VALUESTAR CORPORATION
SERIES C PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
SEPTEMBER 14, 2000
EXHIBIT B
SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the
"Agreement") is dated for reference purposes only as of September 14, 2000, by
and between VALUESTAR CORPORATION, a Colorado corporation (the "Corporation"),
and those investors set forth on Schedule 1 attached hereto (individually, a
"Purchaser" and collectively, the "Purchasers").
R E C I T A L S:
A. The Corporation, through its subsidiary, Valuestar, Inc., a California
corporation, is in the business of rating and certifying customer satisfaction
of commercial businesses.
B. The Purchasers are interested in investing capital in the Corporation
and the Corporation desires to obtain capital from the Purchasers on the terms
and conditions hereinafter set forth.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the above recitals and the mutual
agreements, covenants, representations and warranties contained below in this
Agreement, the parties agree as follows:
I. DEFINITIONS.
"Agreement" means, and the words "herein", "hereof", "hereunder" and words
of similar import refer to, this instrument and any amendments hereto.
"Act" means the Small Business Investment Act of 1958, as amended and in
effect from time to time, and the regulations promulgated thereunder.
"Affiliate" means any Person directly or indirectly controlling,
controlled by, or under common control with, the Person in question. A Person
shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract, or otherwise.
"Certificate of Designation" means the Certificate of Designation of the
Corporation attached hereto as Exhibit A, which sets forth the rights,
privileges and preferences of the Series C Convertible Preferred Stock.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, and the regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute which replaces said Exchange Act and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at the
time.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question.
"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.
"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.
"Party" or "parties" means the Corporation and/or any Purchaser.
"Person" means any individual, sole proprietorship, corporation, business
trust, unincorporated organization, association, company, partnership, joint
venture, governmental authority (whether a national, federal, state, county,
municipality or otherwise, and shall include without limitation any
instrumentality, division, agency, body or department thereof), or other entity.
"Registration Rights Agreement" means the Registration Rights Agreement
attached hereto as Exhibit B.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute which replaces such Securities Act and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at the
time.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means Valuestar, Inc., a California corporation.
"Series C Stock" means the shares of Series C Convertible Preferred Stock
of the Corporation issued to the Purchasers pursuant to this Agreement.
"Warrant" or "Warrants" means the form of Warrant attached hereto as
Exhibit C.
II. SALE AND ISSUANCE OF SERIES C STOCK.
2.1 PURCHASE AND SALE OF SERIES C 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 C Stock set forth opposite
its name in Schedule 1 attached hereto at a per share purchase price of $22.50
per share and warrants to purchase common stock in an amount equal to fifty
percent (50%) of the number of common stock shares which Pruchaser's Series C
Stock is convertible to at the initial closing.
2.2 ISSUANCE AND PAYMENT.The initial closing of the sale and purchase of
at least two hundred twenty-two thousand two hundred twenty-two (222,222) shares
of the Series C Stock will take place at the offices of BAY VENTURE COUNSEL,
LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 4:00 p.m.
on September 14, 2000, 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 C
Stock and Warrant to be purchased by it, registered in the Purchaser's name,
against payment of the purchase price thereof as set forth in Schedule 1, by
certified check, by wire transfer of immediately available funds, cancellation
of any indebtedness owed by the Corporation to Purchaser or by any combination
of the foregoing.
2.3 SUBSEQUENT SALE OF SERIES C PREFERRED STOCK. The Corporation may sell
up to an additional one million one hundred eleven thousand one hundred eleven
(1,111,111) shares of Series C Stock to such Persons as the Corporation may
determine at any time after the Initial Closing and on, or before, December 31,
2000, at no less than $22.50 per share and otherwise upon terms and conditions
no more favorable than those contained herein. Any such sale which is upon the
same terms and conditions as those contained herein shall entitle such persons
or entities to become parties to this Agreement and the Registration Rights
Agreement, each dated as of even date herewith, by and among the Corporation and
the Purchasers, and shall have the rights and obligations of a Purchaser
hereunder and thereunder. The Initial Closing and each subsequent closing shall
be referred to herein as a "Closing."
III. CONDITIONS OF THE PURCHASERS' OBLIGATIONS.
The obligation of each Purchaser to consummate the transactions
contemplated herein at the Closing is subject to the satisfaction on or before
the date of the Closing of the following conditions, all or any of which may be
waived in writing by each Purchaser as to its obligation to consummate the
transaction so contemplated:
3.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Corporation contained in this Agreement, including without
limitation those in Article V, and in any other documents delivered by the
Corporation to the Purchasers at or prior to the Initial Closing will be true
and correct at and as of the date of the Initial Closing as though then made,
except to the extent of changes caused by the transactions expressly
contemplated herein; the Corporation's business and assets shall not have been
adversely affected in any material way prior to the Closing; and the Corporation
shall have performed all obligations and conditions herein required to be
performed or observed by the Corporation on or prior to the Closing; and the
Corporation shall have delivered a certificate executed by the President or
Secretary of the Corporation to such effect.
3.2 CLOSING DOCUMENTS. The Corporation will have delivered to the
Purchasers copies of the following specifically named documents referenced in
this Agreement or the Schedules hereto, including but not limited to a fully
executed Registration Rights Agreement, and all of the following documents:
(A) an Officer's Certificate from the Corporation dated the date of
the Initial Closing, stating that all the preconditions specified in this
Article III have been satisfied;
(B) correct and complete copies of the resolutions adopted by the
board of directors of the Corporation certified to such effect on the date of
the Initial Closing by the Secretary of the Corporation authorizing the
execution, delivery and performance of this Agreement and any other agreements
contemplated hereby, and authorizing all other transactions contemplated by this
Agreement;
(C) correct and complete copies of the Corporation's Bylaws, as
amended, and Certificate of Designation and all currently contemplated or
proposed amendments thereto, as approved by the board of directors and
shareholders of the Corporation, all certified to such effect on the date of the
Initial Closing by the Secretary of the Corporation;
(D) a good standing certificate dated within ten (10) business days
of the Initial Closing issued by the Colorado Secretary of State;
(E) an opinion of counsel from the Corporation's counsel, Bay
Venture Counsel, LLP dated the date of the Initial Closing, reasonably
acceptable to Purchasers;
(F) 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.
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 C Stock and Warrants.
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 C Stock and exercise
of the Warrants.
3.8 CAPITAL OUTSTANDING. As of the Initial Closing (but without giving
effect thereto), the Corporation will have a total of no more than that number
of shares of Preferred Stock and Common Stock issued and outstanding as listed
and described in Schedule 5.12(b). The Corporation will have outstanding no
options, convertible securities or warrants other than as listed and described
on Schedule 5.12(c) as of the Initial Closing.
3.9 CONSENT. The Corporation shall have obtained any and all consents
(including all governmental or regulatory consents, approvals or authorizations
required in connection with the valid execution and delivery of this Agreement),
permits and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement.
3.10 SBA DOCUMENTS. The Corporation shall have provided each Purchaser
that is a Small Business Investment Company (a) with all information and
documentation that such Purchaser shall have requested in connection with the
preparation and completion of the Portfolio Financing Report on SBA Form 1031,
and (b) originals executed by the Corporation of each of (i) an SBA Letter in
form and substance previously delivered to certain purchasers of the Series A
Convertible Preferred Stock, (ii) the Size Status Declaration on SBA Form 480,
and (iii) the Assurance of Compliance on SBA Form 652.
IV. CONDITIONS OF THE CORPORATION'S OBLIGATIONS.
The obligation of the Corporation to issue the Series C Stock and Warrants
with respect to any one Purchaser is subject to the satisfaction on or before
the date of the Closing of the following conditions with respect to such
Purchaser, all or any of which may be waived in writing by the Corporation:
4.1 PERFORMANCE. Each such Purchaser shall have duly performed and
complied in all material respects with each of the terms, agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing.
4.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
each Purchaser contained in Article VI and in any other documents delivered at
or prior to the Closing shall be true and accurate on and as of the Closing with
the same effect as though made on and as of the date of the Closing.
4.3 INSTRUMENTS AND DOCUMENTS. All instruments and documents required to
carry out this Agreement or incidental thereto shall be reasonably satisfactory
to the Corporation and its counsel.
4.4 SUITS/PROCEEDINGS. No action, suit, proceeding or investigation by or
before any court, administrative agency or other governmental authority shall
have been instituted or threatened to restrain, prohibit or invalidate the
transactions contemplated by this Agreement.
4.5 COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by the Purchasers on or prior to the Closing shall
have been performed or complied with in all material respects.
V. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
Except as set forth on any Schedules attached hereto and incorporated
herein by reference, the Corporation hereby represents and warrants to each
Purchaser as of the date hereof and as of the Initial Closing as follows:
5.1. CORPORATE EXISTENCE AND AUTHORITY..
(A) The Corporation (i) is a corporation duly organized, validly
existing, and in good standing under the laws of Colorado; (ii) has all
requisite corporate power and authority to own its assets and carry on its
business as now conducted; and (iii) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
The Corporation has the corporate power and authority to execute, deliver, and
perform its obligations under this Agreement and all Other Agreements to which
it is, or in connection with the transactions contemplated hereby, may become, a
party.
(B) The Subsidiary (i) is a corporation duly organized, validly
existing, and in good standing under the laws of California; (ii) has all
requisite corporate power and authority to own its assets and carry on its
business as now conducted; and (iii) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
5.2 FINANCIAL STATEMENTS AND REPORTS. The Corporation has timely filed all
required forms, reports, statements and documents with the SEC, all of which
have complied in all material respects with all applicable requirements of the
Exchange Act and the Securities Act, as the case may be. The Corporation has
delivered or made available to each Purchaser true and complete copies of (i)
the Corporation's Annual Report on Form 10-KSB for the fiscal year ended June
30, 1999, (ii) its proxy statement relating to the Corporation's annual
stockholders meeting held November 19, 1999, (iii) all other forms, reports,
statements and documents filed by the Corporation with the SEC pursuant to the
Exchange Act since June 30, 1999, and (iv) all reports, statements and other
information provided by the Corporation to its stockholders since January 1,
1999 (collectively, the "SEC Reports"). As of their respective dates, the SEC
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Each of the consolidated financial statements of the
Corporation included or incorporated by reference in the SEC Reports (including
any such SEC Report filed after the date of this Agreement until the Initial
Closing) were prepared in accordance with GAAP applied on a consistent basis
(except as otherwise stated in such financial statements or, in the case of
audited statements, the related report thereon of independent certified public
accounts), and present fairly the financial position and results of operations,
cash flows and of changes in stockholders' equity of the Corporation and its
consolidated subsidiaries as of the dates and for the periods indicated,
subject, in the case of unaudited interim financial statements, to normal
year-end audit adjustments, and except that the unaudited interim financial
statements do not contain all of the disclosures required by GAAP. Since June
30, 1999 there has been no change in any of the significant accounting
(including tax accounting) policies, practices, or procedures of the Corporation
or any of its consolidated subsidiaries. The Corporation is and has been subject
to the reporting requirements of the Exchange Act and has timely filed with the
SEC all periodic reports required to be filed by it pursuant thereto and all
reports required to be filed under Sections 13, 14 or 15(d) of the Exchange Act
since June 30, 1999.
5.3 DEFAULT. Except as disclosed on Schedule 5.3, neither the Corporation
nor the Subsidiary is in default under any loan agreement, indenture, mortgage,
security agreement, lease, franchise, permit, license or other agreement or
obligation to which it is a party or by which any of its properties may be bound
which default would cause a Material Adverse Effect. The Corporation is paying
its debts as they become due.
5.4 AUTHORIZATION AND COMPLIANCE WITH LAWS AND MATERIAL AGREEMENTS. Except
as set forth on Schedule 5.4, the execution, delivery and performance by the
Corporation of this Agreement and the Other Agreements to which it is or may in
connection with the transactions contemplated hereby become a party, have been
or prior to the consummation of such transactions will be duly authorized by all
requisite action on the part of the Corporation and do not and will not violate
the Certificate of Designation, or the Corporation's Articles of Incorporation
or Bylaws or any law or any order of any court, governmental authority or
arbitrator, and do not and will not upon the consummation of the transactions
contemplated hereby conflict with, result in a breach of, or constitute a
default under, or result in the imposition of any Lien upon any assets of the
Corporation pursuant to the provisions of any loan agreement, indenture,
mortgage, security agreement, franchise, permit, license or other instrument or
agreement by which the Corporation or any of its properties is bound. Except as
set forth on Schedule 5.4, no authorization, approval or consent of, and no
filing or registration with, any court, governmental authority or third Person
is or will be necessary for the execution, delivery or performance by the
Corporation of this Agreement and the Other Agreements to which it is a party or
the validity or enforceability thereof. All such authorizations, approvals,
consents, filings and registrations described in Schedule 5.4 have been
obtained. The Corporation is not in violation of any term of its Articles of
Incorporation or Bylaws or any contract, agreement, judgment or decree and is in
full compliance with all applicable laws, regulations and rules where such
violation would cause a Material Adverse Effect. All officers of the Corporation
to the best of their knowledge have complied with all material applicable laws,
regulations and rules in the course and scope of their employment with the
Corporation.
5.5 ENVIRONMENTAL CONDITION OF THE PROPERTY. Except as disclosed on
Schedule 5.5:
(A) The location, construction, occupancy, operation and use of the
Corporation's properties do not violate any applicable law, statute, ordinance,
rule, regulation, order or determination of any governmental authority or other
body exercising similar functions, or any restrictive covenant or deed
restriction (recorded or otherwise) affecting such properties, including,
without limitation, all applicable zoning ordinances and building codes, flood
disaster, occupational health and safety laws and Environmental Laws and
regulations (as referred to in this Section 5.5, collectively, "applicable
laws") where such violation would cause a Material Adverse Effect;
(B) Without limitation of clause (a) of this Section 5.5, neither
the Corporation, the Subsidiary nor such properties are subject to any existing,
pending or threatened investigation or inquiry by any governmental authority or
subject to any remedial obligations due to violations of applicable laws;
(C) Neither the Corporation nor the Subsidiary is subject to any
liability or obligation relating to (i) the environmental conditions on, under
or about such properties, including, without limitation, the soil and ground
water conditions at such properties, or (ii) the use, management, handling,
transport, treatment, generation, storage, disposal, release or discharge of any
Polluting Substance which would cause a Material Adverse Effect;
(D) There is no Polluting Substance or other substance that may pose
any risk to safety, health or the environment on, under or about any such
properties which would cause a Material Adverse Effect;
(E) The Corporation and/or the Subsidiary, whichever is applicable,
have taken reasonable steps to determine and hereby represents and warrants that
no Polluting Substances have been disposed of or otherwise released on, onto,
into, or from their properties by the Corporation or the Subsidiary, and the use
which the Corporation and/or the Subsidiary makes and intends to make of such
properties does not and will not result in the disposal or other release of any
Polluting Substances on, onto, into or from such properties; and
(F) The Corporation and/or the Subsidiary, whichever is applicable,
have been issued all required federal, state and local licenses, certificates or
permits relating to, and their properties, the Corporation, the Subsidiary and
the Corporation's and the Subsidiary's facilities, business, assets, leaseholds
and equipment are all in compliance in all material respects with all applicable
federal, state and local laws, rules and regulations relating to, air emissions,
water discharge, noise emissions, solid or liquid waste disposal, Polluting
Substances, or other environmental, health or safety matters where
non-compliance would have a Material Adverse Effect.
5.6 LITIGATION AND JUDGMENTS. Except as disclosed on Schedule 5.6, there
is no suit, action, proceeding or investigation pending or, to the best
knowledge of the Corporation, threatened against or affecting the Corporation or
the Subsidiary, the outcome of which, in the reasonable judgment of the
Corporation, is likely to have a Material Adverse Effect, nor is there any
judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person outstanding against the Corporation or the
Subsidiary having, or which is reasonably likely to have, a Material Adverse
Effect.
Except for litigation disclosed in the as disclosed on Schedule 5.6, there
is no action, suit, proceeding or investigation before any court, governmental
authority or arbitrator pending, or to the knowledge of the Corporation
threatened, against or affecting the Corporation, the Subsidiary, this Agreement
and/or the Other Agreements. Except as disclosed on Schedule 5.6, there are no
outstanding judgments against the Corporation or the Subsidiary. None of the
matters listed on Schedule 5.6 could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
5.7 RIGHTS IN PROPERTIES; LIENS. Except as disclosed on Schedule 5.7, the
Corporation and the Subsidiary have good and marketable title to all properties
and assets reflected on their balance sheets, and none of such properties or
assets is subject to any Liens. The Corporation and the Subsidiary enjoy
peaceful and undisturbed possession under all leases necessary for the operation
of their other properties, assets, and businesses and all such leases are valid
and subsisting and are in full force and effect. There exists no default under
any provision of any lease which would permit the lessor thereunder to terminate
any such lease or to exercise any rights under such lease which, individually or
together with all other such defaults, could have a Material Adverse Effect. The
Corporation and the Subsidiary have the exclusive right to use all of the
Intellectual Property necessary to their business as presently conducted, and
the Corporation's and the Subsidiary's use of the Intellectual Property does not
infringe on the rights of any other Person where such nonexclusively 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 owes 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 has 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 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. All the issued and outstanding shares of capital
stock of the Corporation are duly authorized, validly issued, fully paid and
nonassessable. The capitalization of the Corporation on the Initial Closing Date
is set forth on Schedule 5.14 (b). No violation of any preemptive rights of
shareholders of the Corporation has occurred by virtue of the transactions
contemplated under this Agreement or any Other Agreement. There are no
outstanding contracts, options, warrants, instruments, documents or agreements
binding upon the Corporation granting to any Person or group of Persons any
right to purchase or acquire shares of the Corporation's capital stock other
than as set forth on Schedule 5.14(c).
5.15 CURRENT LOCATIONS. Schedule 5.15 identifies (a) the Corporation's
principal place of business and chief executive office, (b) all the locations
where the Corporation maintains any books or records relating to any of its
assets, (c) all other locations where the Corporation has a place of business,
and (d) each address where any of the Corporation's assets are located. Schedule
5.15 accurately indicates whether each such location is owned or leased, and, if
leased, identifies the owner of such location. No Person other than the
Corporation has possession of any material amount of the assets of the
Corporation except as disclosed on Schedule 5.15.
5.16 INVESTMENT CORPORATION ACT. Neither the Corporation, the Subsidiary
nor any company controlling the Corporation or the Subsidiary is required to be
registered as an "investment company" within the meaning of the Investment
Corporation Act of 1940, as amended.
5.17 PUBLIC UTILITY HOLDING CORPORATION ACT. Neither the Corporation nor
the Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public utility" within
the meaning of the Public Utility Holding Corporation Act of 1935, as amended.
5.18 SECURITIES LAWS. Assuming the truthfulness and accuracy of each
Purchaser's representations and warranties in Article 6, the Corporation has
complied with or is exempt from the registration and/or qualification
requirements of all federal and state securities or blue sky laws applicable to
the issuance or sale of the Series C Stock and Warrants.
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).
VI. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
As of the Closing, each Purchaser represents and warrants to the
Corporation as to itself that:
6.1 INVESTMENT. The Purchaser is acquiring the Series C Stock and Warrants
and any Common Stock issuable upon conversion of the Series C Stock or exercise
of the Warrants 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 C Stock and Warrants (and any shares of Common Stock
issued upon conversion of the Series C Stock or exercise of the Warrants) have
not been registered under the Securities Act by reason of a specific exemption
from the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment as expressed herein. All
such securities are hereinafter collectively referred to as the "Securities".
6.2 RULE 144. The Purchaser acknowledges that because the Securities have
not been registered under the Securities Act, the Securities must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. It is aware of the provisions of
Rule 144 promulgated under the Securities Act which permits limited resale of
shares purchased in a private placement under certain circumstances.
6.3 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the
Corporation's business, management and financial affairs with its management and
to obtain any additional information necessary or appropriate for deciding
whether or not to purchase the Securities.
6.4 KNOWLEDGE AND EXPERIENCE. Purchaser has such knowledge and experience
in financial and business matters, including investments in other companies that
are in a financial condition substantially similar to the Corporation's
financial condition immediately prior to the Initial Closing, that it is capable
of evaluating the merits and risks of the investment in the Securities, and it
is able to bear the economic risk of such investment. Further, the individual
executing this Agreement has such knowledge and experience in financial and
business matters that he or she is capable of utilizing the information made
available to him or her in connection with the offering of the Securities, of
evaluating the merits and risks of an investment in the Securities and of making
an informed investment decision with respect to the Securities.
6.5 REQUISITE POWER.The Purchaser has all requisite power and authority
necessary to enter into and to carry out the provisions of this Agreement and
the transactions contemplated hereby.
6.6 DULY AUTHORIZED. All action on the part of the Purchaser necessary for
the purchase of its Series C Stock and Warrants and the performance of the
Purchaser's obligations hereunder has been taken or will be taken prior to the
Closing. This Agreement is a legal, valid and binding obligation of the
Purchaser enforceable in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws and equitable principles relating to or affecting the enforcement of
creditors' rights in general and by general principles of equity.
6.7 ACCREDITED INVESTOR. Purchaser is an "accredited investor" as that
term is defined in Regulation D promulgated by the Securities and Exchange
Commission. The term "Accredited Investor" under Regulation D refers to:
(i) A person or entity who is a director or executive officer
of the Corporation;
(ii) Any bank as defined in Section 3(a)(2) of the Securities Act,
or any savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to Section 15 of the Exchange
Act; insurance Corporation as defined in Section 2(13) of the Securities Act;
investment Corporation registered under the Investment Corporation Act of 1940;
or a business development Corporation as defined in Section 2(a)(48) of that
Act; Small Business Investment Corporation licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance Corporation, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decision made solely by
persons that are accredited investors;
(iii) Any private business development Corporation as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(iv) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the Securities
offered, with total assets in excess of $5,000,000;
(v) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess of
$200,000 during each of the previous two years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the Securities offered, whose
purchase is directed by a person who has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of the prospective investment; or
(viii) Any entity in which all of the equity owners are accredited
investors.
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 Schedule 1.
VII. RESTRICTIONS ON TRANSFER OF SECURITIES.
The Securities are not transferable except upon the conditions
specified in this Article VII, which conditions are intended to ensure
compliance with the provisions of the Securities Act and state securities laws
in respect of the transfer of any of such securities. Each instrument
representing the Securities shall be stamped or otherwise imprinted with legends
substantially in the following form until such time as the conditions set forth
in such legends have been met:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, OR
THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE
SECURITIES STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND THE QUALIFICATION REQUIREMENTS
UNDER STATE LAW."
The Corporation shall be entitled to enter stop transfer notices on its
stock books with respect to the Securities until the conditions as set forth in
the legend above with respect to the transfer of such securities have been met.
VIII. AFFIRMATIVE COVENANTS.
The Corporation covenants and agrees that so long any Purchaser holds
twenty percent (20%) the Series C Stock issued and sold in the Closings, the
Corporation shall furnish the following to such Purchaser until the conversion
of such Series C Stock into common stock:
8.1 FINANCIAL STATEMENTS.
(A) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Corporation, beginning with the fiscal
year ending June 30, 2000, (i) a copy of the annual audit report of the
Corporation for such fiscal year containing a balance sheet, statement of
income, statement of stockholders' equity, and statement of cash flow as 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) Promptly upon receipt thereof, any written report submitted to
the Corporation by independent public accountants in connection with an annual
or interim audit of the books of the Corporation made by such accountants.
(D) Promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Corporation, any technology or patent rights that it has, or any other material
assets of the Corporation, or any key employee or officer (in their capacities
as such) the outcome of which could reasonably have a Material Adverse Effect.
8.2 BOOKS AND RECORDS. The Corporation will keep (a) proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its books from its
earnings allowances against doubtful receivables, advances and investments and
all other proper accruals (including, without limitation, by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied.
IX. NEGATIVE COVENANTS.
Without the approval of the holders of at least a majority of the shares
of Series C Stock voting together as a class, except as otherwise required by
applicable law, the Corporation will not take any action that:
(i) except for a "Qualified Liquidation Event" (as defined in the
Certificate of Designation) effects a sale of all or substantially all of the
Corporation's assets or which results in the holders of the Corporation's
capital stock prior to the transaction owning less than 50% of the voting power
of the Corporation's capital stock after the transaction,
(ii) alters or changes the rights, preferences or privileges of the Series
C Stock so as to materially and adversely affect such shares,
(iii) increases or decreases the number of authorized shares of Series
C Stock,
(iv) authorizes the issuance of securities having a preference over or
on parity with the Series C Stock,
(v) redeems shares (excluding Common Stock repurchased upon termination of
an officer, employee, director or consultant pursuant to a restricted stock
purchase agreement or other compensatory plan or agreement),
(vi) amends or repeals any provision of, or adds any provision to, the
Corporation's Articles of Incorporation or Bylaws if such action would alter or
change the rights, preferences, privileges or restrictions of the Series C
Stock, so as to affect adversely such shares,
(vii) authorizes the payment of dividends to Common Stock, or
(viii) except for a Qualified Liquidation Event, consummates a
transaction subject to Section 305 of the Code.
X. REGISTRATION RIGHTS AGREEMENT.
The Corporation shall at the Initial Closing enter into the Registration
Rights Agreement in form and substance substantially as attached hereto as
Exhibit B granting each Purchaser the registration rights set forth therein.
XI. MISCELLANEOUS.
11.1 REMEDIES. Any Person having any rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages by reason of any breach of any provision of this Agreement, and to
exercise all other rights granted by law, which rights may be exercised
cumulatively and not alternatively.
11.2 CONSENT TO AMENDMENTS. Except as otherwise expressly provided herein,
the provisions of this Agreement and any exhibit attached hereto may be amended
and the Corporation may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if it has obtained the
written consent of Purchasers holding at least sixty-six and two-thirds percent
(66-2/3%) or more of the outstanding shares of Series C Stock. No course of
dealing between the Corporation and any Purchaser or any delay in exercising any
rights hereunder or under the Corporation's Articles of Incorporation will
operate as a waiver of any rights of any such Purchaser. Notwithstanding the
foregoing, this Section 11.2 shall not be amended without the consent of all
Purchasers holding Series C Stock.
11.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or made in writing by any party in connection
herewith will survive the execution and delivery of this Agreement for a period
of two (2) years after the Initial Closing.
11.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not.
11.5 SEVERABILITY. Each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Agreement.
11.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts when taken together shall constitute one and
the same Agreement.
11.7 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
11.8 NOTICES. Except as otherwise expressly provided herein, all
communications provided for hereunder shall be in writing and delivered or
mailed by the United States mails, certified mail, return receipt requested, (a)
if to Purchaser, addressed to each Purchaser at the address specified on
Schedule I hereto or to such other address as such Purchaser may in writing
designate, or (b) if to the Corporation, addressed to the Corporation at the
address set forth below or to such other address as the Corporation may in
writing designate. Notices shall be deemed to have been validly served, given or
delivered (and "the date" of such notice or words of similar effect shall mean
the date) five (5) days after deposit in the United States mails, certified
mail, return receipt requested, with proper postage prepaid, or upon actual
receipt thereof (whether by noncertified mail, telecopy, telegram, facsimile,
express delivery or otherwise), whichever is earlier.
IF TO PURCHASERS: To the Addresses set forth on
Schedule 1
WITH A COPY TO:
------------------------
------------------------
------------------------
IF TO THE CORPORATION: Valuestar Corporation
Attn: ▇▇▇ ▇▇▇▇▇
▇▇▇ - ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO: Bay Venture Counsel, LLP
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
11.9 GOVERNING LAW. The validity, meaning and effect of this Agreement
shall be determined in accordance with the laws of California applicable to
contracts made and to be performed entirely in California as if by and between
California residents.
11.10 SCHEDULES AND EXHIBITS. All schedules and exhibits are an
integral part of this Agreement.
11.11 LITIGATION COSTS. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
therein shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
11.12 FINAL AGREEMENT. This Agreement and the exhibits and schedules
attached hereto constitute the only agreement of the parties concerning the
matters herein, and supersedes, merges and renders void all prior written/oral,
and/or contemporaneous agreements and understandings related thereto.
11.13 CONFIDENTIALITY. Each Purchaser agrees to keep confidential any
information delivered by the Corporation or Subsidiary to such Purchaser under
this Agreement that the Corporation or Subsidiary clearly indicates in writing
to be confidential information; provided, however, that nothing in this Section
11.13 will prevent such Purchaser from disclosing such information (a) to any
Affiliate of such Purchaser or any actual or potential purchaser, participant,
assignee, or transferee of such Purchaser's rights or obligations hereunder that
agrees to be bound by the terms of this Section 11.13, (b) upon order of any
court or administrative agency, (c) upon the request or demand of any regulatory
agency or authority having jurisdiction over such Purchaser, (d) that is in the
public domain, (e) that has been obtained from any Person that is not a party to
this Agreement or an Affiliate of any such party without breach by such Person
of a confidentiality obligation known to such Purchaser, (f) if necessary and
only to the extent necessary for the exercise of any remedy under this
Agreement, or (g) to the certified public accountants for such Purchaser. The
Corporation agrees that such Purchaser will be presumed to have met its
obligations under this Section 11.13 to the extent that it exercises the same
degree of care with respect to information provided by the Corporation or
Subsidiary as it exercises with respect to its own information of similar
character.
11.14 PUBLIC DISCLOSURE. Except as may be required to comply with
applicable law, no Purchaser shall make or cause to be made any press release
or similar public announcement
(SIGNATURES FOLLOW ON NEXT PAGE)
SIGNATURE PAGES TO THE SERIES C PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT
IN WITNESS WHEREOF, the Corporation and each Purchaser identified on
Schedule 1 have caused this Agreement to be executed and delivered by their
respective officers thereunto duly authorized.
CORPORATION:
VALUESTAR CORPORATION
By:____________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Its: President and Chief Executive
Officer
SIGNATURE PAGES TO THE SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
PURCHASER:
-------------------------------------
By:
---------------------------------
(Signature)
------------------------------------
(Print Name and Title)
ADDRESS:
------------------------
------------------------
------------------------
TELEPHONE AND FAX NUMBERS:
Tel:
-------------------------------
Fax:
--------------------------------
Email Contact:
----------------------
AGGREGATE INVESTMENT AMOUNT
$
-----------------------------------
SCHEDULE 3.8(A)
TO
SECURITIES PURCHASE AGREEMENT
CAPITAL STRUCTURE
VALUESTAR CORPORATION
SHARE STRUCTURE CONVERTIBLE CONVERTIBLE
09/04/96 8% SERIES A SERIES B
OUTSTANDING OUTSTANDING Stated Amount FULLY
SHAREHOLDERS SHARES PERCENT OPTIONS WARRANTS $2.00 $1.75 DILUTED
▇▇▇ ▇▇▇▇▇ 1,479,979 9.5% 420,000 62,500 1,950,033
▇▇▇ ▇▇▇▇▇▇/SUNRISE 1,164,618 7.4% 120,000 107,500 75,000 1,467,118
▇▇▇▇▇ ▇▇▇▇▇ 657,917 4.2% 155,000 118,783 100,000 1,031,700
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇/CASA 37,821 0.2% 5,000 101,364 75,000 90,000 309,185
▇▇▇▇ ▇▇▇▇▇▇ 0 0.0% 60,000 0 85,720 145,720
▇▇▇▇▇▇ SICK 3,000 0.0% 401,600 0 404,600
▇▇▇▇▇ ▇▇▇▇ 1,600 0.0% 90,000 0 91,600
▇▇▇▇ ▇▇▇▇▇ 7,667 0.0% 46,833 0 54,500
ECOMPANIES 0 0.0% 0 0 3,457,150 3,457,150
SEACOAST 1,370,868 8.8% 0 11,284 500,000 501,290 2,383,442
PACIFIC MEZZANINE 548,348 3.5% 0 4,514 100,000 191,380 844,242
TANGENT 319,868 2.0% 0 2,633 150,000 110,210 582,711
TMCT VENTURES 85,470 0.5% 0 8,547 1,714,290 1,808,307
OTHER SERIES A HOLDERS 0 0.0% 0 0 125,000 125,000
OTHER SERIES B HOLDERS 0 0.0% 0 0 735,820 735,820
Other 585 ROUND HOLDERS 1,125,767 7.2% 0 182,752 1,308,519
PUBLIC AND OTHERS 8,843,733 56.5% 966,572 536,666 10,359,417
0 0
--------------------------------------------------------------------------------------------------------
15,646,656 100.0% 2,265,005 1,136,543 1,125,000 6,885,860 27,059,064
========================================================================================================
NEW DOLLARS FROM OPT & WTS $8,848,231 2,777,556 $11,625,787
============================== =============
The Series A preferred stock earns dividends at 8% per annum compounded that is
also convertible
SCHEDULE 3.8(B)
TO
SECURITIES PURCHASE AGREEMENT
OPTIONS, CONVERTIBLE SECURITIES AND WARRANTS
--------------------------------------------
STOCK OPTIONS - In 1992 the Board of Directors approved the 1992 Incentive Stock
Option Plan (ISO Plan) and the 1992 Non-Statutory Stock Option Plan (NSO Plan).
Both plans expire in 2002. Each plan reserves 250,000 shares of common stock for
incentive and nonstatutory stock options. Options under the ISO Plan and NSO
Plan expire over a period not to exceed ten years from the date of grant.
In 1996 the stockholders approved the 1996 Stock Option Plan. The plan expires
in 2006 and reserves 300,000 shares of common stock for nonqualified stock
option. Options under the plan expire over a period not to exceed ten years from
the date of grant.
In 1997 the stockholders approved the 1997 Stock Option Plan. The plan expires
in 2007 and reserves 1,250,000 shares of common stock for Incentive or
Nonqualified Stock Options. Options under the plan expire over a period not to
exceed ten years from the date of grant.
Subsequent to June 30, 2000, on July 21, 2000 the Board of Directors authorized,
subject to shareholder approval, the 2000 Equity Incentive Plan expiring in July
2010 and reserving 2,500,000 shares of common stock for Incentive or
Nonqualified Stock Options. Options to be granted under the plan expire over a
period not to exceed ten years from the date of grant.
The following tables summarize the number of options granted and exercisable at
August 31, 2000:
VALUESTAR CORPORATION
OUTSTANDING OPTIONS AS OF 8/31/2000
PRICE OUTSTANDING OUTSTANDING $'S VESTED VESTED $'S
$0.50 90,000 $45,000 90,000 $ 45,000
$0.75 20,000 $15,000 20,000 $ 15,000
$1.00 217,966 $217,966 182,536 $ 182,536
$1.25 215,000 $268,750 141,669 $ 177,086
$1.38 5,000 $6,875 5,000 $ 6,875
$1.50 70,000 $105,000 70,000 $ 105,000
$1.69 11,000 $18,590 4,334 $ 7,324
$1.92 28,600 $54,912 5,600 $ 10,752
$2.00 334,367 $668,734 59,167 $ 118,334
$3.00 85,600 $256,800 45,601 $ 136,803
$4.00 533,900 $2,135,600 10,100 $ 40,400
$7.00 593,572 $4,155,004 76,050 $ 532,350
$10.00 20,000 $200,000 - $ -
$15.00 20,000 $300,000 - $ -
$20.00 20,000 $400,000 - $ -
---------------------------------------------------------------------------
2,265,005 $8,848,231 710,057 1,377,461
CONVERTIBLE SECURITIES: The capitalization of ValueStar Corporation (Parent)
consists of 55,000,000 shares of which 50,000,000 shares having a par value of
$0.00025 per share are Common Stock and 5,000,000 shares having a par value of
$0.00025 per share are designated as preferred stock. Of the preferred stock,
1,000,000 shares are designated as Series A Preferred Stock and 800,000 shares
are designated as Series B Preferred Stock.
At August 31, 2000 there were 225,000 shares of Series A Preferred Stock
outstanding and 688,586 shares of Series B Preferred Stock outstanding. The
Company is obligated to issue additional Series A Preferred Stock as dividends
on the Series A Preferred Stock at an 8% rate. Each share of Series A Preferred
Stock is convertible into five shares of common stock, subject to adjustment.
Each share of Series B Preferred Stock is convertible into ten shares of common
stock, subject to adjustment.
See the table under Schedule 3.8(a) for a detail of outstanding Series A and
Series B preferred stock.
WARRANTS: At August 31, 2000, the Company has the following stock purchase
warrants outstanding, each exercisable into one common share:
WARRANT SUMMARY
VALUESTAR CORPORATION
08/31/00
EXERCISE
WARRANTS PRICE EXPIRATION DOLLARS
187,500 $ 1.25 (1) 9/29/1998 234,375
20,000 $ 1.25 (1) 12/30/1998 25,000
12,500 $ 2.00 (3) 4/29/1999 25,000
50,000 $ 1.75 5/16/1999 87,500
25,000 $ 1.25 3/30/1997 31,250
350,000 $ 1.00 (1) 12/30/1999 350,000
152,728 $1.375 (1) 3/30/2000 210,001
30,000 $ 1.50 (1) 3/29/2000 45,000
75,000 $ 2.50 12/6/2000 187,500
66,300 $ 5.85 (2) 3/23/1999 387,855
64,713 $ 5.85 (2) 4/3/1999 378,571
30,000 $ 5.85 4/3/2001 175,500
50,000 $10.00 4/3/1999 500,000
22,802 $ 6.14 4/10/2001 140,004
------------- -------------
1,136,543 $2,777,556
============= =============
(1) These warrants are callable at a stock price of $5.00 per share subject to
certain conditions.
(2) These warrants are callable at a stock price of $15.00 per share subject to
certain conditions.
(3) These warrants are callable at a stock price of $4.50 per share subject to
certain conditions.
An aggregate of 401,431 of the above warrants are held by officers and directors
of the Company or their affiliates. Some warrants contain certain registration
rights.
SCHEDULE 5.3
TO
SECURITIES PURCHASE AGREEMENT
DEFAULTS
NONE
SCHEDULE 5.4
TO
SECURITIES PURCHASE AGREEMENT
AUTHORIZATIONS, APPROVALS, CONSENTS AND FILINGS
NONE
SCHEDULE 5.6
TO
SECURITIES PURCHASE AGREEMENT
LITIGATION AND JUDGMENTS
▇▇▇▇▇▇▇ Planet-Irish, a former employee is suing the Company for wrongful
termination. The Company has made an offer to settle for $10,000 that has been
accepted by plaintiff. Counsel is currently working to finalize this matter.
SCHEDULE 5.7
TO
SECURITIES PURCHASE AGREEMENT
LIENS
The Company has entered into the leases detailed below. Liens have been placed
or will be placed against these items. The Company is not aware of any other
equipment liens.
LEASE LEASE #'S LEASE ANNUAL LEASE LEASE DESCRIPTION
COMPANIES PMT RENT TERM END
------------------------------------------------------------------------------------------------------------------------------
Preferred Capital Corp. 307165001 266.14 3,193.68 60 Aug-02 Computer Equipment
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇. 307165002 97.43 1,169.16 ▇▇ ▇▇▇-▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ 307165004 71.45 857.40 60 Apr-03 Computer Equipment
(Colonial Pacific 307165003 871.41 10,456.92 60 Feb-03 On-Balance, ▇▇▇▇▇▇▇▇ Goldmine
does the billing) 307165005 107.24 1,286.88 ▇▇ ▇▇▇-▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇-▇▇▇▇▇▇▇
307165006 722.24 8,666.88 ▇▇ ▇▇▇-▇▇ ▇▇▇▇ ▇▇▇▇, ▇ clients, Jim's Ntbk
307165007 355.36 4,264.32 60 Nov-03 Dell
▇▇▇-▇▇▇▇▇▇▇-▇▇▇ 546.26 20,880.50 60 Apr-04 Dell Srvr, 1 laptop, 6 clients
▇▇▇-▇▇▇▇▇▇▇-▇▇▇ 311.58 11,284.00 60 Apr-04 2 Dell Servers
Balboa Capital ▇▇▇-▇▇▇▇▇-▇▇ 922.65 11,071.80 36 Dec-01 Oracle, Solomon
▇▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
New Cal Industries 24320937 614.00 7,368.00 60 Oct-04 2 Konica 7033 Digital Copiers
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Konica Leasing 1543950 329.00 3,948.00 60 Oct-04 1 Konica 7033 Digital Copiers
PO Box 7023 1550918 214.00 2,568.00 60 Jan-05 1 Konica ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Pacifica Capital 307165009 724.60 8,695.20 ▇▇ ▇▇▇-▇▇ ▇▇ ▇▇▇ ▇▇▇ Celeron,
4 Venture, Ste. 260 Inspiron 3700, Poweredge 2300
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 307165010 372.00 4,464.00 36 Dec-02 1 54 gb raid - adjile systems
The Republic Group, LLC 307165008 825.00 9,900.00 36 12-001 Dell Srvr, 5 clients, MF, Frtrs UPS
▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇. ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Conseco Finance 4019045-1 104.29 1,251.48 36 May-00 Computer Equipment
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Pitney ▇▇▇▇▇ 6654297-003 74.57 894.84 39 Jun-01 Mail Room Equipment
Executive Office 6654297-004 420.21 5,042.52 66 Jul-05 Mail Room Equipment
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Amplicon, Inc. VL-00618 23,578.32 282,939.84 24 Jun-02 Davox Predictive Dialer
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇
Transamerica Business Credit Computer equipment, office
Corporation 1437-001 39,023.25 468,279.00 36 Mar-03 equipment, software and furniture
Riverway II 1437-002 22,362.74 268,352.88 36 Jul-03 Computers and office equipment
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇. Notes Payable
Rosemont, IL 60018
Please refer to schedule 5.9 for additional information on debt for the Company.
SCHEDULE 5.9
TO
SECURITIES PURCHASE AGREEMENT
INDEBTEDNESS
AS OF AUGUST 31, 2000 UNAMORTIZED ACCRUED
PAYEE (SHORT NAME) DATE PRINCIPAL DISCOUNT NET INTEREST
12% SUBORDINATED NOTES W WARRANTS DUE MARCH 31, 2001
▇▇▇▇▇▇ House 7/6/1998 $18,750
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 7/6/1998 $50,000
$68,750 $322 $68,428 $688
DAVRIC SECURED 15% EQUIPMENT TERM NOTE MATURING 8/14/2003
Davric Corporation 8/14/1998 $58,333 $58,333
DAVRIC SECURED 15% EQUIPMENT TERM NOTE MATURING 6/23/2002
Davric Corporation 6/23/1999 $96,131 $96,131
TRANSAMERICA SECURED 15% EQUIPMENT NOTE MATURING 4/1/2003
Transamerica Business Credit Corporation Note 1437-001 4/19/2000 $1,127,575 $99,028 $1,028,547
Transamerica Business Credit Corporation Note 1437-002 8/15/2000 $688,071 $688,071
AMPLICON SECURED EQUIPMENT LEASE - DAVOX PREDICTIVE DIALER
Amplicon Financial $522,011 $522,011
OTHER LEASE OBLIGATIONS $126,548 $126,548
$2,588,069 $688
SCHEDULE 5.10
TO
SECURITIES PURCHASE AGREEMENT
TAXES
The tax returns listed below are filed, but they were not timely filed. To the
best of our knowledge, all other tax returns for activities from January 1, 1997
have been filed in a timely manner. All tax returns for activity through
December 31, 1996 are, to the best of our knowledge, filed. We have no
information as to the timeliness of filings prior to December 31, 1996.
TAX RETURNS NOT TIMELY FILED:
ValueStar Corporation and Subsidiary June 30, 1997 Federal Income Tax Return
ValueStar, Inc. California State Income Tax Return for June 30, 1997
ValueStar Corporation Colorado State Income Tax Return for June 30, 1997
1997 3rd Qtr California ▇▇▇ ▇▇▇▇ & Withholding Report
▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ & Withholding Report
1997 Form DE7 California Annual Reconciliation
1997 Form 1042 Annual Withholding Tax Return
2nd Qtr ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Sales Tax Return
1998 1st Qtr California ▇▇▇ ▇▇▇▇ & Withholding Report
▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ & Withholding Report
1999 2rd Qtr Illinois State Sales Tax Return
1999 3rd Qtr Illinois State Sales Tax Return
The Company has no outstanding penalties or assessments. The Company does not
believe any additional penalties or assessments will arise from late filings
described above.
SCHEDULE 5.14
TO
SECURITIES PURCHASE AGREEMENT
CAPITALIZATION
The Capitalization of ValueStar, Inc. (Subsidiary) consists of 3,000,000 shares
of no par value common stock of which 1,000,000 shares are outstanding owned by
ValueStar Corporation.
The capitalization of ValueStar Corporation (Parent) consists of 55,000,000
shares of which 50,000,000 shares having a par value of $0.00025 per share are
Common Stock and 5,000,000 shares having a par value of $0.00025 per share are
designated as preferred stock. Of the preferred stock, 1,000,000 shares are
designated as Series A Preferred Stock and 800,000 shares are designated as
Series B Preferred Stock.
At August 31, 2000 there were 15,646,656 common shares outstanding, 225,000
shares of Series A Preferred Stock outstanding and 688,586 shares of Series B
Preferred Stock outstanding. The Company is also obligated to issue additional
Series A Preferred Stock as dividends on the Series A Preferred Stock at an 8%
rate. Each share of Series A Preferred Stock is convertible into five shares of
common stock, subject to adjustment. Each share of Series B Preferred Stock is
convertible into ten shares of common stock, subject to adjustment.
At August 31, 2000 the following summarizes agreements binding on the Parent
granting persons the right to purchase or acquire shares of the Parent's capital
stock:
Series A Convertible Preferred (w/o dividends) 1,125,000
Series B Convertible Preferred 6,885,860
Outstanding stock option purchase agreements (vested and non-vested) 2,265,005
Stock purchase warrant agreements 1,136,543
Some of the above instruments contain certain adjustment provisions standard to
warrant and preferred stock agreements.
The Company has 2,638,126 shares issuable under its existing stock option plans
that are not subject to outstanding option grants.
SCHEDULE 5.15
TO
SECURITIES PURCHASE AGREEMENT
CURRENT LOCATIONS
PRINCIPAL PLACE OF BUSINESS:
----------------------------
ValueStar Home ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇ & ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Leased from: Broadlake Plaza, a California Limited Partnership
SATELLITE OFFICE:
-----------------
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Units 8 and 9
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(This facility is used by our engineering team)
LOCATION WHERE WEBSITE EQUIPMENT IS LOCATED:
--------------------------------------------
Globalcenter
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ALL OTHER LOCATIONS WHERE THE COMPANY HAS A PLACE OF BUSINESS:
--------------------------------------------------------------
These offices are rented on a per diem basis for meetings, training
sessions, etc.
Branch Offices:
ValueStar Chicago Market ▇▇▇▇▇▇
▇▇▇▇ ▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇., ▇▇▇. ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Leased from: HQ Global Workplaces, Inc.
ValueStar Southern California Market ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Leased from: HQ Global Workplaces, Inc.
ValueStar Dallas Market ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Leased from: HQ Global Workplaces, Inc.
ValueStar ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Leased from: HQ Global Workplaces, Inc.
ValueStar ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Leased from: HQ Global Workplaces, Inc.
ValueStar Philadelphia Market Office
Chesterbrook Corporate Center
▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Leased from: HQ Global Workplaces, Inc.
ValueStar ▇▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Leased from: HQ Global Workplaces, Inc.
SCHEDULE 5.20
TO
SECURITIES PURCHASE AGREEMENT
BROKERS
The Company may pay finder or placement agent fees in cash or shares equal to 5%
of the offering or warrants equal to up to 8% of the effective shares issued.
SCHEDULE 5.22
TO
SECURITIES PURCHASE AGREEMENT
CONDUCT OF BUSINESS
We are a provider of branded rating content on local service businesses. Our
ratings of local service businesses enhance online and offline commerce between
buyers and sellers, commerce exceeding $2 trillion annually. As an infomediary,
we help consumer and business buyers make informed local service purchasing
decisions among the 6 million service businesses in America. Our ratings provide
service businesses a tool to distinguish themselves from their competitors.
Service businesses pay us research and rating fees and we are developing a new
commission system to generate revenues by connecting member service businesses
with quality seeking buyers. Our ratings and commission system offer Internet
portals, credit card issuers and other aggregators of consumer and business
buyers a new recurring revenue source.
The Company is engaged in the businesses of the type described below:
Consumer and market research.
Ratings, licensing and certifications.
Sales of ancillary materials and related materials and information.
Providing Internet and advertising services to customers.
CERTIFICATE OF DESIGNATION
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
VALUESTAR CORPORATION
VALUESTAR CORPORATION, a corporation organized and existing under the
Colorado Business Corporation Act (the "corporation"), in accordance with Colo.
Rev. Stat. Section ▇-▇▇▇-▇▇▇,
HEREBY CERTIFIES:
1. The name of the Corporation is: VALUESTAR CORPORATION.
---------------------
2. The text of the amendment determining the designations, preferences,
limitations, and relative rights of the class or series of shares is as
set forth on Exhibit "A", attached hereto and by this reference
incorporated herein.
3. This amendment was adopted on September ___, 2000.
4. This amendment was duly adopted by the Board of Directors of the
Corporation.
The undersigned does hereby confirm, under penalties of perjury, that the
foregoing Certificate of Designation of Valuestar Corporation constitutes the
act and deed of the Corporation, and that the facts stated herein are true.
Executed at Oakland, California on September ___, 2000
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇, Chief Executive Officer
Exhibit "A"
RESOLVED, that pursuant to the authority granted to the Board of Directors
by Article THIRD, Paragraph I of the Articles of Incorporation of the
Corporation, as amended (the "Articles"), Certificate there is hereby created,
and the Corporation be, and it hereby is, authorized to issue One Million Three
Hundred Thirty-Three Thousand Three Hundred Thirty-Three (1,333,333) shares of a
series of convertible preferred stock, designated "SERIES C CONVERTIBLE
PREFERRED STOCK," which Series C Convertible Preferred Stock (also referred to
herein as "Series C Stock" or "Series C Preferred Stock") shall have, in
addition to the rights, restrictions, preferences and privileges set forth in
the Articles, the following terms, conditions, rights, restrictions, preferences
and privileges:
"A. DIVIDENDS.
1. GENERALLY. Subject to the preferential dividend rights of the
holders of the Corporationss.s Series A Convertible Preferred Stock ("Series A
Stock"), and Series B Convertible Preferred Stock ("Series B Stock") each holder
of outstanding shares of Series C Stock shall be entitled to receive, when and
if declared by the Board of Directors and out of any funds legally available
therefor, cumulative dividends at the annual rate of $1.80 per share (the
"Series C Preferential Dividend"), and in preference to any declaration or
payment (payable other than in Common Stock) of dividends with respect to the
Common Stock. No cash dividends shall be declared and paid on the Common Stock
or any other equity of the Company except the Series A Stock and Series B Stock
as contemplated above unless a like cash dividend amount has been paid to the
Series C Stock on an as converted basis.
2. PAYMENT OTHER THAN CASH. If the Corporation shall declare a
distribution payable in securities of persons other than this Corporation,
evidences of indebtedness issued by the Corporation or other persons, assets
(excluding cash dividends) or options or rights to purchase any such securities
or evidences of indebtedness, then, in each such case, the holders of Series C
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though the holders of Series C Preferred Stock were the holders
of the number of shares of Common Stock of the Corporation into which their
respective shares of Series C Preferred Stock are convertible as of the record
date fixed for the determination of the holders of Common Stock of the
Corporation who are entitled to receive such distribution.
3. DIVIDEND ADJUSTMENT. The Series C Preferential Dividend shall be
appropriately adjusted for any stock splits, dividends, combinations,
recapitalizations and the like ("Appropriately Adjusted").
B. PREFERENCE ON LIQUIDATION.
1. PREFERENCE PRICE. Except upon a "Qualified Liquidation Event," in
the event of any liquidation, dissolution or winding up of this Corporation,
whether voluntary or involuntary, the holders of the outstanding shares of
Series C Stock shall be entitled to be paid out of the assets of this
Corporation available for distribution to its shareholders, whether from
capital, surplus funds or earnings, after payment of the preferential amount is
made in respect of the shares of Series A Stock (the "Series A Preference
Price") and Series B Stock (the "Series B Preference Price") and before any
payment is made in respect of the shares of Common Stock, in an amount equal to
$22.50 per share (Appropriately Adjusted), together with an amount equal to the
greater of (A) eight percent (8%) of such $22.50 at the rate of 8% for each year
(or fraction thereof) after the date of the issuance of each such share of
Series C Stock, less the amount, if any, of any cash dividends actually paid to
the Series C Stock through the date of liquidation, or (B) any declared and
unpaid dividends thereon (the "Series C Preference Price"). After payment of the
Series C Preference Price to the holders of outstanding shares of Series C
Stock, the remaining assets of the Corporation shall be distributed ratably
solely among the holders of the outstanding shares of Common Stock in an equal
amount per share.
2. PARTIAL PAYMENT. If, upon any such liquidation, dissolution or
winding up of this Corporation, whether voluntary or involuntary, the assets of
this Corporation available for distribution to its shareholders shall be
insufficient to pay in full the Series C Preference Price required to be paid to
the holders of the outstanding shares of Series C Stock after payment in full of
the Series A Preference Price and Series B Preference Price, then all of the
assets of this Corporation legally available for distribution to the holders of
equity securities shall be distributed ratably among the holders of the
outstanding shares of Series C Stock in proportion to the Series C Preference
Price upon liquidation that each Series C Stock holder is otherwise entitled to
receive.
3. CERTAIN TRANSACTIONS. The following shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section B with
respect to the Series C Stock: (A) a sale of all or substantially all of the
Corporation's assets; or (B) a consolidation, merger or reorganization of the
Corporation with or into any other corporation or corporations if the
Corporation's shareholders do not control a majority of the outstanding voting
securities of such consolidated, merged or reorganized corporation(s). The
Corporation shall provide written notice of each of the above transactions to
each holder of Series C Stock at least ten (10) days prior to such transaction
in accordance with Section D.14 (below).
4. LIQUIDATION ADJUSTMENT. The Series C Preference Price shall be
Appropriately Adjusted.
C. VOTING.
1. GENERALLY. Except as otherwise required by law or expressly
provided herein, each share of Series C Preferred Stock shall be entitled to
vote on all matters submitted or required to be submitted to a vote of the
shareholders of the Corporation in the same class and together with the holders
of Common Stock and shall be entitled to the number of votes equal to the number
of whole shares of Common Stock into which such shares of Series C Preferred
Stock are convertible pursuant to the provisions hereof, at the record date for
the determination of shareholders entitled to vote on such matters or, if no
such record date is established, at the date such vote is taken or any written
consent of shareholders is solicited. In each such case, except as otherwise
required by law or expressly provided herein, the holders of shares of Series A
Stock, Series B Stock, Series C Stock and Common Stock shall vote together and
not as separate classes.
2. SPECIAL VOTING FOR THE ELECTION OF DIRECTORS. The Board of
Directors shall be elected as follows:
(I) So long as at least One Hundred Thousand (100,000) shares
of Series A Stock are issued and outstanding (Appropriately Adjusted), the
holders of Series A Stock shall be entitled, voting as a separate class, to
elect one (1) and only one (1) member to the Corporationss.s Board of Directors;
(II) So long as at least Two Hundred Thousand (200,000) shares
of Series B Stock are issued and outstanding (Appropriately Adjusted), the
holders of Series B Stock shall be entitled, voting as a separate class, to
elect two (2) and only two (2) members to the Corporationss.s Board of
Directors;
(III) So long as at least Two Hundred Thousand (200,000)
shares of Series C Stock are issued and outstanding (Appropriately Adjusted),
the holders of Series C Stock shall be entitled, voting as a separate class, to
elect one (1) and only one (1) member to the Corporationss.s Board of Directors;
(IV) The remaining authorized members of the Board of
Directors not entitled to be elected by any series of Preferred Stock then
outstanding from time to time shall be elected by the holders of Common Stock
with the holders of Series C Stock voting in the same class as the holders of
Common Stock on an as-converted basis and the holders of Common Stock.
3. REMOVALS OR RESIGNATIONS. Any vacancy created on the
Corporation's Board of Directors shall be filled by a successor Director who
shall be elected in a manner by which his or her predecessor was elected as
provided above. Any Director who has been elected to the Corporation's Board of
Directors as provided above may be removed during his term of office in
accordance with the Business Corporation Act of the State of Colorado, and any
vacancy thereby created shall be filled as provided in this subparagraph.
D. CONVERSION. The holders of the outstanding shares of Series C Stock
shall have the following conversion rights (the "Conversion Rights"):
1. RIGHT TO CONVERT. Each share of Series C Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such shares, at the office of this Corporation or any transfer agent
for the Corporation's shares into that number of shares of Common Stock which is
equal to the quotient obtained by dividing the Series C Preference Price then in
effect for each share of Series C Stock by the Series C Conversion Price (as
such term is hereinafter defined) in effect immediately prior to the time of
such conversion. The initial price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series C Stock shall be $2.25 (as
adjusted from time to time as herein provided, the "Series C Conversion Price").
2. MECHANICS OF CONVERSION. Each holder of outstanding shares of
Series C Stock who desires to convert the same into shares of Common Stock shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this Corporation or of any transfer agent for the Corporation's shares and
shall give written notice to this Corporation at such office that such holder
elects to convert the same and shall state therein the number of shares of
Series C Stock being converted. Thereupon, this Corporation shall issue and
deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay all declared but unpaid dividends on the shares being converted.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate or certificates
representing the shares to be converted, and the person entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock on such date.
3. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If this Corporation
at any time or from time to time after the date that this Certificate of
Designation was filed with the Colorado Secretary of State (the "Filing Date")
effects a division of the outstanding shares of Common Stock, the Series C
Conversion Price shall be proportionately decreased and, conversely, if this
Corporation at any time, or from time to time, after the Filing Date combines
the outstanding shares of Common Stock, the Series C Conversion Price shall be
proportionately increased. Any adjustment under this Section D.3 shall be
effective on the close of business on the date such division or combination
becomes effective.
4. ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. If this
Corporation at any time or from time to time after the Filing Date pays or fixes
a record date for the determination of holders of shares of Common Stock
entitled to receive a dividend or other distribution in the form of shares of
Common Stock, or rights or options for the purchase of, or securities
convertible into, Common Stock, then in each such event the Series C Conversion
Price shall be decreased, as of the time of such payment or, in the event a
record date is fixed, as of the close of business on such record date, by
multiplying the Series C Conversion Price by a fraction (i) the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the time of such payment or the close of business on such
record date and (ii) the denominator of which shall be (A) the total number of
shares of Common Stock outstanding immediately prior to the time of such payment
or the close of business on such record date plus (B) the number of shares of
Common Stock issuable in payment of such dividend or distribution or upon
exercise of such option or right of conversion; provided, however, that if a
record date is fixed and such dividend is not fully paid or such other
distribution is not fully made on the date fixed therefor, the Series C
Conversion Price shall not be decreased as of the close of business on such
record date as hereinabove provided as to the portion not fully paid or
distributed and thereafter the Series C Conversion Price shall be decreased
pursuant to this Section 4 as of the date or dates of actual payment of such
dividend or distribution.
5. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If this
Corporation at any time or from time to time after the Filing Date pays, or
fixes a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution in the form of securities
of this Corporation other than shares of Common Stock or rights or options for
the purchase of, or securities convertible into, Common Stock, then in each such
event provision shall be made so that the holders of outstanding shares of
Series C Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of this
Corporation that they would have received had their respective shares of Series
C Stock been converted into shares of Common Stock on the date of such event and
had such holders thereafter, from the date of such event to and including the
actual date of conversion of their shares, retained such securities, subject to
all other adjustments called for during such period under this Section D with
respect to the rights of the holders of the outstanding shares of Series C
Stock.
6. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If,
at any time or from time to time after the Filing Date, the number of shares of
Common Stock issuable upon conversion of the shares of Series C Stock is changed
into the same or a different number of shares of any other class or classes of
stock or other securities, whether by recapitalization, reclassification or
otherwise (other than a recapitalization, division or combination of shares or
stock dividend or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section D), then in any such event each holder of
outstanding shares of Series C Stock shall have the right thereafter to convert
such shares of Series C Stock into the same kind and amount of stock and other
securities receivable upon such recapitalization, reclassification or other
change, as the maximum number of shares of Common Stock into which such shares
of Series C Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein.
7. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If,
at any time or from time to time after the Filing Date, there is a capital
reorganization of the Common Stock (other than a recapitalization, division,
combination, reclassification or exchange of shares provided for elsewhere in
this Section D) or a merger or consolidation of this Corporation into or with
another corporation or a sale of all or substantially all of this Corporation's
properties and assets to any other person, then, as a part of such capital
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of outstanding shares of Series C Stock shall thereafter receive
upon conversion thereof the number of shares of stock or other securities or
property of this Corporation, or of the successor corporation resulting from
such merger or consolidation or sale, to which a holder of the number of shares
of Common Stock into which their shares of Series C Stock were convertible would
have been entitled on such capital reorganization, merger, consolidation or
sale. In any such case, appropriate adjustment shall be made in the application
of the provisions of this Section D with respect to the rights of the holders of
the outstanding shares of Series C Stock after the capital reorganization,
merger, consolidation, or sale to the end that the provisions of this Section D
(including adjustment of the Series B Conversion Price and the number of shares
into which the shares of Series B Stock may be converted) shall be applicable
after that event and be as nearly equivalent to such Conversion Prices and
number of shares as may be practicable.
8. SALE OF SHARES BELOW CONVERSION PRICE.
(I) If, at any time or from time to time after the Filing
Date, this Corporation issues or sells, or is deemed by the express provisions
of this Section 8 to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined) for an Effective Price (as hereinafter defined) less than
the then current Series B Conversion Price, other than (A) as a dividend or
other distribution on any class of stock as provided in Section D.4 above or (B)
upon a division or combination of shares of Common Stock as provided in Section
D.3 above, then, in any such event, the Series B Conversion Price shall be
reduced, as of the close of business on the date of such issuance or sale, to an
amount determined by multiplying the Series C Conversion Price by a fraction (A)
the numerator of which shall be (x) the number of shares of Common Stock
outstanding at the close of business on the day immediately preceding the date
of such issuance or sale, plus (y) the number of shares of Common Stock which
the aggregate consideration received (or by the express provisions hereof deemed
to have been received) by this Corporation for the total number of Additional
Shares of Common Stock so issued or sold would purchase at such Series C
Conversion Price and (B) the denominator of which shall be the number of shares
of Common Stock outstanding at the close of business on the date of such
issuance or sale after giving effect to such issuance or sale of Additional
Shares of Common Stock. For the purpose of the calculation described in this
Section 8, the number of shares of Common Stock outstanding shall include, in
addition to the number of shares of Common Stock actually outstanding, (A) the
number of shares of Common Stock into which the then outstanding shares of
Series A Stock, Series B Stock and Series C Stock could be converted if fully
converted on the day immediately preceding the issuance or sale or deemed
issuance or sale of Additional Shares of Common Stock; and (B) the number of
shares of Common Stock which would be obtained through the exercise or
conversion of all rights, options and Convertible Securities (as hereinafter
defined) outstanding on the day immediately preceding the issuance or sale or
deemed issuance or sale of Additional Shares of Common Stock.
(II) For the purpose of making any adjustment required under
this Section 8, the consideration received by this Corporation for any issuance
or sale of securities shall (A) to the extent it consists of property other than
cash, be the fair value of that property as reasonably determined in good faith
by a disinterested majority of the Board of Directors; and (B) if Additional
Shares of Common Stock, Convertible Securities (as hereinafter defined) or
rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of this Corporation for a consideration which covers
both, be the portion of the consideration so received reasonably determined in
good faith by a disinterested majority of the Board of Directors to be allocable
to such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(III) For the purpose of the adjustment required under this
Section 8, if this Corporation issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being hereinafter referred to
as oConvertible Securitieso) and if the Effective Price (as defined in Clause
(v) below) of such Additional Shares of Common Stock is less than the then
current Series C Conversion Price, this Corporation shall be deemed to have
issued, at the time of the issuance of such rights, options or Convertible
Securities the maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion thereof and to have received as consideration therefor an
amount equal to (A) the total amount of the consideration, if any, received by
this Corporation for the issuance of such rights or options or Convertible
Securities plus (B) in the case of such rights or options, the minimum amount of
consideration, if any, payable to this Corporation upon the exercise of such
rights or options or, in the case of Convertible Securities, the minimum amount
of consideration, if any, payable to this Corporation upon the conversion
thereof. Thereafter, no further adjustment of the Series C Conversion Price
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire or
otherwise terminate without having been exercised, the Series C Conversion Price
shall thereafter be the Series C Conversion Price that would have been in effect
had an adjustment been made on the basis that the only Additional Shares of
Common Stock so issued were the Additional Shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such Convertible Securities, and were issued or sold for the
consideration actually received by this Corporation upon such exercise plus (A)
the consideration, if any, actually received for the granting of all such rights
or options, whether or not exercised, (B) the consideration, if any, actually
received by issuing or selling the Convertible Securities actually converted and
(C) the consideration, if any, actually received on the conversion of such
Convertible Securities. However, if any such rights or options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Series C Conversion Price for the Series C
Stock, and any subsequent adjustments based thereon, shall upon any such
increase or decrease becoming effective be recomputed to reflect such increase
or decrease insofar as it affects such rights, options or the rights of
conversion or exchange under such Convertible Securities.
(IV) For the purpose of any adjustment required under this
Section D.8, if (a) this Corporation issues or sells any rights or options for
the purchase of Convertible Securities and (b) if the Effective Price of the
Additional Shares of Common Stock underlying such Convertible Securities is less
than the Series C Conversion Price, then in each such event this Corporation
shall be deemed to have issued at the time of the issuance of such rights or
options the maximum number of Additional Shares of Common Stock issuable upon
conversion of the total number of Convertible Securities covered by such rights
or options (as set forth in the legal instruments setting forth the terms of
such Convertible Securities) and to have received as consideration for the
issuance of such Additional Shares of Common Stock an amount equal to the amount
of consideration, if any, received for the issuance of such rights or options
plus (A) the minimum amount of consideration, if any, payable upon the exercise
of such rights or options and (B) the minimum amount of consideration, if any,
payable upon the conversion of such Convertible Securities. No further
adjustment of the Series C Conversion Price shall be made as a result of the
actual issuance of the Convertible Securities upon the exercise of such rights
or options or upon the actual issuance of Additional Shares of Common Stock upon
the conversion of such Convertible Securities. The provisions of Section
D.8.(iii) for the adjustment of the Series C Conversion Price upon the
expiration of rights or options or the rights of conversion of Convertible
Securities shall apply mutatis mutandis upon the expiration of the rights,
options and Convertible Securities referred to in this Clause D.8.(iv).
(V) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued or deemed to be issued under this Section D.8 after the
Filing Date, other than (A) shares of Common Stock issued upon conversion of the
shares of Series A Stock, the Series B Stock or Series C Stock; (B) shares of
Common Stock (or options, warrants or rights therefor) granted or issued
subsequent to the Filing Date to employees, officers, directors of the
Corporation or any subsidiary pursuant to incentive agreements, stock purchase
or stock option plans, stock bonuses or awards, warrants, contracts or other
arrangements that are approved by the Board of Directors; (C) securities issued
by the Corporation representing in the aggregate five percent (5%) or less of
the then outstanding shares of Common Stock, on a fully-diluted basis, to
contractors, consultants, advisers to, or vendors of, the Corporation or in
connection with any credit, financing or leasing agreements or similar
instruments with equipment lessors or other persons providing equipment lease or
other equipment financing; (D) securities issued in connection with or pursuant
to the acquisition of all or any portion of another company by the Company
whether by merger or any other reorganization or by the purchase of all or any
portion of the assets of another company, pursuant to a plan, agreement or other
arrangement approved by the Board of Directors; (E) securities issued to or in
connection with an arrangement or venture with a strategic partner of the
Company, provided such issuance is unanimously approved by the Board of
Directors; (F) shares of Common Stock or Preferred Stock issued or issuable upon
the exercise of any warrants, options or other rights that are outstanding as of
the Filing Date (or issued or issuable after the reissuance of any such expired
or terminated options, warrants or rights and net of any such issued shares
repurchased by the Corporation); (G) the reissuance or assignment by the
Corporation of any shares of Common Stock outstanding as of the Filing Date to a
different person from the holder of such shares; (H) securities issued pursuant
to any anti-dilution rights of the holders of Series A Stock or Series B Stock
or warrants to purchase securities of this Corporation that are outstanding as
of the Filing Date; (H) shares of Common Stock issued in a public offering by
this Corporation in which all shares of Series A Stock, Series B Stock and
Series C Stock are automatically converted into shares of Common Stock; and (I)
shares of Common Stock issued by way of dividend or other distribution on shares
of Preferred Stock and Common Stock excluded from the definition of Additional
Shares of Common Stock by the foregoing clauses (A), (B), (C), (D), (E), (F),
(G) (H) and this clause (I). The oEffective Priceo of Additional Shares of
Common Stock shall mean the quotient obtained by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, under this Section 8 into the aggregate consideration received, or
deemed to have been received for such Additional Shares of Common Stock.
9. CERTIFICATE OF ADJUSTMENT. Upon the occurrence of each adjustment
or readjustment of the Series C Conversion Price, the Corporation, at its sole
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series C Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.
10. NOTICES OF RECORD DATE. In the event of (i) any taking by this
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any capital reorganization of this
Corporation, any reclassification or recapitalization of the capital stock of
this Corporation, any merger or consolidation of this Corporation with or into
any other corporation, or any transfer of all or substantially all of the assets
of the Corporation, or any voluntary or involuntary dissolution, liquidation or
winding up of this Corporation, this Corporation shall mail to each holder of
shares of Series C Stock at least twenty (20) days prior to the record date
specified therein, a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution; (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up, is expected to become effective and the specific
details thereof; and (iii) the date, if any, that is to be fixed as to when the
holders of record of shares of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
11. AUTOMATIC CONVERSION.
(I) SERIES C STOCK CONVERSION. Each share of Series C Stock
shall automatically be converted into shares of Common Stock based upon the
Series C Conversion Price upon the automatic conversion of the shares of Series
A Stock pursuant to a "Qualified Liquidation Evento or oQualified Liquidity
Milestoneo as set forth in the Corporationss.s Certificate of Designation of
Series A Convertible Preferred Stock or otherwise upon the conversion of all the
shares of Series A Stock.
(II) UPON VOTE OF 66-2/3% OF SERIES C PREFERRED STOCK. Each
share of Series C Preferred Stock shall automatically be converted into shares
of Common Stock based upon the Series C Conversion Price then applicable upon
the affirmative vote of the holders of at least sixty-six and two thirds percent
(66-2/3 %) of the outstanding shares of Series C Preferred Stock.
Upon the occurrence of an event specified in this Section 11, the
outstanding shares of Series C Stock shall be converted into outstanding shares
of Common Stock, whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent. Upon the automatic
conversion of the outstanding shares of Series C Stock, the Corporation shall
notify the holders of the outstanding shares of Series C Stock and thereafter
such holders shall surrender the certificates representing such shares at the
office of the Corporation or any transfer agent for the shares. Thereupon there
shall be issued and delivered to such holder, promptly at such office and in its
name as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the surrendered
shares of Series C Stock of such holder were convertible on the date on which
such automatic conversion occurred.
12. FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the shares of Series C Stock. In lieu of any
fractional share to which the holder of such shares would otherwise be entitled,
the Corporation shall pay cash equal to the product of (i) such fraction
multiplied by (ii) the fair market value of one share of the Common Stock on the
date of conversion, as determined in good faith by a disinterested majority of
the Board of Directors.
13. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series C Stock, such number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series C Stock. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Series C Stock, the Corporation shall take such
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
14. NOTICES. Any notice required by the provisions of this Section D
to be given to a holder of shares of Series C Stock shall be deemed given upon
actual receipt or if receipt is refused or does not occur, then the second
attempted delivery as evidenced by appropriate third-party commercial
documentation (i.e., Postal Service, Federal Express, etc.).
15. NO DILUTION OR IMPAIRMENT. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the rights of the holders of the shares of Series C Stock
against dilution (as contemplated herein) or other impairment of their rights.
E. NO RE-ISSUANCE. No share or shares of Series C Stock acquired by the
Corporation by reason of redemption, purchase or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue.
VALUESTAR CORPORATION
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated effective
as of September 14, 2000 (the "Effective Date") by and among (i) the purchasers
of certain Series C Convertible Preferred Stock and warrants to purchase common
stock of the Company (defined below) listed on the signature pages hereto and
each other Person (defined below) who becomes a party to this Agreement
simultaneously with becoming a party pursuant to and in accordance with the
terms and conditions set forth in that certain Purchase Agreement (defined
below) on, or before, December 31, 2000 (each a "Holder" and, collectively, the
"Holders") and (ii) ValueStar Corporation, a Colorado corporation (the
"Company").
RECITALS
The Holders are parties to a Series C Preferred Stock and Warrant Purchase
Agreement dated for reference purposes as of even date herewith by and between
the Company and the Holders (the "Purchase Agreement") pursuant to which the
Company is obligated to enter into this Agreement. All capitalized terms not
defined herein shall have the meaning established in the Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:
1. DEFINITIONS.
"COMMISSION" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"COMMON STOCK" means any and all (i) common stock of the Company issued or
issuable upon conversion of the Company's Series C Convertible Preferred Stock;
(ii) common stock of the Company issued or issuable upon exercise of the
Warrants (collectively, (i) and (ii) the "Stock"); (iii) common stock of the
Company issued as a dividend or other distribution with respect to or in
replacement of the Stock, and (iv) any common stock issued in any combination or
subdivision of the Stock. In determining the amount of Common Stock held by any
Person, the sum of (i), (ii), (iii) and (iv) shall be used and a Person shall be
deemed to "hold" all Common Stock then held by and/or issuable to such Person.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statue and the rules and regulations of the Commission
thereunder all as the same shall be in effect at the time.
"PERSON" means any individual, corporation, trust, partnership,
association, or other entity.
"REGISTRABLE SHARES" means the Common Stock.
"REGISTRATION STATEMENT" means the registration statement and any
additional registration statements filed with the Commission as contemplated by
Section 2, including (in each case) any prospectus, amendments and supplements
to such registration statement or Prospectus, including pre- and post- effective
amendments, all exhibits thereto, and all material incorporated by reference in
such registration statement or statements.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"UNTRUE STATEMENT" shall include any untrue statement or alleged untrue
statement in the Registration Statement, or any omission or alleged omission to
state in the Registration Statement a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
"WARRANTS" shall include those warrants issued to the Holders under the
Purchase Agreement and any warrants issued to finders of purchasers of the
Company's Series C Convertible Preferred Stock as contemplated under the
Purchase Agreement.
2.1 REGISTRATION PROCEDURES AND EXPENSES. The Company is obligated to do the
following:
The Company shall (subject to the Company's eligibility to use a Form S-3
Registration Statement which the Company believes it will be eligible to use),
(A) within 120 days following the Initial Closing , use its best efforts
to prepare and file with the Commission a Registration Statement on Form S-3
(provided that at such time the Company is eligible to use S-3 and, if not, use
its best efforts to prepare and file with the Commission a Registration
Statement on Form S-3 at such later date as the Company is so eligible) in order
to register with the Commission under the Securities Act a sale by the Holders
in accordance with the method or methods of distribution thereof as reasonably
specified by the Holders on a delayed or continuous basis pursuant to Rule 415
under the Securities Act all of the Registrable Shares (notwithstanding anything
to the contrary expressed or implied herein, if a registration statement on any
substitute form becomes available for registration of the Registrable Shares,
the Company may in its sole discretion instead prepare and file with the
Commission a registration statement on such substitute form at any time in order
to register the Registrable Shares under the Securities Act and such
registration statement will be a "Registration Statement" for the purposes of
this Agreement);
(B) use its reasonable efforts after such filing, subject to receipt of
necessary information from the Holders, to cause such Registration Statement to
become effective as soon as reasonably practicable thereafter;
(C) promptly notify each Holder, at any time when a prospectus relating to
such Registration Statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in or relating to such Registration Statement contains an Untrue Statement;
(D) promptly prepare and file with the Commission, and deliver to each
Holder, 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
Shares until termination of such obligation as provided in Section 2.6 below;
(E) furnish to each Purchaser such number of copies of prospectuses,
including preliminary prospectuses, in conformity with the requirements of the
Securities Act, in order to facilitate the public sale or other disposition of
all or any of the Registrable Shares by the Holders;
(F) file such documents as may be required of the Company for normal
securities law clearance for the resale of the Registrable Shares in any state
reasonably requested by the Holders provided, however, that the Company shall
not be required in connection with this paragraph (f) to (i) qualify as a
foreign corporation to do business under the laws of any jurisdiction in which
it shall not then be qualified or execute a general consent to service of
process in any jurisdiction or (ii) undertake any filing obligations in those
states where the Company does not currently meet such filing requirements;
(G) use its best efforts to cause all Registrable Shares to be listed on
each securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which equity securities by the Company are then listed or
traded;
(H) bear all expenses in connection with this Agreement, including,
without limitation, all registration and filing fees (including all expenses
incident to filing with the NASD), printing expenses, fees and disbursements of
counsel for company, expenses of any special audits incident to or required by
any such registration and expenses of complying with the securities or blue sky
laws of any jurisdiction, other than (i) fees and expenses, if any, of counsel
or other advisors to the Holders and (ii) brokers commissions, discounts or fees
and transfer taxes; and
(I) take all reasonable actions required to prevent the entry of any stop
order issued or threatened by the Commission or any state regulatory authority
with respect to any Registration Statement covering Registrable Shares, and take
all reasonable actions to remove it if entered.
2.2 INDEMNIFICATION.
(A) The Company agrees to indemnify and hold harmless each Holder, such
Holder's directors, officers, partners, agents, each underwriter of Registered
Shares, and each Person who controls any of the foregoing (within the meaning of
Section 15 of the Securities Act) (each an "Indemnified Party") from and against
any losses, claims, damages or liabilities to which such Indemnified Party may
become subject (under the Securities Act or otherwise) insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon, any Untrue Statement in the Registration
Statement, or arise out of any failure by the Company to fulfill any undertaking
included in the Registration Statement or arise under the Securities Act or any
other statute or at common law and the Company will reimburse such Indemnified
Party for any reasonable legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; PROVIDED, HOWEVER, that the Company shall not be liable in any such case
to the extent that such loss, claim, damage or liability arises out of, or is
based upon, an Untrue Statement made in such Registration Statement in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of such Indemnified Party specifically for use in preparation of the
Registration Statement or the failure of such Holder to comply with the
covenants and agreements contained in Section 2.3 hereof respecting the sale of
the Registrable Shares or any Untrue Statement in any prospectus that is
corrected in any subsequent prospectus that was delivered to the Holder prior to
the pertinent sale or sales by the Holder.
(B) Each Holder, severally and not jointly, agrees to indemnify and hold
harmless the Company (and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act, each officer of the Company who
signs the Registration Statement and each director of the Company) from and
against any losses, claims, damages or liabilities to which the Company (or any
such officer, director or controlling person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any failure to comply with the covenants and agreements contained in
Section 2.3 hereof respecting sale of the Registrable Shares, or any Untrue
Statement contained in the Registration Statement if, but only if, such Untrue
Statement was made in reliance upon and in conformity with written information
furnished by or on behalf of such Holder specifically for use in preparation of
the Registration Statement and such Holder will reimburse the Company (or such
officer, director or controlling person), as the case may be, for any legal or
other expenses reasonably incurred in investigating, defending or preparing to
defend any such action, proceeding or claim; PROVIDED that in no event shall any
indemnity by a Holder under this Section 2.2 exceed the net proceeds received by
such Holder from the sale of the Registrable Shares covered by such Registration
Statement.
(C) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 2.2, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and such indemnifying person shall have been notified
thereof, such indemnifying person shall be entitled to participate therein, and,
to the extent it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from the
indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof; PROVIDED, HOWEVER,
that if there exists or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the indemnified person, for the same
counsel to represent both the indemnified person and such indemnifying person or
any affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; PROVIDED,
HOWEVER, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel for all indemnified parties. No
indemnifying party in the defense of any such claim or litigation shall, except
with the consent of each indemnified party, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect of such claim or litigation, and no indemnified
party shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the indemnifying party.
(D) If the indemnification provided for in this Section 2.2 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Notwithstanding anything to the
contrary contained herein, any contribution by a Holder hereunder shall not
exceed the net proceeds received by such Holder from the sale of the Shares
covered by the Registration Statement.
2.3 TRANSFER OF SHARES AFTER REGISTRATION; NOTICE.
The Holder hereby covenants with the Company not to make any sale of the
Registrable Shares after registration without effectively causing the prospectus
delivery requirement under the Securities Act to be satisfied. The Holder
acknowledges that there may be times when the Company must suspend the use of
the prospectus forming a part of the Registration Statement until such time as
an amendment to the Registration Statement has been filed by the Company and
declared effective by the Commission, or until such time as the Company has
filed an appropriate report with the Commission pursuant to the Exchange Act.
The Holder hereby covenants that it will not sell any Registrable Shares
pursuant to said prospectus during the period commencing at the time at which
the Company gives the Holder notice of the suspension of the use of said
prospectus and ending at the time the Company gives the Holder notice that the
Holder may thereafter effect sales pursuant to said prospectus; provided,
however, that no such postponement shall be permitted for more than 120 days
during any 12 month period. The foregoing provisions of this Section 2.3 shall
in no manner diminish or otherwise impair the Company's obligations under
Section 2.1
2.4 REPORTING REQUIREMENTS.
(A) The Company agrees to use its best efforts to:
(I) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(II) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(III) so long as any of the Holders own at least 250,000 shares of
Registrable Shares (appropriately adjusted for stock splits and combinations),
to furnish to the Holders forthwith upon written request until the termination
of the Company's obligations under Sections 2.1 through 2.4 (1) a written
statement by the Company as to whether it complies with the reporting
requirements of said Rule 144, the Securities Act and the Exchange Act, or
whether it qualifies as a registrant whose securities may be resold pursuant to
Commission Form S-3, (2) a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed by the Company, and
(3) such other information as may be reasonably requested in availing the
Holders of any rule or regulation of the Commission that would permit the
selling of the Registrable Shares without registration.
2.5 TERMINATION OF OBLIGATIONS.
The obligations of the Company pursuant to Sections 2.1 through 2.4 hereof
shall cease and terminate upon the earlier to occur of (i) such time as all of
the Registrable Shares have been resold or (ii) such time as all of the
Registrable Shares may be sold during any 3 month period pursuant to Rule 144,
including Rule 144 (k) or (iii) upon the third anniversary date of the Effective
Date of this Agreement.
2.6 ASSIGNABILITY OF REGISTRATION RIGHTS.
The Registration rights set forth in this Section 2 are assignable only to
assignees acquiring no less than 250,000 or more Registrable Shares
(appropriately adjusted for stock splits and combinations). Notwithstanding
anything to the contrary herein, in no event shall a Holder assign any rights
herein after 30 days following the Effective Date and prior to the effectiveness
of the Registration Statement. Provided further that the Company shall not be
obligated to file any post-effective amendment to the Registration Statement
solely for the purpose of adding such assignee(s) to the Registration Statement
more than once during any consecutive six month period.
3. LOCK-UP.
In connection with any public registration of this Company's securities,
the Holder (and any transferee of Holder) agrees, upon the request of the
Company or the underwriter(s) managing such underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Shares
(other than those included in the registration) without the prior written
consent of the Company and, if applicable, such underwriter(s), as the case may
be, for a period of time not to exceed 30 days before and one hundred eighty
(180) days after the effective date of the registration; PROVIDED, HOWEVER, that
▇▇▇ ▇▇▇▇▇ 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 of the Company enters into such an agreement. Upon request by the Company,
Holder (and any transferee of Holder) agrees to enter into any further agreement
in writing in a form reasonably satisfactory to the Company and such
underwriter(s). The Company may impose stop-transfer instructions with respect
to the securities subject to the foregoing restrictions until the end of said
180-day period. All Registrable Shares shall bear an appropriate legend
referencing this lock-up provision.
4. MISCELLANEOUS.
(A) CONSENT TO AMENDMENTS. Except as otherwise expressly provided herein,
the provisions of this Agreement may be amended and/or the provisions hereof
waived, only with the written consent of the Company and of Holders holding
fifty percent (50%) or more of the Registrable Shares at the time held by all
Holders. Notwithstanding the foregoing, no amendment or waiver may affect any
Holder in any manner differently from any other Holder without the written
consent of such first mentioned Holder. No course of dealing between the Company
and any Holder or any delay in exercising any rights hereunder or under the
Company's Certificate of Incorporation will operate as a waiver of any rights of
any such Holder.
(B) SUCCESSORS AND ASSIGNS. 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.
(C) 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.
(d) 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.
(E) DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(F) NOTICES. All notices, demands, consents or other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been given (i) when personally delivered, (ii) three (3) business days following
mailing thereof, if sent by first class certified mail, return receipt
requested, or (iii) the next business day following transmission or mailing, if
sent by facsimile (receipt confirmed and followed up by one of the other
delivery methods discussed herein as well), Express Mail, Federal Express or
similar service, addressed as follows:
IF TO ANY HOLDER: To the applicable addresses set forth in the
Purchase Agreement
IF TO THE COMPANY: Valuestar Corporation
Attn: ▇▇▇ ▇▇▇▇▇
▇▇▇ - ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO: Bay Venture Counsel, LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change its address for purposes hereof by notice given in
accordance with this Section 3.f to each of the other parties hereto.
(A) GOVERNING LAW. The validity, meaning and effect of this Agreement, and
all amendments and supplements hereto and all waivers and consents hereunder,
shall be determined in accordance with the laws of California, applicable to
contracts made and to be performed entirely within the State of California. Each
of the parties hereby submits to personal jurisdiction in the County of Alameda,
State of California solely for purposes of this Agreement and waives any
objection as to venue in the County of Alameda, State of California.
(B) SCHEDULES AND EXHIBITS. All schedules and exhibits are an integral
part of this Agreement.
(C) LITIGATION COSTS. Subject to Section 2.2, if any legal action or any
arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of a dispute, breach, default, or misrepresentation in
connection with any of the provisions of this Agreement, the successful or
prevailing party or parties 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, if and only to the extent that
the applicable arbitrator or court shall so direct and such direction is final
and not subject to appeal or review.
(D) INTEGRATION. This instrument constitutes the entire agreement of the
parties hereto respecting the registration of the Registrable Shares by the
Holders and correctly sets forth the rights, duties, and obligations of each
party hereto to the others in relation thereto as of its date. Any prior
agreements, promises, negotiations or representations concerning its subject
matter which are not expressly set forth in this Agreement.
CORPORATION:
VALUESTAR CORPORATION
By:
--------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Its: President and Chief Executive Officer
SIGNATURE PAGES TO THE REGISTRATION RIGHTS AGREEMENT
PURCHASER:
------------------------------------
By:
---------------------------------
(Signature)
------------------------------------
(Print Name and Title)
ADDRESS:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
TELEPHONE AND FAX NUMBERS:
Tel:
-------------------------------
Fax:
--------------------------------
Email Contact:
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AGGREGATE INVESTMENT AMOUNT
$
-----------------------------------
WARRANT C-_____
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH HEREIN AND IN THAT CERTAIN SECURITIES
PURCHASE AGREEMENT THEREFOR BETWEEN THE COMPANY AND THE ORIGINAL HOLDER HEREOF.
VALUESTAR CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, VALUESTAR CORPORATION, a Colorado
corporation (the "Company"), hereby grants to _______________________ ("Holder")
the right to purchase from the Company up to ____________________ (_____) shares
of the Common Stock of the Company (the "Warrant Shares"), subject to the
following terms and conditions:
1. SERIES. This Warrant is one of a duly authorized series of warrants of
the Company (which are identical except for the variations necessary to express
the identification numbers, names of the holder, number of common shares
issuable upon exercise thereof and warrant issue dates) designated as its "C
Warrants."
2. TERM. This Warrant may be exercised in whole at any time during the
period from the date of issuance of this Warrant until 5:00 p.m., California
time, on September 14, 2003 (the "Exercise Period").
3. PURCHASE PRICE. The purchase price for each Warrant Share purchasable
hereunder shall be Two Dollars and Twenty-Five Cents (U.S. $2.25) (the "Warrant
Exercise Price").
4. EXERCISE OF WARRANT. The purchase rights represented by this Warrant
may be exercised by the Holder, in whole or in part, at any time and from time
to time before the end of the Exercise Period by surrender of this Warrant at
the principal office of the Company in Oakland, California (or such other office
or agency of the Company as may be designated by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company), together
with the Notice of Exercise annexed hereto duly completed and executed on behalf
of the Holder accompanied by payment in full of the amount of the aggregate
Warrant Exercise Price. The Warrant Exercise Price shall be made, at the option
of the Holder, (i) in immediately available funds in United States Dollars or
(ii) if the primary market for the Warrant Shares during the ten (10) Trading
Days (as defined in Section 6 below) immediately preceding the date of exercise
is the National Association of Securities Dealers Automated Quotation System -
National Market System or a national securities exchange registered under the
Exchange Act of 1934, as amended, cancellation of Warrant Shares, valued at the
average "Closing Price" (as defined in Section 6 below) of the Company's Common
Stock for the ten (10) consecutive Trading Days immediately preceding the date
of exercise. Certificates for shares purchased hereunder shall be delivered to
the Holder within thirty (30) business days after the date on which this Warrant
shall have been exercised as aforesaid, but Holder shall be deemed the record
owner of such Warrant Shares as of and from the close of business on the date on
which this Warrant shall be surrendered.
5. FRACTIONAL INTEREST. The Company shall not be required to issue any
fractional shares on the exercise of this Warrant.
6. REDEMPTION OF WARRANTS. The Company may elect, by written notice as
provided herein (the "Company Notice"), to redeem, pro rata among all holders of
C Warrants, all outstanding C Warrants including this Warrant, in whole or in
part, on a date (the "Redemption Date") fixed by the Company and which shall be
a Trading Day (as defined below) during which a registration statement under the
Securities Act of 1933, as amended, covering the Warrant Shares is effective at
a price of $.01 per Warrant Share then exercisable under such outstanding C
Warrants (the "Redemption Price") at such time as the average Closing Price (as
defined below) of the Company's Common Stock for the ten (10) consecutive
Trading Days (as defined below) immediately preceding the date of the Company
Notice equals or exceeds Six Dollars ($6.00), (adjusted for stock splits and
combinations); provided, however, that this Warrant may be exercised at any time
prior to 5:00 p.m., California time, on the business day immediately preceding
the Redemption Date. Thereafter, all rights to acquire such Warrant Shares shall
terminate.
For purposes hereof, (i) the term "Trading Day" shall mean any day on
which securities are traded on the applicable securities exchange or in the
applicable securities market; and (ii) the term "Closing Price" in respect of a
Trading Day shall mean the reported closing bid prices on the principal national
securities exchange on which the Common Stock of the Company is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers Automated
Quotation System - National Market System .
7. WARRANT CONFERS NO RIGHTS OF SHAREHOLDER. Holder shall not have any
rights as a shareholder of the Company with regard to the Warrant Shares prior
to actual exercise resulting in the purchase of the Warrant Shares.
8. INVESTMENT REPRESENTATION. Neither this Warrant nor the Warrant Shares
issuable upon the exercise of this Warrant have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any
applicable state securities laws. Holder acknowledges by acceptance of this
Warrant that (a) it has acquired this Warrant for investment and not with a view
toward distribution; (b) it has a pre-existing personal or business relationship
with the Company, or its executive officers, or by reason of its business or
financial experience it has the capacity to protect its own interests in
connection with the transaction; and (c) except as so notified to the Company in
writing, it is an accredited investor as that term is defined in Regulation D
promulgated under the Securities Act. Holder agrees that any Warrant Shares
issuable upon exercise of this Warrant will be acquired for investment and not
with a view toward distribution; and acknowledges that to the extent such
Warrant Shares will not be registered under the Securities Act and applicable
state securities laws, that such Warrant Shares may have to be held indefinitely
unless they are subsequently registered or qualified under the Securities Act
and applicable state securities laws; or, based on an opinion of counsel
reasonably satisfactory to the Company, an exemption from such registration and
qualification is available. Holder, by acceptance hereof, consents to the
placement of the following restrictive legends, or similar legends, on each
certificate to be issued to Holder by the Company in connection with the
issuance of such Warrant Shares:
"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 SATISFACTORY TO THE COMPANY 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 SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN PURCHASE AGREEMENT
THEREFOR BETWEEN THE CORPORATION AND THE ORIGINAL HOLDER HEREOF."
9. RESERVATION OF SHARES. The Company agrees at all times during the
Exercise Period to have authorized and reserved, for the exclusive purpose of
issuance and delivery upon exercise of this Warrant, a sufficient number of
shares of its Common Stock to provide for the exercise of the rights represented
hereby.
10. ADJUSTMENT FOR RE-CLASSIFICATION OF CAPITAL STOCK. If the Company at
any time during the Exercise Period shall, by subdivision, combination or
re-classification of securities, change any of the securities to which purchase
rights under this Warrant exist under the same or different number of securities
of any class or classes, this Warrant shall thereafter entitle the Holder to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares immediately prior to
such subdivision, combination or re-classification. If shares of the Company's
common stock are subdivided into a greater number of shares of common stock, the
purchase price for the Warrant Shares upon exercise of this Warrant shall be
proportionately reduced and the Warrant Shares shall be proportionately
increased; and conversely, if shares of the Company's common stock are combined
into a smaller number of common stock shares, the price shall be proportionately
increased, and the Warrant Shares shall be proportionately decreased.
11. PUBLIC OFFERING LOCK-UP. In connection with any public registration of
this Company's securities, the Holder (and any transferee of Holder) agrees,
upon the request of the Company or the underwriter(s) managing such underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of this Warrant, any
of the shares of Common Stock issuable upon exercise of this Warrant or any
other securities of the Company heretofore or hereafter acquired by Holder
(other than those included in the registration) without the prior written
consent of the Company and such underwriter(s), as the case may be, for a period
of time not to exceed 30 days before and one hundred eighty (180) days after the
effective date of the registration; PROVIDED, HOWEVER, that ▇▇▇ ▇▇▇▇▇ 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 of the Company
enters into such an agreement. Upon request by the Company, Holder (and any
transferee of Holder) agrees to enter into any further agreement in writing in a
form reasonably satisfactory to the Company and such underwriter(s). The Company
may impose stop-transfer instructions with respect to the securities subject to
the foregoing restrictions until the end of said 180-day period. Any shares
issued upon exercise of this Warrant shall bear an appropriate legend
referencing this lock-up provision.
12. ASSIGNMENT. With respect to any offer, sale or other disposition of
this Warrant or any underlying securities, the Holder will give written notice
to the Company prior thereto, describing briefly the manner thereof, together
with a written opinion of such Holder's counsel, to the effect that such offer,
sale or other distribution may be effected without registration or qualification
(under any applicable federal or state law then in effect). Furthermore, no such
transfer shall be made unless the transferee meets the same investor suitability
standards set forth in Section 8 of this Warrant. Promptly upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify such Holder that such Holder
may sell or otherwise dispose of this Warrant or the underlying securities, as
the case may be, all in accordance with the terms of the written notice
delivered to the Company. If a determination has been made pursuant to this
Section 12 that the opinion of counsel for the Holder is not reasonably
satisfactory to the Company, the Company shall so notify the Holder promptly
after such determination has been made. Each Warrant thus transferred shall bear
the same legends appearing on this Warrant, and underlying securities thus
transferred shall bear the legends required by Section 8. The Company may impose
stop-transfer instructions in connection with such restrictions. Subject to any
restrictions on transfer described elsewhere herein, the rights and obligations
of the Company and the Holder of this Warrant shall be binding upon and benefit
the successors, assigns, heirs, administrators and transferees of the parties
hereto.
13. NOTICE. Any notice, demand, consent or other communication hereunder
shall be in writing addressed to the other party at its principal office or, in
respect of Holder, as its address as shown on the books of the Company, or to
such other address as such party shall have theretofore furnished by like
notice, and either served personally, sent by express, registered or certified
first class mail, postage prepaid, sent by facsimile transmission, or delivered
by reputable commercial courier. Such notice shall be deemed given (i) when so
personally delivered, or (ii) if mailed as aforesaid, five (5) days after the
same shall have been posted, or (iii) if sent by facsimile transmission, as soon
as sender receives written or telephonic confirmation that the message has been
received and such facsimile is followed the same day by mailing by prepaid first
class mail, or (iv) if delivered by commercial courier, upon receipt.
14. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
15. ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
16. DESCRIPTIVE HEADINGS. The headings used herein are descriptive only
and for the convenience of identifying provisions, and are not determinative of
the meaning or effect of any such provisions.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer this 14th day of September, 2000.
VALUESTAR CORPORATION
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇, President and CEO
NOTICE OF EXERCISE
COMMON STOCK PURCHASE WARRANT
TO: VALUESTAR CORPORATION
(1) The undersigned hereby elects to purchase ______ shares of Common
Stock of ValueStar Corporation, pursuant to the terms of the attached Warrant,
and tenders herewith payment in full of the purchase price for such shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws.
(3) Please issue a certificate representing said shares of Common Stock in
the name of the undersigned.
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned.
Date: _________________, 2000
__________________________________________
(Name)
__________________________________________
(Signature)
ADDRESS:
__________________________________________
__________________________________________
__________________________________________
__________________________________________
TELEPHONE AND FAX NUMBERS:
Tel: _____________________________________
Fax: _____________________________________
Email Contact: ___________________________