EXHIBIT 4.26
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
dated for reference purposes only as of July 21, 1999, by and between VALUESTAR
CORPORATION, a Colorado corporation (the "Corporation"), and those investors set
forth on Annex 1 attached hereto (individually, a "Purchaser" and collectively,
the "Purchasers").
R E C I T A L S:
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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:
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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:
1. 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 A 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.
"Controlled Group" means any group of organizations within the meaning
of Section 414(b), (c), (m) or (o) of the Code of which the Corporation is a
member.
"Employee Benefit Plan" means any employee benefit plan, as defined in
Section 3(3) of ERISA, which is, previously has been or will be established or
maintained by any member of a Controlled Group.
"Environmental Laws" means all federal, state, or local laws,
ordinances, rules, regulations, interpretations and orders of courts or
administrative agencies or authorities relating to pollution or protection of
the environment (including, without limitation, ambient air, surface water,
ground water, land surface, and subsurface strata), and other laws relating to
(a) Polluting Substances or (b) the manufacture, processing, distribution, use,
treatment, handling, storage, disposal, or transportation of Polluting
Substances.
"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; provided,
that the Corporation may not change the use or application of any accounting
method, practice or principle without the prior written consent of Purchaser,
which shall not be unreasonably withheld, such consent may require that an
adjustment be made to any and all the financial covenants and the capital
expenditure covenant set forth herein. Accounting principles are applied on a
"consistent basis" when the accounting principles observed in a current period
are comparable in all material respects to those accounting principles applied
in a preceding period.
"Indebtedness" means for any Person: (a) all indebtedness, whether or
not represented by bonds, debentures, notes, securities, or other evidences of
indebtedness, for the repayment of money borrowed, (b) all indebtedness
representing deferred payment of the purchase price of property or assets, (c)
all indebtedness under any lease which, in conformity with GAAP, is required to
be capitalized for balance sheet purposes and leases of property or assets made
as a part of any sale and lease-back transaction if required to be capitalized,
(d) all indebtedness under guaranties, endorsements, assumptions, or other
contractual obligations, including any letters of credit, or the obligations in
respect of, or to purchase or otherwise acquire, indebtedness of others, (e) all
indebtedness secured by a Lien existing on property owned, subject to such Lien,
whether or not the indebtedness secured thereby shall have been assumed by the
owner thereof, (f) trade accounts payable more than one hundred twenty (120)
days past due, (g) all amendments, renewals, extensions, modifications and
refundings of any indebtedness or obligations referred to in clauses (a), (b),
(c), (d), (e) or (f).
"Intellectual Property" means all patents, patent rights, patent
applications, licenses, inventions, trade secrets, know-how, proprietary
techniques (including processes and substances), trademarks, service marks,
trade names and copyrights.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, financing statement, or conditional sale or title retention
agreement, or any other interest in property designed to secure the repayment of
Indebtedness or any other obligation, whether arising by agreement, operation of
law, or otherwise.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial or otherwise)
of the 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. In determining whether any individual event
would result in a Material Adverse Effect, notwithstanding that such event does
not of itself have such effect, a Material Adverse Effect shall be deemed to
have occurred if the cumulative effect of such event and all other then existing
events would result in a Material Adverse Effect.
"Other Agreements" means the Registration 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 or any of the transactions
contemplated by this Agreement.
"Party" or "parties" means the Corporation and/or any Purchaser.
"Pension Plan" means any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which is, was or will be established or maintained by any
member of the Controlled Group.
"Person" means any individual, sole proprietorship, corporation,
business trust, unincorporated organization, association, company, partnership,
joint venture, governmental authority (whether a national, federal, state,
county, municipality or otherwise, and shall include without limitation any
instrumentality, division, agency, body or department thereof), or other entity.
"Polluting Substances" means all pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes and shall include,
without limitation, any flammable explosives, radioactive materials, oil,
hazardous materials, hazardous or solid wastes, hazardous or toxic substances or
related materials defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and Recovery Act of 1976,
the Hazardous and Solid Waste Amendments of 1984, and the Hazardous Materials
Transportation Act, as any of the same are hereafter amended, and
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in the regulations adopted and publications promulgated thereto; provided, in
the event any of the foregoing Environmental Laws is amended so as to broaden
the meaning of any term defined thereby, such broader meaning shall apply
subsequent to the effective date of such amendment and, provided, further, to
the extent that the applicable laws of any state establish a meaning for
"hazardous substance," "hazardous waste," "hazardous material," "solid waste,"
or "toxic substance" which is broader than that specified in any of the
foregoing Environmental Laws, such broader meaning shall apply.
"Reportable Event" means (i) any of the events set forth in Sections
4043(b) (other than a merger, consolidation or transfer of assets in which no
Pension Plan involved has any unfunded benefit liabilities), 4068(f) or 4063(a)
of ERISA, (ii) any event requiring any member of the Controlled Group to provide
security under Section 401(a)(29) of the Code, or (iii) any failure to make
payments required by Section 412(m) of the Code.
"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.
"Registration Rights Agreement" means the Restated Registration Rights
Agreement and Shareholder Agreement Amendment attached hereto as Exhibit B.
"SBA Letter" means each SBA letter attached hereto in the form of
Exhibit C to this Agreement, executed by the Corporation in favor of each
Purchaser.
"Series A Stock" means the shares of Series A Convertible Preferred
Stock of the Corporation issued to the Purchasers pursuant to this Agreement.
"Series A Convertible Preferred Stock" means all shares of Series A
Convertible Preferred Stock of the Corporation issued and outstanding from time
to time.
2. SALE AND ISSUANCE OF SERIES A STOCK
2.1 Purchase and Sale of Series A 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 A Stock set forth opposite
its name in Schedule 1 attached hereto at a per share purchase price of $10.00
per share.
2.2 Issuance and Payment The initial closing of the sale and purchase
of at least one hundred seventy five thousand (175,000) shares of the Series A
Stock will take place at the offices of BAY VENTURE COUNSEL, LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m. on July 21, 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 A
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, or by any combination of the
foregoing.
2.3 Subsequent Sale of Series A Preferred Stock. The Corporation may
sell up to an additional three hundred twenty-five thousand (325,000) shares of
Series A Stock, to such Persons as the Corporation may determine at any time
after the Initial Closing and on or before August 31, 1999 upon the same terms
and conditions as those contained herein; provided, however, that the
Corporation shall not sell more than an aggregate of five hundred thousand
(500,000) authorized but unissued shares of Series A Stock under all Closings,
including any shares of Series A Stock sold and purchased in the Initial
Closing, without the prior written consent of the Purchasers of a majority of
the shares of Series A Stock originally issued and sold in the Initial Closing.
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 Registration Rights Agreement, each dated as of even date
herewith, by and among the Corporation and the Purchasers,
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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."
3. 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 Initial 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 Initial
Closing; and the Corporation shall have delivered a certificate executed by the
President and 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 Registration Rights Agreement, and all of the following documents:
(a) an Officers' 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;
(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 dated as of the Initial Closing from
the Corporation's counsel, Bay Venture Counsel, LLP, reasonably acceptable to
Purchasers; and
(f) 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.
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.
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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 A 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 A 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 5.14(b). The Corporation will have outstanding no
options, convertible securities or warrants other than as listed and described
on Schedule 5.14(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 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) the SBA Letter,
(ii) the Size Status Declaration on SBA Form 480, and (iii) the Assurance of
Compliance on SBA Form 652.
4. CONDITIONS OF THE CORPORATION'S OBLIGATIONS.
The obligation of the Corporation to issue the Series A 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/Proceedngs. 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.
5. 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:
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 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
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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. The Corporation has delivered to each
Purchaser (a) audited consolidated financial statements of the Corporation as at
and for the fiscal year ended June 30, 1998, and (b) unaudited financial
statements of the Corporation for the nine month period ended March 31, 1999,
and for the two month period ended May 31, 1999. The financial statements
referred to in clauses (a) and (b) of this Section 5.2 are true and correct in
all material respects, have been prepared in accordance with GAAP (except as
otherwise noted therein or on Schedule 5.2), and fairly present both the
financial condition of the Corporation and the Subsidiary on a consolidated
basis as of the respective dates indicated therein and the results of the
Corporation's and the Subsidiary's operations for the respective periods
indicated therein. At May 31, 1999, neither the Corporation nor the Subsidiary
has any liabilities or obligations (absolute, accrued, contingent or otherwise)
of a nature required by GAAP to be reflected in such financial statements which
are, individually or in the aggregate, material to the condition, financial or
otherwise, or operations of the Corporation or the Subsidiary as of that date
which are not reflected on such financial statements or disclosed on Schedule
5.2. There has been no material adverse change in the condition, financial or
otherwise, or operations of the Corporation or the Subsidiary since May 31,
1999, nor has there otherwise occurred a Material Adverse Effect.
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 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
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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
(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 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.
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
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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 Registration 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, 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. The Subsidiary has no Subsidiaries
except as otherwise set forth on Schedule 5.14 (a). 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.
8
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 A 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.
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).
6. 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 A Stock
and any Common Stock issuable upon conversion of the Series A 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 A Stock (and any shares of Common Stock issued upon conversion
of the Series A 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.
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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.
6.6 Duly Authorized. All action on the part of the Purchaser
necessary for the purchase of its Series A 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
10
(viii) Any entity in which all of the equity owners
are accredited investors.
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 ▇▇▇ or ▇▇▇▇▇ retirement plan, and alimony payments.
6.9 Resident. Purchaser has its, his or her principal
residence in the state indicated on Annex 1.
7. 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 four percent (4%) of all shares of the Series A Stock issued and sold
in the Closings, the Corporation shall furnish the following to such Purchaser:
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, 1999, (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 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) Corporation shall provide to any Purchaser entitled to
receive financial information under this Article VIII, on or before thirty (30)
days after receipt by Corporation of written request for such information, which
11
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.
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. REGISTRATION RIGHTS AGREEMENT.
The Corporation shall at the Initial Closing enter into an Registration
Rights Agreement in form and substance substantially as attached hereto as
Exhibit B granting each Purchaser the registration rights set forth therein.
X. MISCELLANEOUS.
10.1 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.
10.2 Consent to Amendments. Except as otherwise expressly
provided herein, the provisions of this Agreement 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 seventy-five percent (75%) or more of the
outstanding shares of Series A 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
10.2 shall not be amended without the consent of all Purchasers holding Series A
Stock.
10.3 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.
10.4 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 hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not.
10.5 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.
10.6 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.
10.7 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
10.8 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 Annex 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
12
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 Annex 1
With a Copy to: ▇▇▇▇▇▇ ▇▇▇▇▇ LLP
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Corporation: Valuestar Corporation
Attn: ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
With a Copy to: Bay Venture Counsel, LLP
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
10.9 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.
10.10 Schedules and Exhibits. All schedules and exhibits are
an integral part of this Agreement.
10.11 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.
10.12 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.
10.13 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 10.13 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
10.13, (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 10.13 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.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the respective Closing dates.
IN WITNESS WHEREOF, the Corporation and Purchaser have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized.
CORPORATION:
VALUESTAR CORPORATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Its: President and Chief Executive Officer
PURCHASER:
---------------------------------------
Name of Investor
---------------------------------------
Authorized Signature
---------------------------------------
Print Name and Title of Signatory
ADDRESS
---------------------------------------
---------------------------------------
---------------------------------------
INVESTMENT AMOUNT
$--------------------------------------
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