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EXHIBIT 99.3
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SHAREHOLDER AGREEMENT
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TABLE OF CONTENTS
Page
Article I Definitions.......................................................
Article II Holders' Preemptive Rights........................................
2.01 Equity Preemptive Right...........................................
2.02 Debt Preemptive Rights............................................
2.03 Notice to Holders.................................................
2.04 Allocation of Unsubscribed New Securities.........................
Article III Dilution Fee......................................................
Article IV Option............................................................
4.01 Drag Along Rights.................................................
4.02 Grant of Option...................................................
4.03 Price.............................................................
4.04 Exercise of Option................................................
4.05 Certain Remedies..................................................
4.06 Option Closing....................................................
Article V Call Option.......................................................
5.01 Grant of Option...................................................
5.02 Call Price........................................................
5.03 Exercise of Call Option...........................................
5.04 Call Option Closing...............................................
Article VI First Refusal and Co-Sale Rights..................................
6.01 Rights of Co-Sale.................................................
6.02 Method of Electing Sale; Allocation of Sales......................
6.03 Sales to Related Parties..........................................
Article VII Liquidity.........................................................
7.01 Required Registration.............................................
7.02 Incidental Registration...........................................
7.03 Form S-3 Registrations............................................
7.04 Rule 144 Availability.............................................
7.05 Registration Procedures...........................................
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7.06 Allocation of Expenses............................................
7.07 Listing on Securities Exchange....................................
7.08 Holdback Agreements...............................................
7.09 Rule 144..........................................................
7.10 Rule 144A.........................................................
7.11 Limitation on Subsequent Registration Rights......................
7.12 Exchange Rights...................................................
7.13 Other Rights......................................................
Article VIII Directors.........................................................
8.01 Voting Agreement..................................................
8.02 Board of Directors................................................
Article IX Representations and Warranties; Covenants.........................
9.01 Representations and Warranties and Covenants of the
Company and the Shareholder.......................................
9.02 Representations and Warranties of the Shareholder.................
9.03 Representation and Warranties of Purchaser........................
9.04 Covenants of Shareholder..........................................
Article X Conditions........................................................
10.01 Note Agreement and Warrant Agreement Conditions...................
10.02 Proceedings.......................................................
Article XI Miscellaneous.....................................................
11.01 Indemnification...................................................
11.02 Default...........................................................
11.03 Integration.......................................................
11.04 Headings..........................................................
11.05 Severability......................................................
11.06 Notices...........................................................
11.07 Successors........................................................
11.08 Remedies..........................................................
11.09 Survival..........................................................
11.10 Fees..............................................................
11.11 Counterparts......................................................
11.12 Other Business....................................................
11.13 Choice of Law.....................................................
11.14 Nominees for Beneficial Owners....................................
11.15 Fiduciary Duties..................................................
11.16 Duties Among Holders..............................................
11.17 Confidentiality...................................................
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SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT (the "Agreement") made as of March 31, 1999, by
and among VALUESTAR CORPORATION, a Colorado corporation (the "Company"),
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP, a Delaware Limited Partnership
("Seacoast"), PACIFIC MEZZANINE FUND, L.P. a California limited partnership
("Pacific") and TANGENT GROWTH FUND, L.P., a California limited partnership
("Tangent") (individually and collectively, "Purchaser"), and ▇▇▇ ▇▇▇▇▇
("▇▇▇▇▇"), ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇ ("Polis")
(individually and collectively, the "Shareholder").
W I T N E S S E T H:
WHEREAS, ValueStar, Inc., a wholly owned subsidiary of the Company (the
"Borrower"),and the Purchaser have entered into a Note Purchase Agreement (the
"Note Agreement") dated of even date with this Agreement pursuant to which the
Company has issued 8% Senior Notes in the stated principal amount of $2,450,000
to Purchaser (the "Note");
WHEREAS, the Company, the Shareholder and Purchaser have entered into a
Warrant Purchase Agreement (the "Warrant Agreement") dated of even date with
this Agreement;
WHEREAS, ▇▇▇▇▇▇▇▇▇ is willing to enter into and consummate the
transactions contemplated by the Note Agreement only if, among other things, the
Company and the Shareholder enter into, and perform under, this Agreement and
the Warrant Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Purchaser, the
Shareholder, and the Company, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
All terms used in this Agreement will have the meanings ascribed to
them in the Warrant Agreement unless otherwise specifically defined in this
Agreement.
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ARTICLE II
HOLDERS' PREEMPTIVE RIGHTS
2.01 Equity Preemptive Right. The Company will not issue or sell any
New Securities without first complying with this Article II. The Company hereby
grants to each Holder the preemptive right to purchase, pro rata, any part of
the New Securities that the Company may, from time to time, propose to sell or
issue. In the event New Securities are offered or sold as part of a unit with
other New Securities, the preemptive right granted by this Article II will apply
to such units and not to the individual New Securities composing such units.
Each Holder's pro rata share for purposes of Article II is the ratio that the
number of shares of Common Stock issuable to such Holder upon exercise of its
Warrant plus the number of shares of Common Stock that are Issued Warrant Shares
owned by such Holder immediately prior to the issuance of the New Securities,
bears to the sum of (x) the total number of shares of Common Stock then
outstanding, plus (y) the number of shares of Common Stock issuable upon
exercise of all Warrants and Common Stock Equivalents then outstanding. Any
payment due from Holder in connection with the exercise of the preemptive right
granted pursuant to this Section 2.01 may be satisfied, at the option of the
Holder, by (i) cancellation of any debt and/or accrued interest owed by the
Company to the Holder or (ii) cancellation of Warrant Shares, valued at Fair
Market Value.
2.02 Debt Preemptive Right. The Company will not incur any additional
debt other than the debt due under the Note or any Permitted Indebtedness, (as
defined in the Note Agreement) without first complying with this Article II and
Section 12.15 of the Note Agreement.
2.03 Notice to Holders.
(a) In the event the Company proposes to issue or sell New
Securities, it will give each Holder written notice of its intention,
describing the type of New Securities and the price and terms upon
which the Company proposes to issue or sell the New Securities. Each
Holder will have fifteen (15) days from the date of receipt of any such
notice and such information as the Holders may reasonably request to
facilitate their investment decision to agree to purchase up to its
respective pro rata share of the New Securities for the price (valued
at Fair Market Value for any noncash consideration) and upon the terms
specified in the notice by giving written notice to the Company stating
the quantity of New Securities agreed to be purchased.
(b) In the event the Company proposes to incur additional debt
to which Section 2.02 above would apply, (the "New Financing"), the
Company shall first offer to each Holder, on a pari passu and pro rata
basis, based upon the principal amount of the Senior Obligations
outstanding to each Holder (except that if the Senior Obligations have
been paid in full, based upon the amount of Capital Stock owned by each
Holder), the right to provide all or any part of the New Financing
proposed to be incurred, on the most favorable terms for lender(s) to
be providing such New Financing. Such offer shall describe the New
Financing
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in reasonable detail. Thereafter, each Holder shall have fifteen (15)
days in which to accept the Company's offer and closing of the
transaction shall take place within sixty (60) days of acceptance. If
any Holder does not accept the offer or accepts only a part of it, such
Holder shall notify the Company and the other Holders, and the other
Holders shall thereupon have the right, within an additional ten (10)
day period, to agree to provide on a pro rata basis the New Financing
not so provided by the non-accepting Holder, and closing of such
transaction shall take place within sixty (60) days of acceptance. If
no Holder accepts the offer, or if each Holder elects to provide only a
part of the New Financing offered, then the Company may then offer to
third parties such New Financing, or a portion thereof not provided by
any Holder, on terms and conditions no more favorable to the lenders
thereof than those provided by, or offered to, the Holders, provided
that any such funding occurs within one hundred eighty (180) days of
the Holders' non-acceptance or partial acceptance of the Company's
original offer. Any New Financing thereafter must first be reoffered to
each Holder under the terms of this Section 2.03(b).
2.04 Allocation of Unsubscribed New Securities. In the event a Holder
fails to exercise such equity preemptive right within such fifteen (15) day
period, the other Holders, if any, will have an additional five (5) day period
to purchase such Holder's portion not so agreed to be purchased in the same
proportion in which such other Holders were entitled to purchase the New
Securities (excluding for such purposes such nonpurchasing Holder). Thereafter,
the Company will have ninety (90) days to sell the New Securities not elected to
be purchased by the Holders at the same price and upon the same terms specified
in the Company's notice described in Section 2.03(a). In the event the Company
has not sold the New Securities within such ninety (90) day period, the Company
will not thereafter issue or sell any New Securities without first offering such
securities in the manner provided above.
2.05 Termination of Preemptive Rights. The rights granted pursuant to
this Article II shall terminate upon the earlier to occur of (i) a Qualified
Liquidation Event, (ii) a Qualified Liquidity Milestone or (iii) the repayment
of any and all Senior Obligations (as defined in the Note Agreement) owed to
such Purchaser and the sale in excess of 80% of such Purchaser's Warrant Shares.
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ARTICLE III
DILUTION FEE
In the event that, during the term of the Warrants, the Company pays
any cash dividend or makes any cash distribution to any holder of any class of
its Capital Stock with respect to such Capital Stock, each Holder of the
Warrants will be entitled to receive in respect of its Warrant a dilution fee in
cash (the "Dilution Fee") on the date of payment of such dividend or
distribution, which Dilution Fee will be equal to the difference between (a) the
highest amount per share paid to any class of Capital Stock times the number of
Issued Warrant Shares then owned by such Holder plus the number of Issuable
Warrant Shares then owned by such Holder, and (b) the amount of such dividend or
distribution otherwise paid to such Holder as a result of its ownership of
Common Stock.
ARTICLE IV
DRAG ALONG RIGHTS AND CALL OPTION UPON EXERCISE OF DRAG ALONG RIGHTS
4.01 Drag Along Rights.
(a) In the event that at any time or times after the earlier to occur
of (i) the fifth (5th) anniversary of the date of this Agreement, or (ii) at any
time or times after the occurrence of any of the events listed in any of clauses
(i), (ii), (iii) or (iv), below but in any event prior to the earlier of (w) the
closing of a Qualified Liquidation Event, (x) the Company achieving a Qualified
Liquidity Milestone, (y) the repayment of any and all Senior Obligations owed to
such Purchaser and the sale in excess of 80% of such Purchaser's Warrant Shares
or (z) the tenth (10th) anniversary of the date of this Agreement (the
"Drag-Along Option Period"), Purchaser shall have the right to cause the
Shareholder to participate in a sale or transfer, with respect to all of the
Capital Stock of the Company held by Shareholder and the Shareholder shall use
its best efforts to participate in a sale or transfer of all or substantially
all of the assets or stock of the Borrower, on the terms set forth in this
Section 4.01:
(i) a change in control of the Company (for purposes of this
subsection a "change of control" will include, without limitation, the
Shareholder ceasing to own, directly, a number of shares of issued and
outstanding voting stock of the Company which is equal to at least 20%
of the fully diluted equity of the Company) or the Company ceasing to
own 100% of the Borrower; or
(ii) completion of a Public Offering by the Company or any of
its Subsidiaries; or
(iii) ▇▇▇▇▇ ▇▇▇▇▇ ("Key Manager") ceasing to be president or
chief executive officer of the Company and a replacement satisfactory
to each Holder is not found within ninety (90) days of his departure;
or
(iv) after the occurrence and during the continuance of an
Event of Default (as
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defined in the Note Agreement) pursuant to Sections 8.1(a), (b), (f) or
(h) of the Note Agreement or any failure of the Company in any material
respect to perform any of its obligations hereunder or under the
Warrant Agreement.
(b) In order to exercise the right granted pursuant to Section 4.01(a),
the Holder will deliver or cause to be delivered a written notice to the Company
and each Shareholder (the "Notice of Proposed Drag-Along Sale") of the Holder's
intention to seek one or more buyers for the Company, its Subsidiaries or all or
substantially all of their assets (the "Proposed Sale"). Upon receipt of the
Notice of Proposed Drag-Along Sale, the Company shall have thirty (30) days to
retain an investment banking firm of national standing reasonably acceptable to
the Holder to assist the Company in consummating the Proposed Sale. In the event
that the Company does not retain an investment banking firm of national standing
reasonably acceptable to the Holder within such thirty (30) day period or the
Company does not consummate a Proposed Sale within one hundred eighty (180) days
after retaining such investment banking firm, then Holder may, at the Company's
expense, in ▇▇▇▇▇▇'s sole discretion take all actions that it deems necessary
and appropriate to consummate the Proposed Sale. Upon receipt of an offer for
the Proposed Sale acceptable to the Holder, the Company and the Shareholder
shall use their best efforts to take all actions to complete the Proposed Sale
in a timely manner and shall fully cooperate with the Holder to consummate the
Proposed Sale on the terms accepted by Holder, subject to and contingent upon
compliance with applicable state corporate and federal securities laws.
(c) Subject to the fiduciary obligations of each Board member of the
Company and Borrower, the Company represents and warrants to Holder that the
provisions of this Section 4.01 are valid and enforceable and do not, and will
not, result in the breach of any obligations or duties of the Company or the
Shareholder. In addition, the Company agrees and acknowledges that the Holder
would not purchase the Senior Notes without being provided the benefits of the
provisions of this Section 4.01.
4.02 Grant of Call Option Upon Exercise of Drag-Along Rights. Upon
receipt of a Notice of Proposed Drag-Along Sale, the Holder hereby grants to the
Company the right to purchase from the Holders (the "Drag-Along Call Option")
all, but not less than all, of the Warrant Shares and any other Capital Stock
purchased in connection with the exercise of its rights granted pursuant to this
Agreement (the "Drag-Along Call Option Shares"). The Company may assign the
rights granted pursuant to this Section 4.02 to the Shareholders. The Drag-Along
Call Option may be exercised at any time after receipt by the Company of a
Notice of Proposed Drag Along Sale and prior to the earlier of (x) the execution
by the Company of a binding agreement for a Proposed Sale, or (y) the expiration
of ninety (90) days following the receipt by the Company of a Notice of Proposed
Drag Along Sale (the "Drag-Along Call Option Period").
4.03 Drag-Along Call Option Price. In the event that the Company
exercises the Drag-Along Call Option, the price (the "Drag-Along Call Option
Price") to be paid to each Holder pursuant to this Agreement will be cash
(denominated in U.S. Dollars) in an amount equal to the sum of (i) the
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amount determined by multiplying (a) the higher of (I) the Fair Market Value or
(II) the Revenue Value as of the end of the month immediately preceding the date
notice is given of the exercise of the Drag-Along Call Option pursuant to
Section 4.02 (less the Exercise Price of the Warrants, to the extent not already
taken into account in calculating Fair Market Value or Revenue Value) times (b)
the number of Drag-Along Call Option Shares owned by each Holder.
4.04 Exercise of Drag-Along Call Option. The Drag-Along Call Option may
be exercised during the Drag Along Call Option Period with respect to all, but
not less than all, of the Drag-Along Call Option Shares, by the Company giving
notice to each Holder during the Drag-Along Call Option Period of the Company's
election to exercise the Drag-Along Call Option, and the date of the Drag-Along
Call Option Closing (as defined below), which will not be more than ninety (90)
days after the date of such notice.
4.05 Certain Remedies. In the event that the Company defaults in its
obligation to purchase the Drag-Along Call Option Shares upon exercise of the
Drag-Along Call Option, in addition to any other rights or remedies of each
Holder, the unpaid portion of the Drag-Along Call Option Price will bear
interest at the lesser of (i) sixteen percent (16%) or (ii) the highest rate
permitted by applicable law. The Company will, upon the request of any Holder,
execute and deliver to such Holder a promissory note upon terms similar to the
Senior Note (as defined in the Note Agreement) in form and substance
satisfactory to such Holder evidencing such obligation.
4.06 Drag-Along Call Option Closing. The closing for the purchase and
sale of all of the Drag-Along Call Option Shares will take place at the office
of the Company on the date specified in such notice of exercise (a "Drag-Along
Call Option Closing"). At any Drag Along Call Option Closing, to the extent
applicable, the Holder of the Drag-Along Call Option Shares will deliver the
certificate or certificates evidencing the Drag-Along Call Option Shares being
purchased, duly endorsed in blank. In consideration therefor, the Company will
deliver to the Holder the Drag-Along Call Option Price, which will be payable in
cash.
ARTICLE V
CALL OPTION FOR CLASS C WARRANTS
5.01 Grant of Option. The Holders hereby severally grant to the Company
an option to require all Holders to sell to the Company, and each Holder is
obligated to sell to the Company under this option (the "Call Option"), all, but
not less than all, of the C Warrants and the Warrant Shares issued upon any
previous exercise of the C Warrants. The Company may assign its rights granted
pursuant to this Section 5.01 to the Shareholder. The Call Option will be
effective at any time prior to the fifth (5th) anniversary of the Closing Date
(the "Call Option Period"). The provisions of this Article V will only be
applicable if the Company or its Affiliates or Subsidiaries are not in default
under this Agreement, the Shareholder Agreement, the Note Agreement or any Other
Agreement, as defined in the Note Agreement.
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5.02 Call Price. In the event that the Company exercises the Call
Option, the exercise price to be paid in cash to each Holder will be equal to
$6.00 per share (such price to be adjusted for any stock split, stock dividend,
reverse stock split or other subdivision of the Common Stock) less any
applicable Exercise Price. The Call Option may only be exercised with respect to
all C Warrants and all Warrant Shares issued upon any previous exercise of the C
Warrants.
5.03 Exercise of Call Option. The Call Option may be exercised during
the Call Option Period with respect to all of the C Warrants and the Warrant
Shares issued upon any previous exercise of C Warrants of all Holders, by the
Company giving notice to each Holder during the Call Option Period of the
election of the Company to exercise the Call Option, and the date of the Call
Option Closing (as defined below), which in all events will be within at least
sixty (60) days after the date of such notice. In the event that a Drag-Along
Call Option with respect to any of the C Warrants or the Warrant Shares issued
upon any previous exercise of C Warrants is exercised within the Call Option
Period and the Drag-Along Call Option has not been consummated with respect to
such C Warrants or Warrant Shares, the Company may exercise the Call Option and
the terms of this Article V will be applicable rather than the terms of Article
IV above with respect to all of the C Warrants and the Warrant Shares issued
upon any previous exercise of C Warrants.
5.04 Call Option Closing. The closing for the purchase and sale of all
of the C Warrants and Warrant Shares issued upon any previous exercise of the C
Warrants will take place at the office of the Company, on the date specified in
such notice of exercise (the "Call Option Closing"). At the Call Option Closing,
the Holders of the C Warrants will deliver the C Warrants and the certificate or
certificates representing the Warrant Shares issued upon any previous exercise
of C Warrants, duly endorsed in blank. In consideration therefor, the Company
will deliver to each Holder the purchase price, which will be payable in
immediately available funds.
ARTICLE VI
FIRST REFUSAL; AND CO-SALE RIGHTS
6.01 Rights of Co-Sale.
(a) In the event that any Shareholder intends to sell or
transfer, directly or indirectly, any shares of any class of Capital
Stock held by it to any Person, each Holder will have the right to
participate in such sale or transfer on the terms set forth in this
Article VI; provided, however, none of the provisions of this Article
VI will apply to any sale by the Shareholder of shares of Capital Stock
in a Public Offering, so long as all Holders have had an opportunity to
participate in such offering pursuant to the registration rights under
this Agreement. The rights granted under this Section 6.01 shall expire
with respect to each Purchaser individually upon (i) the repayment of
the Senior Obligations owed to such Purchaser and the sale of in excess
of 80% of such Purchaser's Warrant Shares, (ii) the occurrence of a
Qualified Liquidation Event or (iii) the occurrence of a Qualified
Liquidity Milestone.
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(b) Notwithstanding Section 6.01(a) or Section 6.02, ▇▇▇▇▇ may
sell up to an aggregate amount of 10% (calculated as of the date
hereof) of his equity interest in the Company including stock, options
and/or warrants (the "▇▇▇▇▇ Equity Interest") without invoking the
Holders' rights pursuant to Section 6.01(a) or Section 6.02 as long as
(i) no sales are made in calendar year 1999 and (ii) no more than 2.5%
of ▇▇▇▇▇ Equity Interest is sold in any single subsequent year. Any
sales which would result in an excess of 10% of the ▇▇▇▇▇ Equity
Interest in the Company being sold will require Purchaser's consent and
be subject to Section 6.01(a) above.
(c) Notwithstanding Section 6.01(a) or Section 6.02, ▇▇▇▇▇▇
may sell up to an aggregate amount of 16% (calculated as of the date
hereof) of his equity interests in the Company including stock, options
and/or warrants (the "▇▇▇▇▇▇ Equity Interest") without invoking the
Holders' rights pursuant to Section 6.01(a) or Section 6.02 as long as
(i) no sales are made in calendar year 1999 and (ii) no more than 4% of
his equity interest is sold in any single subsequent year. Any sales
which would result in an excess of 16% of the ▇▇▇▇▇▇ Equity Interest in
the Company being sold will require Purchaser's consent and be subject
to Section 6.01(a) above.
(d) Notwithstanding Section 6.01(a) or Section 6.02, Polis may
sell up to an aggregate amount of 16% (calculated as of the date
hereof) of his equity interests in the Company including stock, options
and/or warrants (the "Polis Equity Interest") without invoking the
Holders' rights pursuant to Section 6.01(a) or Section 6.02 as long as
(i) no sales are made in calendar year 1999 and (ii) no more than 4% of
his equity interest is sold in any single subsequent year. Any sales
which would result in an excess of 16% of the Polis Equity Interest in
the Company being sold will require Purchaser's consent and be subject
to Section 6.01(a) above.
(e) Notwithstanding Section 6.01(a) or Section 6.02, in
addition to any shares excluded by subsections 6.01(b),(c) and (d),
Section 6.01(a) and Section 6.02 shall not apply to any shares of stock
sold by ▇▇▇▇▇, ▇▇▇▇▇▇ or Polis where and to the extent the proceeds of
such sale are used to either (i) pay taxes on any income resulting from
the exercise of options or warrants of the Company held by such
individual from such individual's sale of shares to pay such taxes or
(ii) exercise options or warrants of the Company held by such
individual (collectively, Sections 6.01(b)-(e), the "Released Shares").
6.02 Method of Electing Sale; Allocation of Sales. Except for the
Released Shares or as otherwise provided in Section 6.01, no sale or transfer by
any Shareholder of any shares of Capital Stock will be valid unless the
transferee of such Capital Stock first agrees in writing to be bound by the same
terms and conditions that apply to the Shareholder under this Agreement and the
Warrant Agreement. In addition, before any shares of Capital Stock held,
directly or indirectly, by any Shareholder may be sold or transferred to any
Person, such Shareholder (as such, the "Selling Shareholder") will comply with
the following provisions:
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(a) The Selling Shareholder will deliver or cause to be
delivered a written notice (the "Notice of Sale") to each Holder at
least twenty (20) days prior to making any such sale or transfer. The
Company agrees to provide the Selling Shareholder with a list of the
names and addresses of each such Holder for such purpose. The Notice of
Sale will include (i) a statement of the Selling Shareholder's bona
fide intention to sell or transfer; (ii) the name of and the address of
the prospective transferee (the "Buyer"); (iii) the number of shares of
Capital Stock of the Company to be sold or transferred; (iv) the terms
and conditions of the contemplated sale or transfer; (v) the purchase
price in cash that the Buyer will pay for such shares of Capital Stock;
(vi) the expected closing date of the transaction; and (vii) such other
information as the Holders may reasonably request to facilitate their
decision as to whether or not to exercise the rights granted by this
Article VI.
(b) Any Holder receiving the Notice of Sale may elect to
participate in the contemplated sale or transfer by exercising either
(i) its right of first refusal to purchase such Capital Stock pursuant
to Section 6.02(c) or (ii) its right to co-sell its Capital Stock
pursuant to Section 6.02(d). Either of such rights may be exercised in
the sole discretion of the Holder by delivering a written notice (an
"Election Notice") to the Company and the Selling Shareholder within
ten (10) days after receipt of such Notice of Sale stating the election
of the Holder to exercise either its right of first refusal pursuant to
Section 6.02(c) or its right of co-sale pursuant to Section 6.02(d).
(c) Each Holder may elect to treat the Notice of Sale as an
irrevocable offer to sell to the Holder up to its pro rata share
(determined in a manner consistent with Article II, and including the
pro rata share of Capital Stock not purchased by other Holders) of the
number of shares of Capital Stock proposed to be sold to the Buyer on
the same per share terms and conditions as stated in the Notice of
Sale. Such offer will remain open for a period of twenty (20) days from
delivery to the Shareholder of the Election Notice. Within such twenty
(20) day period, the Holder may elect to accept such offer in whole or
in part by delivering to the Selling Shareholder written notice of its
irrevocable election to accept such offer. If the Holder irrevocably
accepts such offer, the closing of the purchase and sale will occur on
or before the tenth (10th) business day following delivery of the
notice of acceptance. At such closing, the Holder will deliver the
consideration payable to the order of the Selling Shareholder, against
delivery by the Selling Shareholder of the Capital Stock being so
purchased, free and clear of all liens, claims, and encumbrances, other
than this Agreement, endorsed in good form for transfer to the Holder
or its designees. If a Holder does not accept such offer within the
twenty (20) day period specified above, the offer to such Holder will
be deemed to have been rejected, and the Selling Shareholder, subject
to Section 6.02(d), will be free to sell or transfer such Capital Stock
not purchased by the Holders to the Buyer on the same terms set forth
in the Notice of Sale within ninety (90) days of the expiration of such
twenty (20) day period. If the sale to the Buyer is not so consummated,
the terms of this Article VI will again be applicable to any sale or
transfer of Capital Stock by the Shareholder.
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(d) Each Holder may elect to sell or transfer in the
contemplated transaction up to the total of the number of shares of
Capital Stock then held by it (including the Issuable Warrant Shares).
Promptly after the receipt of an Election Notice exercising such right,
the Selling Shareholder will use its best efforts to cause the Buyer to
amend its offer so as to provide for such Buyer's purchase, upon the
same terms and conditions as those contained in the Notice of Sale, of
all of the shares of Capital Stock (including the Issuable Warrant
Shares) elected to be sold in such Election Notices (the "Co-Sell
Shares"). In the event that the Buyer is unwilling to amend its offer
to purchase all of the Co-Sell Shares in addition to the shares of
Capital Stock described in the related Notice of Sale, if the Selling
Shareholder desires to proceed with the sale, the total number of
shares that such Buyer is willing to purchase will be allocated to the
Selling Shareholder and each Holder having given an Election Notice
exercising its right pursuant to this Section 6.02(d) (the
"Co-Sellers") in proportion to the aggregate number of shares of
Capital Stock (including Issuable Warrant Shares) held by each such
Person; provided, however, that no such Person will be so allocated a
number of shares greater than the number of shares that it has sought
to sell to such Buyer in the related Notice of Sale or Election Notice.
All Capital Stock sold or transferred by the Selling Shareholder and
the Co-Sellers with respect to a single Notice of Sale under Section
6.02(b) will be sold or transferred to the Buyer in a single closing on
the terms described in such Notice of Sale, and each such share will
receive the same per share consideration. In the event that the Buyer
for whatever reason, declines to purchase any shares from any Holder
delivering an Election Notice, then (x) the Selling Shareholder will
not be permitted to sell or transfer any shares of Capital Stock to
such Buyer and (y) the shares of Capital Stock of the Selling
Shareholder that were to have been sold or transferred to the Buyer
will be subject to the Holders' right of first refusal pursuant to
Section 6.02(c) for a period of twenty (20) days thereafter on the
terms and conditions that the Buyer would have purchased such shares of
Capital Stock from the Selling Shareholder had it not declined to
purchase shares from the Co-Seller under this Section 6.02(d).
6.03 Sales to Related Parties. No sale or transfer of shares of Capital
Stock by the Shareholder to a Related Party will be subject to the provisions of
Section 6.02; provided, however, that such Related Party first agrees to assume
the obligations of the Shareholder (without relieving the Shareholder of any
obligations under this Agreement) under this Agreement with respect to the
shares of Capital Stock thereby acquired by it and to be bound by the same terms
and conditions that apply to the Shareholder under this Agreement and the
Warrant Agreement in a written instrument in a form and substance satisfactory
to the Holders.
6.04 Termination of First Refusal and Co-Sale Rights. The rights
granted pursuant to this Article VI shall terminate upon the earlier to occur of
(i) a Qualified Liquidation Event, (ii) a Qualified Liquidity Milestone or (iii)
the repayment of any and all Senior Obligations owed to such Purchaser and the
sale in excess of 80% of such Purchaser's Warrant Shares.
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ARTICLE VII
LIQUIDITY
7.01 Required Registration. At any time, the Holders may, upon not more
than two (2) occasions and not more often than once during any 180-day period,
make a written request to the Company requesting that the Company effect the
registration of Registrable Securities so long as such request is for an
aggregate offering price of not less than Five Million Dollars ($5,000,000).
After receipt of such a request, the Company will, as soon as practicable,
notify all Holders of such request and use its best efforts to effect the
registration of all Registrable Securities that the Company has been so
requested to register by any Holder for sale, all to the extent required to
permit the disposition (in accordance with the intended method or methods
thereof) of the Registrable Securities so registered.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each Holder
of such Registrable Securities that the success of the offering would be
materially and adversely affected by the inclusion of any securities requested
to be included in such offering, then the amount of securities to be offered for
the accounts of any Persons, other than the Holders, will be reduced pro rata
(according to the securities proposed for registration by any Persons other than
the Holders) to the extent necessary to reduce the total amount of securities to
be included in such offering to the amount recommended by such managing
underwriter or underwriters.
7.02 Incidental Registration. If the Company at any time proposes to
file on its behalf or on behalf of any of its security holders a registration
statement under the Securities Act on any form (other than a registration
statement on Form S-4 or S-8 or any successor form unless such forms are being
used in lieu of or as the functional equivalent of, registration rights) for any
class that is the same or similar to Registrable Securities, it will give
written notice setting forth the terms of the proposed offering and such other
information as the Holders may reasonably request to all holders of Registrable
Securities at least twenty (20) days before the initial filing with the
Commission of such registration statement, and offer to include in such filing
such Registrable Securities as any Holder may request. Each Holder of any such
Registrable Securities desiring to have Registrable Securities registered under
this Section 7.02 will advise the Company in writing within ten (10) days after
the date of receipt of such notice from the Company, setting forth the amount of
such Registrable Securities for which registration is requested. The Company
will thereupon include in such filing the number of Registrable Securities for
which registration is so requested, and will use its best efforts to effect
registration under the Securities Act of such Registrable Securities.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each Holder
of such Registrable Securities that the success of the offering would be
materially and adversely affected by the inclusion of the Registrable Securities
requested to be included, then the amount of securities to be offered for the
accounts of Holders will be reduced pro rata (according to the Registrable
Securities proposed for registration) to the extent
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necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or underwriters;
provided, however, that if securities are being offered for the account of other
persons as well as the Company, then with respect to the Registrable Securities
intended to be offered to Holders, the proportion by which the amount of such
class of securities intended to be offered by Holders is reduced will not exceed
the proportion by which the amount of such class of securities intended to be
offered by such other Persons (other than the Company) is reduced.
7.03 Form S-3 Registrations. In addition to the registration rights
provided in Sections 7.01 and 7.02 above, if at any time the Company is eligible
to use Form S-3 (or any successor form) for registration of secondary sales of
Registrable Securities, any Holder of Registrable Securities may request in
writing that the Company register shares of Registrable Securities on such form
so long as such request is for an aggregate offering price of at least One
Million Dollars ($1,000,000). Upon receipt of such request, the Company will
promptly notify all holders of Registrable Securities in writing of the receipt
of such request and each such Holder may elect (by written notice sent to the
Company within fifteen (15) days of receipt of the Company's notice) to have its
Registrable Securities included in such registration pursuant to this Section
7.03. Thereupon, the Company will, as soon as practicable, use its best efforts
to effect the registration on Form S-3 of all Registrable Securities that the
Company has so been requested to register by such Holder for sale. The Company
will use its best efforts to qualify and maintain its qualification for
eligibility to use Form S-3 for such purposes.
7.04 Rule 144 Availability. Notwithstanding the foregoing, the Company
will not be obligated to register any Registrable Securities as to which counsel
reasonably acceptable to the Holders renders an opinion in form and substance
satisfactory to the Holders to the effect that such Registrable Securities are
freely saleable without limitation as to volume under Rule 144 under the
Securities Act.
7.05 Registration Procedures. In connection with any registration of
Registrable Securities under this Article VII, the Company will, as soon as
practicable:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become and remain
effective until the earlier of such time as all Registrable Securities
subject to such registration statement have been disposed of or the
expiration of one hundred eighty (180) days;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all Registrable
Securities covered by such registration statement until the earlier of
such time as all of such Registrable
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Securities have been disposed of or the expiration of one hundred
eighty (180) days;
(c) furnish to each Holder such number of copies of the
registration statement and prospectus (including, without limitation, a
preliminary prospectus) in conformity with the requirements of the
Securities Act (in each case including all exhibits) and each amendment
or supplement thereto, together with such other documents as any Holder
may reasonably request;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions within the
United States and Puerto Rico as each Holder reasonably requests, and
do such other acts and things as may be reasonably required of it to
enable such holder to consummate the disposition in such jurisdiction
of the securities covered by such registration statement, except any
particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already
subject to service in such jurisdiction;
(e) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its securities holders, as soon as practicable, an earnings
statement covering the period of at least twelve months beginning with
the first month after the effective date of such registration
statement, which earnings statement will satisfy the provisions of
Section 11(a) of the Securities Act;
(f) provide and cause to be maintained a transfer agent and
registrar for Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement;
(g) if requested by the underwriters for any underwritten
offering or Registrable Securities on behalf of a Holder of Registrable
Securities pursuant to a registration requested under Section 7.01, the
Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
provisions with respect to indemnities and contribution as are
reasonably satisfactory to such underwriters and the Holders; the
Holders on whose behalf Registrable Securities are to be distributed by
such underwriters will be parties to any such underwriting agreement
and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters,
will also be made to and for the benefit of such Holders of Registrable
Securities; and no Holder of Registrable Securities will be required by
the Company to make any representations or warranties to or agreements
with the Company or the underwriters other than reasonable and
customary representations, warranties, or agreements regarding such
Holder, such Holder's Registrable Securities, such
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▇▇▇▇▇▇'s intended method or methods of disposition, and any other
representation required by law;
(h) furnish, at the written request of any Holder, on the date
that such Registrable Securities are delivered to the underwriters for
sale pursuant to such registration, or, if such Registrable Securities
are not being sold through underwriters, on the date that the
registration statement with respect to such Registrable Securities
becomes effective, (i) an opinion in form and substance reasonably
satisfactory to such Holders, and addressing matters customarily
addressed in underwritten public offerings, of the counsel representing
the Company for the purposes of such registration (who will not be an
employee of the Company and who will be satisfactory to such Holders),
addressed to the underwriters, if any, and to the selling Holders; and
(ii) a letter (the "comfort letter") in form and substance reasonably
satisfactory to such Holders, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and
to the selling Holders making such request (and, if such accountants
refuse to deliver the comfort letter to such Holders, then the comfort
letter will be addressed to the Company and accompanied by a letter
from such accountants addressed to such Holders stating that they may
rely on the comfort letter addressed to the Company); and
(i) during the period when the registration statement is
required to be effective, notify each selling Holder of the happening
of any event as a result of which the prospectus included in the
registration statement contains an untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and prepare a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
It will be a condition precedent to the obligation of the Company to
take any action pursuant to this Article VII in respect of the Registrable
Securities that are to be registered at the request of any Holder of Registrable
Securities that such Holder furnish to the Company such information regarding
the Registrable Securities held by such Holder and the intended method of
disposition thereof as is legally required in connection with the action taken
by the Company. The managing underwriter or underwriters, if any, for any
offering of Registrable Securities to be registered pursuant to Section 7.01 or
7.03 will be selected by the Holders of a majority of the Registrable Securities
being so registered.
7.06 Allocation of Expenses. Except as provided in the following
sentence, the Company will bear all expenses arising or incurred in connection
with any of the transactions contemplated by this Article VII, including,
without limitation, (a) all expenses incident to filing with the National
Association of Securities Dealers, Inc.; (b) registration fees; (c) printing
expenses; (d) accounting and legal fees and expenses; (e) expenses of any
special audits or comfort letters incident to or required
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by any such registration or qualification; and (f) expenses of complying with
the securities or blue sky laws of any jurisdictions in connection with such
registration or qualification. Each Holder will severally bear the expense of
its underwriting fees, discounts, or commissions relating to its sale of
Registrable Securities.
7.07 Listing on Securities Exchange. If the Company lists any shares of
Capital Stock on any securities exchange or on the National Association of
Securities Dealers, Inc. Automated Quotation System or similar system, it will,
at its expense, list thereon, maintain and, when necessary, increase such
listing of, all Registrable Securities.
7.08 Holdback Agreements.
(a) If any registration pursuant to Section 7.02 is in
connection with an underwritten public offering, each Holder of
Registrable Securities agrees, if so required by the managing
underwriter, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten public
offering) during the period beginning seven (7) days prior to the
effective date of such registration statement and ending on the one
hundred eightieth (180th) day after the effective date of such
registration statement; provided, however, that the Shareholder and
each Person that is an officer, director, or beneficial owner of five
percent (5%) or more of the outstanding shares of any class of Capital
Stock enters into such an agreement.
(b) The Company and the Shareholder agree not to effect any
public sale or distribution during the period seven (7) days (or such
longer period as may be prescribed by Regulation M) prior to the
effective date of the registration statement employed in any
underwritten public offering and ending on the one hundred eightieth
(180th) day after any such registration statement contemplated by
Sections 7.01 or 7.03 has become effective, except as part of such
underwritten public offering pursuant to such registration statement
and except pursuant to securities registered on Forms S-4 or S-8 of the
Commission or any successor forms, and the Company agrees to use its
best efforts to cause each holder of its equity securities or any
securities convertible into or exchangeable or exercisable for any of
such securities, in each case purchased from the Company at any time
after the date of this Agreement (other than in a public offering), to
agree not to effect any such public sale or distribution of such
securities during such period.
7.09 Rule 144. At all times following completion by the Company of a
Public Offering, the Company will take such action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell shares of Registrable Securities without registration pursuant to and in
accordance with (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation adopted by the
Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such ▇▇▇▇▇▇ a written statement as to whether it has
complied with such requirements.
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7.10 Rule 144A. The Company agrees that, upon the request of any Holder
or any prospective purchaser of a Warrant or Warrant Shares designated by a
Holder, the Company will promptly provide (but in any case within fifteen (15)
days of a request) to such Holder or potential purchaser, the following
information:
(a) a brief statement of the nature of the business of the
Company and any Subsidiaries and the products and services they offer;
(b) the most recent consolidated balance sheets and profit and
losses and retained earnings statements, and similar financial
statements of the Company for such part of the two preceding fiscal
years prior to such request as the Company has been in operation (such
financial information will be audited, to the extent reasonably
available); and
(c) such other publicly available information about the
Company, any Subsidiaries, and their business, financial condition, and
results of operations as the requesting Holder or purchaser of such
Warrants requests in order to comply with Rule 144A, as amended, and
the antifraud provisions of the federal and state securities laws.
The Company hereby represents and warrants to any such requesting Holder and any
prospective purchaser of Warrants or Warrant Shares from such Holder that the
information provided by the Company pursuant to this Section 7.10 will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
7.11 Limitations on Subsequent Registration Rights. Until (i) a
Qualified Liquidity Milestone, (ii) a Qualified Liquidation Event or (iii) the
repayment of any and all Senior Obligations owed to such Purchaser and the sale
in excess of 80% of such Purchaser's Warrant Shares from and after the date of
this Agreement or until the provisions of Section 7.04 are applicable, the
Company will not, without the prior written consent of the Holders of a majority
of the outstanding Registrable Securities, enter into any agreement with any
holder or prospective holder of any securities of the Company that would allow
such holder or prospective holder (a) to include such securities in any
registration filed under Section 7.01, unless under the terms of such agreement,
such holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of its securities will not
reduce the amount of the Registrable Securities of the Holders that is included
or (b) to make a demand registration that could result in such registration
statement being declared effective prior to the effectiveness of the first
registration statement effected under Section 7.01 or within one hundred twenty
(120) days of the effective date of any registration effected pursuant to
Section 7.01.
7.12 Right to Delay a Demand Registration. If, at the time of any
request to register Registrable Securities hereunder, the Company is preparing a
registration statement for a Public Offering (other than a registration effected
solely to implement an employee benefit plan or a
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transaction to which Rule 145 of the Commission is applicable) and such
registration statement in fact is filed and becomes effective within ninety (90)
days after the request, then the Company may at its option delay such request
for a period not more than in excess of one hundred twenty (120) days from the
effective date of such offering or the date of commencement of such other
activity, as the case may be. Such right to delay shall be exercised by the
Company not more than once in any twelve (12) month period. Nothing in this
Section 7.12 shall preclude a Holder of Registrable Securities from enjoying
registration rights which it might otherwise possess under this Article 7.
7.13 Indemnification by Holders of Registrable Securities. Each Holder
of any Registrable Securities shall, by acceptance thereof, indemnify and hold
harmless each other holder of any Registrable Securities, the Company, its
directors and officers, each above-described underwriter who contracts with the
Company or its agents and each other Person, if any, who controls the Company or
such underwriter, against any liability, joint or several, to which any such
other Holder, the Company, underwriter or any such director or officer of any
such Person may become subject under the Securities Act or any other statute or
at common law, if such liability (or actions in respect hereof) arises out of or
is based upon (i) the disposition by such Holder of such Registrable Securities
in violation of the provisions of this Article VII, (ii) any alleged untrue
statement of any material fact contained in any registration statement under
which securities were registered under the Securities Act at the request of such
Holder, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (iii) any alleged omission to state therein
a material fact required to be stated therein or necessary to make statement(s)
therein not misleading. Notwithstanding any other provision of this Section, the
indemnification rights set forth in this Section shall be given in the case of
clause (ii) or (iii) only if such alleged untrue statement or alleged omission
supplement thereto was made (1) in reliance upon and in conformity with
information furnished to the Company by such ▇▇▇▇▇▇ expressly stated for use
therein, and (2) not based on the authority of an expert as to whom the holder
had no reasonable ground to believe, and did not believe, that (A) the
statements made on the authority of such expert were untrue or (B) there was an
omission to state a material fact. Such Holder shall reimburse the Company, such
underwriter or such director, officer, other Person or other Holder for any
reasonable legal fees incurred in investigating or defending any such liability;
provided, however, that no Holder of Registrable Securities shall be required to
indemnify any Person against any liability arising from any untrue or misleading
statement or omission contained in any prospectus or for any liability which
arises out of the failure of any Person to deliver a prospectus as required by
the Securities Act; and provided further, that the obligations of such Holder of
Registrable Securities for the indemnity hereunder shall be limited to an amount
equal to the net proceeds received by such Holder of Registrable Securities upon
disposition thereof and shall not extend to any settlement of claims related
thereto without the express written consent of such Holder of Registrable
Securities, which consent shall not be unreasonably withheld.
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ARTICLE VIII
DIRECTORS
8.01 Voting Agreement. To ensure compliance with this Article VIII, the
Shareholder hereby irrevocably covenants and agrees to vote, or give or withhold
consent with respect to, all shares of Capital Stock now owned or later acquired
by them, all in accordance with the terms of this Article VIII. The agreement to
vote contained in this Article VIII will expire on the earlier to occur of (a)
the day prior to maximum period permitted under applicable law, (b) the date
Purchaser and Affiliates (with respect to such Purchaser) cease to hold 20% of
Warrants or Warrant Shares purchased at Closing or (c) the occurrence of a
Qualified Liquidity Event or Qualified Liquidity Milestone. A counterpart of
this Agreement will be deposited with the Company at its principal place of
business or registered office and will be subject to the same right of
examination by a shareholder of the Company, in person or by agent or attorney,
as are the books and records of the Company.
8.02 Board of Directors. Until the expiration of the agreement to vote
in this Article VIII, subject to applicable state law, Seacoast and Pacific
shall be entitled to designate one (1) member to the Company's Board of
Directors (the "Purchaser Directors"). Neither Seacoast nor Pacific shall have
the obligation to designate a member to the Company's Board of Directors. The
Shareholder shall (i) vote all shares of Capital Stock now owned or later
acquired by such Shareholder (the "Voting Shares") at all regular and special
meetings of the stockholders of the Company called or held for the purpose of
filling positions on the Board of Directors, and in each written consent
executed in lieu of such a meeting of stockholders, and each Shareholder shall
take all actions otherwise necessary, to ensure (to the extent within such
Shareholder's collective control) the election to the Board of Directors of the
Purchaser Directors and (ii) not vote their Voting Shares for the removal of any
Purchaser Director unless requested by the Purchaser party that designated such
Purchaser Director. Any Purchaser Director vacancy created or existing on the
Company's Board of Directors shall be filled by a successor ▇▇▇▇▇▇▇▇▇ Director
who shall be elected in a manner by which his or her predecessor was elected or
entitled to be elected as provided above if so requested by the applicable
Purchaser party.
Subject to the confidentiality provisions set forth in Section 11.17,
the Company will deliver to each Purchaser a copy of the minutes of and all
materials distributed at or prior to all meetings of the Board of Directors
(including the executive committee thereof) or shareholders of the Company,
certified as true and accurate by the Secretary of the Company, promptly
following each such meeting. The Company will (a) permit Holders to designate
three (3) persons to attend all meetings of the Company's Board of Directors
(including executive committee meetings) (so long as Pacific, Tangent and
Seacoast are Holders each of them shall be permitted to designate one (1)
person) unless in the case of Seacoast or Pacific they have a representative as
a member of the Board of Directors, (b) provide such designees not less than
fourteen (14) calendar days' actual notice of all regular meetings and of all
special meetings of the Company's Board of Directors (including the executive
committee thereof) or shareholder, (c) permit such designees to attend such
meetings as an observer and (d) provide to such designees a copy of all
materials distributed at such meetings or otherwise
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to the Board of Directors of the Company. Such meetings shall be held in person
at least quarterly, and the Company will cause its Board of Directors to call a
meeting at any time upon the request of either Seacoast or Pacific not more than
two (2) occasions per calendar year upon fourteen (14) calendar days' actual
notice to the Company. The Company agrees to reimburse each individual referred
to in Subsection (c) above for all reasonable expenses incurred in traveling to
and from such meetings and attending such meetings. All actions that may be
taken at a duly called Board meeting likewise may be taken by unanimous written
consent of each Board member, which consent, if signed by Seacoast or Pacific
either as a Board member or observer shall be deemed effective upon such signing
whether or not the relevant number of advance days' notice has been given as
required if a meeting had been held in lieu of written consent.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES; COVENANTS
9.01 Representations and Warranties and Covenants of the Company. Each
of the representations and warranties set forth in Section 3.01 of the Warrant
Agreement and each of the covenants set forth in Article IV of the Warrant
Agreement are hereby restated and incorporated by reference in this Agreement as
though set forth in this Agreement, and is made by the Company as made in the
Warrant Agreement for the benefit of Purchaser.
9.02 Representations and Warranties of Purchaser. Each of the
representations and warranties of Purchaser set forth in Section 3.02 of the
Warrant Agreement and Article III of the Note Agreement is hereby restated and
incorporated by reference in this Agreement as though set forth in this
Agreement, and is made by Purchaser as representations and warranties of
Purchaser hereunder for the benefit of the Company.
9.03 Covenants of Shareholder. The Shareholder agrees that they shall
take all reasonable shareholder action necessary to permit or enable the Company
to comply with the Company's obligations to the Holder under Article II, Article
IV and Article VI of the Warrant Purchase Agreement (provided that any costs and
expenses relating thereto shall be borne by the Company), and that they shall
refrain from taking any action that would restrict or impair the Company's power
or ability to comply therewith.
ARTICLE X
CONDITIONS
The obligations of Purchaser to effect the transactions contemplated by
this Agreement are subject to the following conditions:
10.01 Note Agreement and Warrant Agreement Conditions. All of the
conditions precedent to the obligations of Purchaser under the Note Agreement
and the Warrant Agreement shall have been satisfied in full or waived.
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10.02 Proceedings. All proceedings taken in connection with the
transactions contemplated by this Agreement, and all documents necessary to the
consummation thereof, will be reasonably satisfactory in form and substance to
Purchaser and its counsel, and Purchaser and its counsel will have received
copies (executed or certified as may be appropriate) of all documents,
instruments, and agreements that Purchaser or its counsel may request in
connection with the consummation of such transactions.
ARTICLE XI
MISCELLANEOUS
11.01 Indemnification. In addition to any other rights or remedies to
which Purchaser and the Holders may be entitled, the Company agrees to and will
indemnify and hold harmless Purchaser, the Holders, and their Affiliates and
their respective successors, assigns, officers, directors, employees, attorneys,
and agents (individually and collectively, an "Indemnified Party") from and
against any and all losses, claims, obligations, liabilities, deficiencies,
diminutions in value, penalties, causes of action, damages, out-of-pocket costs,
reasonable attorneys' fees, and expenses including, without limitation, costs
and expenses of investigation and defense, attorneys' fees and expenses
including, without limitation, those arising out of the sole or contributory
negligence of any Indemnified Party, that any Indemnified Party may suffer,
incur, or be responsible for, arising or resulting from any misrepresentation,
breach of warranty, or nonfulfillment of any agreement on the part of the
Company, the Company, or the Shareholder under this Agreement, the Warrant
Agreement, or under any other agreement to which the Company or the Shareholder
is a party in connection with the transactions contemplated by this transaction,
or from any misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished by the Company or the Shareholder to
Purchaser or the Holders under this Agreement. The foregoing indemnification
includes any such claims, actions, damages, costs and expenses incurred by
reason of the sole or contributory negligence of the Person to be indemnified,
but excludes any of the same incurred by reason of such Person's gross
negligence or willful misconduct.
11.02 Default. It is agreed that a violation by any party of the terms
of this Agreement cannot be adequately measured or compensated in money damages,
and that any breach or threatened breach of this Agreement by a party to this
Agreement would do irreparable injury to the nonbreaching party. It is,
therefore, agreed that in the event of any breach or threatened breach by a
party to this Agreement of the terms and conditions set forth in this Agreement,
the nondefaulting party will be entitled, in addition to any and all other
rights and remedies that it may have in law or in equity, to apply for and
obtain injunctive relief requiring the defaulting party to be restrained from
any such breach, or threatened breach or to refrain from a continuation of any
actual breach.
11.03 Integration. This Agreement, the Note Agreement and the Warrant
Agreement constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all previous written, and all
previous or contemporaneous oral, negotiations, understandings, arrangements,
and agreements. This Agreement may not be amended or
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supplemented except by a writing signed by the Company, the Shareholder, and
each Holder.
11.04 Headings. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement. References
in this Agreement to Sections and Articles are references to the Sections and
Articles of this Agreement unless otherwise specified.
11.05 Severability. The parties to this Agreement expressly agree that
it is not their intention to violate any public policy, statutory or common law
rules, regulations, or decisions of any governmental or regulatory body. If any
provision of this Agreement is judicially or administratively interpreted or
construed as being in violation of any such policy, rule, regulation, or
decision, the provision, section, sentence, word, clause, or combination thereof
causing such violation will be inoperative (and in lieu thereof there will be
inserted such provision, sentence, word, clause, or combination thereof as may
be valid and consistent with the intent of the parties under this Agreement) and
the remainder of this Agreement, as amended, will remain binding upon the
parties to this Agreement, unless the inoperative provision would cause
enforcement of the remainder of this Agreement to be inequitable under the
circumstances.
11.06 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration, or other communication be given to or
served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
will be deemed to have been validly served, given, or delivered (and "the date
of such notice" or words of similar effect will mean the date) five (5) days
after deposit in the United States mails, certified mail, return receipt
requested, with proper postage prepaid, or upon receipt thereof (whether by
non-certified mail, telecopy, telegram, express delivery, or otherwise),
whichever is earlier, and addressed to the party to be notified as follows:
If to the Purchaser, at Seacoast Capital Partners Limited
Partnership
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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Seacoast Capital Partners Limited
Partnership
c/o Seacoast Capital Corporation
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Pacific Mezzanine Fund, L.P.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tangent Growth Fund, L.P.
▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇: (▇▇▇) ▇▇▇-▇▇▇▇
with courtesy copies to: ▇▇▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company, at ValueStar Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with courtesy copies to: Bay Venture Counsel, LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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If to the Shareholder, at: ▇▇▇▇▇ ▇▇▇▇▇
ValueStar, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as each party may designate for itself by like notice.
Notice to any Holder other than Purchaser will be delivered as set forth above
to the address shown on the stock transfer books of the Company or the Warrant
Register unless such ▇▇▇▇▇▇ has advised the Company in writing of a different
address to which notices are to be sent under this Agreement.
Failure or delay in delivering the courtesy copies of any notice,
demand, request, consent, approval, declaration, or other communication to the
persons designated above to receive copies of the actual notice will in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration, or other communication.
No notice, demand, request, consent, approval, declaration, or other
communication will be deemed to have been given or received unless and until it
sets forth all items of information required to be set forth therein pursuant to
the terms of this Agreement.
11.07 Successors. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and permitted assigns.
11.08 Remedies. The failure of any party to enforce any right or remedy
under this agreement, or to enforce any such right or remedy promptly, will not
constitute a waiver thereof, nor give rise to any estoppel against such party,
nor excuse any other party from its obligations under this Agreement. Any waiver
of any such right or remedy by any party must be in writing and signed by the
party against which such waiver is sought to be enforced.
11.09 Survival. All warranties, representations, and covenants made by
any party in this
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Agreement or in any certificate or other instrument delivered by such party or
on its behalf under this Agreement will be considered to have been relied upon
by the party to which it is delivered and will survive the Closing Date,
regardless of any investigation made by such party or on its behalf. All
statements in any such certificate or other instrument will constitute
warranties and representations under this Agreement.
11.10 Fees. Any and all fees, costs, and expenses, of whatever kind and
nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings arising
out of or in connection with this Agreement will, to the extent provided in this
Agreement, be borne and paid by the Company within ten (10) days of demand by
the Holders.
11.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
11.12 Other Business. It is understood and accepted that Purchaser, the
Initial Holder, the Holders, and their Affiliates have interests in other
business ventures that may be in conflict with the activities of the Company and
that nothing in this Agreement will limit the current or future business
activities of such parties whether or not such activities are competitive with
those of the Company. The Company and the Shareholder agree that all business
opportunities in any field substantially related to the business of the Company
will be pursued exclusively through the Company.
11.13 CHOICE OF LAW. THIS AGREEMENT HAS BEEN EXECUTED, DELIVERED, AND
ACCEPTED BY THE PARTIES AND WILL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF
CALIFORNIA AND WILL BE INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE THERETO AND THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AN AGREEMENT EXECUTED,
DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES
THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE
SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
11.14 Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner of such Registrable
Securities, the beneficial owner of Registrable Securities may, at its election,
be treated as the Holder of such Registrable Securities for purposes of any
request or other action by any Holder or Holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any Holder or Holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities. In no event will a Holder be required to exercise the Warrant as a
condition to the registration of such Warrant or Registrable Securities
thereunder.
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11.15 Fiduciary Duties. The Company acknowledges and agrees that, for
so long as any Warrant is outstanding and regardless of whether the Holder has
exercised any portion of its Warrants, (a) the officers and directors of the
Company will owe the same duties (fiduciary and otherwise) to the Holder as are
owed to a stockholder of the Company and (b) the Holder will be entitled to all
rights and remedies with respect to such duties or that are otherwise available
to a stockholder of the Company under the General Corporation Law of the
jurisdiction in which the Company is organized, as amended from time to time.
11.16 Duties Among Holders. The provision relating to actions of the
Holders under the definition of Holder in the Warrant Agreement are incorporated
herein by reference.
11.17 Confidentiality. Each Holder agrees to keep confidential any
information delivered by the Company to such Holder under this Agreement that
the Company clearly indicates in writing to be confidential information;
provided, however, that nothing in this Section 11.17 will prevent such Holder
from disclosing such information (a) to any Affiliate of such Holder or any
actual or potential purchaser, participant, assignee, or transferee of such
▇▇▇▇▇▇'s rights or obligations hereunder that agrees to be bound by the terms of
this Section 11.17, (b) upon order of any court or administrative agency, (c)
upon the request or demand of any regulatory agency or authority having
jurisdiction over such Holder, (d) that is in the public domain, (e) that has
been obtained from any Person that is not a party to this Agreement or an
Affiliate of any such party without breach by such Person of a confidentiality
obligation known to such Holder, (f) if necessary and only to the extent
necessary for the exercise of any remedy under this Agreement, or (g) to the
certified public accountants for such Holder. The Company agrees that such
▇▇▇▇▇▇ will be presumed to have met its obligations under this Section 11.17 to
the extent that it exercises the same degree of care with respect to information
provided by the Company as it exercises with respect to its own information of
similar character.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
VALUESTAR CORPORATION
By:
----------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Its: President and Chief Executive Officer
SHAREHOLDER:
-------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, individually, as President
of Sunrise Capital, Inc. and General Partner
of ▇▇▇▇▇▇▇ Investments, and as General
Partner of ▇▇▇▇▇▇▇ Investments Limited
Partnership
-------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, individually, as President
of Davric Corporation and Trustee of the
▇▇▇▇▇ ▇. ▇▇▇▇▇ Family Trust
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PURCHASER:
SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its: Vice President
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital
its general partner
By:
-----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its: General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management, LLC
its general partner
By:
----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇: Vice President
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SCHEDULE 7.13