EXHIBIT 4.33
VALUESTAR CORPORATION
SERIES C PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
September 14, 2000
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
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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.
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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 (as defined
hereinbelow).
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, 1999 Harrison Street, Suite 1300, Oakland, California 94612, 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.
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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
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Common Stock issued and outstanding as listed and described in Schedule 5.14(a).
The Corporation will have outstanding no options, convertible securities or
warrants other than as listed and described on Schedule 5.14(b) 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:
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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.
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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
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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.
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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
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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 (a). 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(b).
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
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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
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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;
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(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 IRA or Keogh retirement plan, and alimony payments.
6.9 Resident. Purchaser has its, his or her principal residence in the
state indicated on Schedule 1.
VII. RESTRICTIONS ON TRANSFER OF SECURITIES.
The Securities are not transferable except upon the conditions
specified in this Article VII, which conditions are intended to ensure
compliance with the provisions of the Securities Act and state securities laws
in respect of the transfer of any of such securities. Each instrument
representing the Securities shall be stamped or otherwise imprinted with legends
substantially in the following form until such time as the conditions set forth
in such legends have been met:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, OR THE
HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THE SECURITIES STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND THE
QUALIFICATION REQUIREMENTS UNDER STATE LAW."
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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:
14
(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.
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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: Jim Stein
360 - 22nd Street, Suite 210
Oakland, CA 94612
FAX: (510) 808-1400
With a Copy to: Bay Venture Counsel, LLP
Attn: Donald C. Reinke, Esq.
1999 Harrison Street, Suite 1300
Oakland, CA 94612
FAX: (510) 834-7440
16
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)
17
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: /s/ James Stein
---------------
Name: James Stein
Its: Chief Executive Officer
18
Signature Pages to the Series C Preferred Stock and Warrant Purchase
Agreement
(Individual Pages Differ as to Holder's Name and Personal Information)
PURCHASER:
-----------------------------------------------------
By:
--------------------------------------------------
(Signature)
-----------------------------------------------------
(Print Name and Title)
ADDRESS:
TELEPHONE AND FAX NUMBERS:
Tel:
------------------------------------------------
Fax:
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Email Contact:
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AGGREGATE INVESTMENT AMOUNT
$
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