilution
rights of the holders of Series A Stock or warrants to purchase securities of
this Corporation that are outstanding as of the Filing Date; (H) shares of
Common Stock issued in a public offering by this Corporation in which all shares
of Series A Stock and Series B Stock are automatically converted into shares of
Common Stock; and (I) shares of Common Stock issued by way of dividend or other
distribution on shares of Preferred Stock and Common Stock excluded from the
definition of Additional Shares of Common Stock by the foregoing clauses (A),
(B), (C), (D), (E), (F), (G) (H) and this clause (I). The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient obtained by dividing
the total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold, under this Section 8 into the aggregate
consideration received, or deemed to have been received for such Additional
Shares of Common Stock.
9. CERTIFICATE OF ADJUSTMENT. Upon the occurrence of each
adjustment or readjustment of the Series B Conversion Price, the Corporation, at
its sole expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series B Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
10. NOTICES OF RECORD DATE. In the event of (i) any taking by
this Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any capital reorganization of this
Corporation, any reclassification or recapitalization of the capital stock of
this Corporation, any merger or consolidation of this Corporation with or into
any other corporation, or any transfer of all or substantially all of the assets
of the Corporation, or any voluntary or involuntary dissolution, liquidation or
winding up of this Corporation, this Corporation shall mail to each holder of
shares of Series B Stock at least
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twenty (20) days prior to the record date specified therein, a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution;
(ii) the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up, is expected to
become effective and the specific details thereof; and (iii) the date, if any,
that is to be fixed as to when the holders of record of shares of Common Stock
(or other securities) shall be entitled to exchange their shares of Common Stock
(or other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
11. AUTOMATIC CONVERSION.
(i) SERIES A STOCK CONVERSION. Each share of Series B
Stock shall automatically be converted into shares of Common Stock based upon
the Series B Conversion Price upon the automatic conversion of the shares of
Series A Stock pursuant to a "Qualified Liquidation Event" or "Qualified
Liquidity Milestone" as set forth in the Corporation's Certificate of
Designation of Series A Convertible Preferred Stock or otherwise upon the
conversion of all the shares of Series A Stock.
(ii) UPON VOTE OF 66-2/3% OF SERIES B PREFERRED STOCK.
Each share of Series B Preferred Stock shall automatically be converted into
shares of Common Stock based upon the Series B Conversion Price then applicable
upon the affirmative vote of the holders of at least sixty-six and two thirds
percent (66-2/3 %) of the outstanding shares of Series B Preferred Stock.
Upon the occurrence of an event specified in this Section 11, the
outstanding shares of Series B Stock shall be converted into outstanding shares
of Common Stock, whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent. Upon the automatic
conversion of the outstanding shares of Series B Stock, the Corporation shall
notify the holders of the outstanding shares of Series B Stock and thereafter
such holders shall surrender the certificates representing such shares at the
office of the Corporation or any transfer agent for the shares. Thereupon there
shall be issued and delivered to such holder, promptly at such office and in its
name as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the surrendered
shares of Series B Stock of such holder were convertible on the date on which
such automatic conversion occurred.
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12. FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the shares of Series B Stock. In lieu of any
fractional share to which the holder of such shares would otherwise be entitled,
the Corporation shall pay cash equal to the product of (i) such fraction
multiplied by (ii) the fair market value of one share of the Common Stock on the
date of conversion, as determined in good faith by a disinterested majority of
the Board of Directors.
13. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series B Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series B Stock. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series B Stock, the Corporation
shall take such action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
14. NOTICES. Any notice required by the provisions of this
Section D to be given to a holder of shares of Series B Stock shall be deemed
given upon actual receipt or if receipt is refused or does not occur, then the
second attempted delivery as evidenced by appropriate third-party commercial
documentation (i.e., Postal Service, Federal Express, etc.).
15. NO DILUTION OR IMPAIRMENT. The Corporation shall not amend
its Certificate of Incorporation or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the rights of the holders of the shares of Series B Stock
against dilution (as contemplated herein) or other impairment of their rights.
E. NO RE-ISSUANCE. No share or shares of Series B Stock acquired
by the Corporation by reason of redemption, purchase or otherwise shall be
reissued, and all such shares shall be canceled, retired and eliminated from the
shares which the Corporation shall be authorized to issue."
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EXHIBIT 99.7
VALUESTAR CORPORATION
INVESTORS RIGHTS AGREEMENT
THIS INVESTORS RIGHTS AGREEMENT (this "Agreement") is dated effective
as of December __, 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"), TANGENT GROWTH FUND, L.P., a
California limited partnership ("Tangent"), eCOMPANIES VENTURE GROUP, L.P., a
Delaware limited partnership ("eCompanies"), James A. Barnes ("Barnes"), and
Jerry E. Polis ("Polis"), the entities or individuals set forth on Schedule 1
attached hereto and incorporated herein by reference who comprise holders of the
"Series A Stock" held by all "Purchasers" under that certain ValueStar
Corporation Series A Preferred Stock Purchase Agreement dated July 22, 1999 (the
"Series A Purchase Agreement"), and the additional entities or individuals set
forth on Schedule 1 attached hereto and incorporated herein by reference who
have entered into the ValueStar Corporation Series B Preferred Stock Purchase
Agreement dated on even date herewith (the "Series B Purchase Agreement")
(individually, each such individual or entity identified on Schedule 1 as well
as Seacoast, Pacific, Tangent, eCompanies, Barnes and Polis a "Holder" and
collectively, all such individuals and entities, the "Holders").
RECITALS
A. On March 31, 1999, Seacoast, Pacific, Tangent, Barnes, Polis and Jim
Stein ("Stein") entered into a Shareholder Agreement (the "Shareholder
Agreement") which granted certain preemptive rights pursuant to Article II
thereunder and certain registration rights pursuant to Article VII thereunder.
B. On July 22, 1999, Seacoast, Pacific, Tangent, Barnes, Polis, Stein
and the purchasers of the Series A Stock entered into a ValueStar Corporation
Registration Rights Agreement and Shareholders Agreement Amendment (the
"Registration Rights Agreement") which, among other matters, amended and
restated Article VII of the Shareholder Agreement.
C. On even date herewith, Seacoast, Pacific and Tangent as the Holders
of a majority of the Registrable Securities under the Shareholder Agreement
terminated the registration rights (Article VII) and preemptive rights (Article
II) under the Shareholder Agreement in partial consideration and contemplation
of the execution of this Agreement by the parties hereto in
<PAGE> 2
connection herewith of the purchase by certain investors of shares of the
Company's Series B Convertible Preferred Stock pursuant to the Series B Purchase
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:
1. DEFINITIONS.
a. "COMMISSION" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
b. "CAPITAL STOCK" means the Company's common stock and any other
capital stock of the Company authorized from time to time, and any other shares,
options, interests, participations, or other equivalents (however designated) of
or in the Company, 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.
c. "COMMON STOCK" means any and all (i) common stock of the
Corporation issued or issuable upon conversion of the Corporation's Series A
Convertible Preferred Stock or Series B Convertible Preferred Stock , (ii) all
common stock and Other Securities of the Corporation issued or issuable pursuant
to the Warrants issued under the Warrant Purchase Agreement (collectively, (i)
and (ii) the "Stock"); (iii) any common stock of the Corporation issued as a
dividend or other distribution with respect to or in replacement of the Stock,
and (iv) any common stock of the Corporation issued in any combination or
subdivision of the Stock. In determining the amount of Common Stock held by any
Person, the sum of (i), (ii), (iii) and (iv) shall be used.
d. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended or any similar Federal statue and the rules and regulations of the
Commission thereunder all as the same shall be in effect at the time.
<PAGE> 3
e. "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 any 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).
f. "OTHER SECURITIES" Any stock other than the Corporation's common
stock, other securities, property, or other property or rights that the Holders
become entitled to receive upon exercise of the Warrants.
g. "PERSON" means any individual, corporation, trust, partnership,
association, or other entity.
h. "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.
i. "REGISTRABLE SECURITIES" means the Common Stock
j. "REGISTRABLE SERIES A SECURITIES" means the Common Stock acquired
as a result of the purchase of the Series A Stock.
k. "REGISTRABLE SERIES B SECURITIES" means the Common Stock acquired
as a result of the purchase of the Series B Stock.
l. "SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
<PAGE> 4
m. "SENIOR OBLIGATIONS" means and includes any and all Indebtedness
and/or liabilities of the Company to each of Seacoast, Pacific and Tangent (each
a "Noteholder")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 that certain
"Note Purchase Agreement" and any "Other Agreement" (as such agreements are
referenced under the Warrant 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 any of its subsidiaries to each Noteholder 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.
n. "SERIES A STOCK" means all issued and outstanding Series A
Convertible Preferred Stock of the Company and any common stock shares issuable
upon conversion thereof.
o. "SERIES B STOCK" means all issued and outstanding Series B
Convertible Preferred Stock of the Company and any common stock shares issuable
upon conversion thereof.
p. "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.
q. "WARRANT PURCHASE AGREEMENT" means that certain agreement by and
among certain parties hereto and Stein dated March 31, 1999. Any terms not
defined herein shall have the meaning set forth in the Warrant Purchase
Agreement.
r. "WARRANTS" means collectively the "A Warrant," the "B Warrant"
and the "C Warrant" referred to in Section 2.01 of the Warrant Purchase
Agreement and all Warrants issued upon the transfer or division of, or in
substitution for, such Warrants.
<PAGE> 5
2. REGISTRATION RIGHTS.
a. REQUIRED REGISTRATION. At any time after the earlier to occur of
either (x) the first anniversary date of this Agreement or (y) six months
following the next Public Offering, Holders of a majority of the Registrable
Securities held by Seacoast, Pacific and Tangent or Holders of a majority of the
Registrable Series B Securities 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 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 under this
Section 2.a. 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 will be reduced (i)
first 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, and (ii) if such underwriter requires
reduction of the securities to be included in the offering in excess of all
securities held by such participating Persons other than the Holders, pro rata
among all participating Holders (according to the securities proposed for such
registration held by such Holders).
b. 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
<PAGE> 6
Securities as any Holder may request. Each Holder of any such Registrable
Securities desiring to have Registrable Securities registered under this Section
2.b. 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 by 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; and further
provided, however, that with respect to any underwritten public offering other
than the Company's next Public Offering, no less than 25% of the total number of
Registrable Securities requested to be registered by the Holders shall be
included in the underwriting.
c. FORM S-3 REGISTRATIONS. In addition to the registration rights
provided in Sections 2.a. and 2.b. 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 Holders of no less than 20% of the Registrable
Securities may request in writing not more often than once during any 180-day
period 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 Five
Million Dollars ($5,000,000). 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
<PAGE> 7
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.
d. TERMINATION/RULE 144 AVAILABILITY. Notwithstanding the foregoing,
the Company will not be obligated to register any Registrable Securities (i) as
to which counsel reasonably acceptable to the participating Holders renders an
opinion in form and substance satisfactory to such Holders to the effect that
such Registrable Securities are freely saleable without limitation as to volume
under Rule 144 under the Securities Act or (ii) after the fifth anniversary date
of the earlier to occur of a "Qualified Liquidity Milestone" or "Qualified
Liquidation Event" as such terms are defined in the Warrant Purchase Agreement.
e. REGISTRATION PROCEDURES. In connection with any registration of
Registrable Securities under this Agreement, the Company will, as soon as
practicable:
(i) 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;
(ii) 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;
(iii) 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;
<PAGE> 8
(iv) 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;
(v) 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;
(vi) 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;
(vii) 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 2.a, 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
<PAGE> 9
representations, warranties, or agreements regarding such Holder, such
Holder's Registrable Securities, such Holder's intended method or
methods of disposition, and any other representation required by law;
(viii) 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
(ix) 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 Agreement 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
<PAGE> 10
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 2.a. or 2.c. will be
selected by the Holders of a majority of the Registrable Securities being so
registered.
f. 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 Agreement, 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 fees and expenses and the fees and expenses of one special counsel to
the selling Holders not to exceed $25,000 (except that if in the reasonable
written opinion of counsel for either the holders of a majority of the
Registrable Series A Securities or Registrable Series B Securities, there exists
a material conflict of interest between such two groups of Holders, then each
such group may be represented by separate counsel with each counsel reimbursed
for fees and expenses not to exceed $25,000); (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.
Notwithstanding the foregoing, each Holder will severally bear the expense of
its underwriting fees, discounts, or commissions relating to its sale of
Registrable Securities in all such registrations.
g. 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.
h. HOLDBACK AGREEMENTS.
(i) If any registration pursuant to Section 2.b 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 statement and ending
on the one hundred eightieth (180th) day after the effective date of such
registration statement; provided, however, that Jim Stein and each Person
that is an officer, director, or
<PAGE> 11
beneficial owner of five percent (5%) or more of the outstanding shares of
any class of Capital Stock enters into such an agreement.
(ii) The Company agrees 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 2.a. or 2.c. 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.
i. 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.
j. RULE 144A. The Company agrees that, upon the request of any Holder
or any prospective purchaser of Registrable Securities 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 publicly available
information:
(i) a brief statement of the nature of the business of the Company
and any Subsidiaries and the products and services they offer;
(ii) 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
<PAGE> 12
(iii) 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 2.j. 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.
k. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. Until (i) a Qualified
Liquidity Milestone, (ii) a Qualified Liquidation Event (as each is defined in
the Company's Series A Convertible Preferred Stock Certificate of Designation
filed with the Colorado Secretary of State) (iii) the repayment of any and all
Senior Obligations owed to such Noteholder and the sale in excess of 80% of such
Noteholder's common stock shares and Other Securities issued or issuable under
the Warrants from and after the date of this Agreement or until the provisions
of Section 2.d. 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 2.a., 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 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 2.a. or
within one hundred twenty (120) days of the effective date of any registration
effected pursuant to Section 2.a..
l. 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
<PAGE> 13
(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 2.l. shall preclude a Holder of Registrable Securities
from enjoying registration rights which it might otherwise possess under this
this Agreement.
m. INDEMNIFICATION
(i) 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 Agreement, (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 written
information furnished to the Company by such Holder under an instrument executed
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 if it is judicially determined
that the information furnished by such Holder contains an untrue statement of
material fact or omitted to state a material fact necessary to make the
information not misleading; provided, however, that no Holder of Registrable
Securities shall be required to
<PAGE> 14
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.
(ii) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any of the Registrable Shares under the Securities Act pursuant
to this Agreement, then to the extent permitted by law the Company shall
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading;
and the Company shall reimburse such seller, underwriter and each such
controlling person for reasonable legal or any other expenses incurred by such
seller, underwriter or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon (i) any
untrue statement or omission made in such Registration Statement, preliminary
prospectus or prospectus, or any such amendment or supplement, in reliance upon
and in conformity with information furnished to the Company, in writing, by or
on behalf of such seller, underwriter or controlling person specifically for use
in the preparation thereof. or (ii) on the authority of an "expert" within
<PAGE> 15
the meaning of that term as defined in the Securities Act (but only if the
Company had no reasonable ground to believe, and did not believe, that the
statements made on the authority of such expert were untrue or that there was an
omission to state a material fact). The Company shall not be required to
indemnify any Person against any liability arising from (i) any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) for any liability which
arises out of the failure of any Person to deliver a prospectus as required by
the Securities Act.
n. NOMINEES FOR BENEFICIAL OWNERS/TRANSFERS. 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. The registration rights set forth in this Section 2 are
only assignable by each original Holder hereunder to each assignee of no less
than the lesser of all of Holder's Registrable Securities held as of the date
hereof or at least one hundred thousand (100,000) Registrable Securities
conveyed in accordance herewith (appropriately adjusted in all cases for stock
splits, combinations, recapitalizations and the like), provided that such
assignee promptly agrees in writing to be bound by the terms and conditions of
this Agreement.
3. PREEMPTIVE RIGHTS.
a. EQUITY PREEMPTIVE RIGHT. The Company will not issue or sell any
Capital Stock (other than any Series B Stock, or other than any securities that,
with the unanimous consent of the Company's Board of Directors, are not issued
to any existing shareholder of the Company or other than any such other equity
or any such rights to acquire equity which are excluded from the definition of
"Additional Shares of Common Stock" under the Company's Series B Convertible
Preferred Stock Certificate of Designation (including any options or other
convertible securities exercisable for shares excluded from such definition))
(the "New Securities") without first
<PAGE> 16
complying with this Section 3. The Company hereby grants to each of Seacoast,
Pacific, Tangent and each Holder of at least 20% of the Registrable Series B
Securities originally outstanding (each a "Preemptive Right 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 Section3 will apply to such units and not to
the individual New Securities composing such units. Each Holder's pro rata share
for purposes of Section 3 is the ratio that the number of shares of Common Stock
owned by such Holder immediately prior to the issuance of the New Securities
bears to the sum of the total number of shares of Common Stock then outstanding.
Any payment due from Holder in connection with the exercise of the preemptive
right granted pursuant to this Section 3.a 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.
b. 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 Section 3 and
Section 12.15 of the Note Agreement.
c. NOTICE TO PREEMPTIVE RIGHT HOLDERS.
(i) In the event the Company proposes to issue or sell New
Securities, it will give each Preemptive Right 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 Preemptive Right Holder will have fifteen (15) days
from the date of receipt of any such notice and such information as the
Preemptive Right Holder may reasonably request to facilitate its
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.
(ii) In the event the Company proposes to incur additional debt
to which Section 3.b above (but not Section 3.a above)would apply (the
"New Financing"), the Company shall first offer to each of Seacoast,
Pacific and Tangent, on a pari passu and pro rata basis, based upon the
principal amount of the Senior Obligations outstanding to such
<PAGE> 17
parties (except that if the Senior Obligations have been paid in full,
based upon the amount of Capital Stock owned by such parties), 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 such party 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 such Holder does not accept the offer or accepts only a part of it,
such Holder shall notify the Company and the other two Holders, and the
other two 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 such Holder accepts the offer, or if each such 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 such Holder, on terms and conditions no more
favorable to the lenders thereof than those provided by, or offered to,
such Holders, provided that any such funding occurs within one hundred
eighty (180) days of such Holders' non-acceptance or partial acceptance
of the Company's original offer. Any New Financing thereafter must
first be reoffered to each of Seacoast, Pacific and Tangent under the
terms of this Section 3.c(ii).
d. ALLOCATION OF UNSUBSCRIBED NEW SECURITIES. In the event a
Preemptive Right Holder fails to exercise such equity preemptive right in full
within such fifteen (15) day period, the other Preemptive Right 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 Preemptive Right
Holders at the same price and upon the same terms specified in the Company's
notice described in Section 3.c(i). 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.
<PAGE> 18
e. TERMINATION OF PREEMPTIVE RIGHTS. The rights granted pursuant to
this Section 3 shall terminate upon the earlier to occur of (i) a Qualified
Liquidation Event or (ii) a Qualified Liquidity Milestone.
4. MISCELLANEOUS.
a. HEADINGS. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement.
b. 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.
c. 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 eCompaniesVenture Group, L.P., at
If to Seacoast, at Seacoast Capital Partners Limited Partnership
One Sansome Street, Suite 2100
San Francisco, California 94104
Attention: Jeffrey J. Holland
Fax: (415) 956-1459
<PAGE> 19
Seacoast Capital Partners Limited Partnership
c/o Seacoast Capital Corporation
55 Ferncroft Road
Danvers, Massachusetts 01923
Attention: Walt Leonard
Fax: (508) 750-1301
If to Pacific, at Pacific Mezzanine Fund, L.P.
2200 Powell Street, Suite 1250
Emeryville, California 94608
Attention: Dave Woodward
Fax: (510) 595-9801
If to Tangent, at 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
2001 Ross Avenue, Suite 3000
Dallas, Texas 75201
Attention: Charles P. Miller, Esq.
Fax: (214) 871-2688
Howard, Rice, Nemerovski, Canady, Falk & Rabkin
Three Embarcadero Center, Seventh Floor
San Francisco, CA 94111-4065
Denis T. Rice, Esq.
If to the Company, at ValueStar Corporation
360 22nd Street, Suite 210
Oakland, CA 94612
FAX: (510) 808-1400
Attention: Jim Stein
with courtesy copies to: Bay Venture Counsel, LLP
1999 Harrison Street, Suite 1300
Oakland, California 94612
Attention: Donald C. Reinke, Esq.
Fax: (510) 834-7440
<PAGE> 20
If to Barnes: James A. Barnes
8617 Canyon View Drive
Las Vegas, NV 89117
Facsimile: (702) 254-4212
If to Polis: Jerry E. Polis
980 American Pacific Drive, Suite 111
Henderson, Nevada 89014
Fax: (702) 737-6900
If to any other Holder: As set forth on Schedule 1.
or to such other address as each party may designate for itself by like
notice. Notice to any other Holder will be delivered as set forth above to the
address shown on the stock transfer books of the Company 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.
d. SUCCESSORS/AMENDMENTS. This Agreement will be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns.. Except as otherwise expressly provided herein, the provisions of this
Agreement may be amended and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if it has
obtained the written consent of Holders holding at least sixty-six and
two-thirds percent (66-2/3%) or more of the then outstanding Registrable
Securities; provided, however, that any amendment or action which would
adversely affect only one class of Holders shall also require the written
consent of the Holders holding at least sixty-six and two-thirds percent
(66-2/3%) or more of the then outstanding Registrable Securities of such class.
Notwithstanding the foregoing, this Section 4.d. shall not be amended without
the consent of all Holders.
e. 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
<PAGE> 21
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.
f. 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.
g. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
h. 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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 22
SIGNATURE PAGES TO VALUESTAR CORPORATION INVESTORS RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
VALUESTAR CORPORATION
By:
-----------------------------------------
Its: President and Chief Executive Officer
--------------------------------------------
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
--------------------------------------------
Jerry E. Polis, individually, as President
of Davric Corporation and Trustee of the
Jerry E. Polis Family Trust
<PAGE> 23
SCHEDULE 1
SIGNATURE PAGES TO VALUESTAR CORPORATION INVESTORS RIGHTS AGREEMENT
eCOMPANIES VENTURE GROUP, L.P.
By
----------------------------------------
Name: Steven Ledger
Its: Managing General Partner
SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By
----------------------------------------
Name: Jeffrey J. Holland
Its: Vice President
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital
its general partner
By
----------------------------------------
` Name: Andrew B. Dumke
Its: General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management, LLC
its general partner
By
----------------------------------------
Name: Mark P. Gilles
Its: Vice President
<PAGE> 24
SCHEDULE 1
SIGNATURE PAGES TO VALUESTAR CORPORATION INVESTORS RIGHTS AGREEMENT
---------------------------------------
Name of Holder
---------------------------------------
Authorized Signature
---------------------------------------
Print Name and Title of Signatory
ADDRESS
---------------------------------------
---------------------------------------
---------------------------------------
<PAGE> 1
EXHIBIT 99.8
SECOND AMENDMENT TO SHAREHOLDER AGREEMENT
This SECOND AMENDMENT TO SHAREHOLDER AGREEMENT (this "Amendment") made
as of December 8, 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").
WHEREAS, the Company, Purchaser and Shareholder have entered into that
certain Shareholder Agreement, dated as of March 31, 1999, as amended on July
22, 1999 (the "Original Agreement" and, as further amended hereby, the
"Agreement")
WHEREAS, in connection with a Series B Preferred Stock financing of the
Company, the Company and certain investors in the Series B Preferred Stock have
requested that Purchaser and Shareholder make certain amendments to the Original
Agreement, and Purchaser and Shareholder are willing to do so upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises herein contained and
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:
1. DEFINITIONS. All capitalized terms used but not otherwise defined in
this Amendment shall have the meanings ascribed to them in the Agreement. Unless
otherwise specified, all section references herein refer to sections of the
Original Agreement.
2. AMENDMENT TO ARTICLE II. Article II is hereby amended and restated
to terminate all the provisions thereof and read as follows in its entity:
"ARTICLE II
HOLDERS' PREEMPTIVE RIGHTS
Reserved."
3. AMENDMENT TO ARTICLE IV. Article IV is hereby amended and restated
to terminate all the provisions thereof and read as follows in its entity:
"ARTICLE IV
DRAG ALONG RIGHTS AND CALL OPTION UPON EXERCISE OF DRAG ALONG RIGHTS
Reserved."
1
<PAGE> 2
4. AMENDMENT TO ARTICLE VII. Article VII is hereby amended and restated
to terminate all the provisions thereof and read as follows in its entity:
"ARTICLE VII
LIQUIDITY
Reserved."
5. AMENDMENT TO SECTION 8.02. Section 8.02 is hereby amended and
restated to read as follows in its entity:
"8.02 Board of Directors. Until the expiration of the
agreement to vote in this Article VIII, subject to applicable state
law, Seacoast shall be entitled to designate one (1) member to the
Company's Board of Directors (the "Purchaser Director"). Seacoast shall
not 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 to the extent such
Shareholder then owns such Capital Stock (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 Director and (ii) not vote their Voting Shares for the
removal of the Purchaser Director unless requested by Seacoast. 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
Seacoast.
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 permit each Purchaser to designate one (1) person to
attend all meetings of the Company's Board of Directors (including
executive committee meetings) as follows: 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, Pacific or Tangent they
have a representative as a member of the Board of Directors. The
Company will also: (a) 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, (b) permit such designees
to attend such meetings as an observer and (c) 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
2
<PAGE> 3
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
(b) 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."
4. MISCELLANEOUS.
4.1 Survival of Representations and Warranties. All representations and
warranties made in the Original Agreement, including, without limitation, any
document furnished in connection with this Amendment, shall survive the
execution and delivery of this Amendment and the Other Agreements, and no
investigation by Purchaser or any closing shall affect the representations and
warranties or the right of Purchaser to rely upon them.
4.2 Reference to Original Agreement. The Original Agreement and any and
all other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the Original
Agreement, as amended hereby, are hereby amended so that any reference in the
Original Agreement and such other Agreements to the Original Agreement shall
mean a reference to the Original Agreement as amended hereby.
4.3 Expenses of Purchaser. As provided in the Original Agreement, the
Company agrees to pay on demand all costs and expenses incurred by Purchaser in
connection with the preparation, negotiation and execution of this Amendment and
any other agreements executed pursuant hereto, including, without limitation,
the reasonable costs and fees of Purchaser's legal counsel.
4.4 Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
4.5 Successors and Assigns. This Amendment will inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns.
4.6 Headings. The headings of the sections and subsections of this
Amendment are inserted for convenience only and do not constitute a part of this
Amendment.
4.7 Counterparts. This Amendment may be executed in any number of
counterparts, which shall collectively constitute one agreement.
3
<PAGE> 4
4.8 LAW GOVERNING. THIS AMENDMENT SHALL BE DEEMED TO HAVE BEEN
SUBSTANTIALLY NEGOTIATED AND MADE IN THE STATE OF CALIFORNIA AND SHALL 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.
4.9 WAIVER; MODIFICATION. NO PROVISION OF THIS AMENDMENT MAY BE WAIVED,
CHANGED OR MODIFIED, OR THE DISCHARGE THEREOF ACKNOWLEDGED, ORALLY, BUT ONLY BY
AN AGREEMENT IN WRITING SIGNED BY THE PARTY AGAINST WHOM THE ENFORCEMENT OF ANY
WAIVER, CHANGE, MODIFICATION OR DISCHARGE IS SOUGHT.
4.10 FINAL AGREEMENT. THE ORIGINAL AGREEMENT, AS AMENDED HEREBY,
REPRESENTS THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF AND THEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE ORIGINAL
AGREEMENT, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
4
<PAGE> 5
IN WITNESS WHEREOF, the Company, Purchaser and Shareholder have caused
this Amendment to be executed and delivered as of the date first written.
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
<PAGE> 6
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/ ANDREW DUMKE
-------------------------------------
Name: Andrew Dumke
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
