EXHIBIT 4.38
INVESTMENT AND MARKETING AGREEMENT
THIS INVESTMENT AND MARKETING AGREEMENT (this "Agreement") by and
between First Data Merchant Services Corporation, a Florida corporation
("FDMS"), and ValueStar Corporation, a Colorado Corporation ("ValueStar"), is
made this 16th day of January, 2001 (the "Effective Date").
WHEREAS, ValueStar through its wholly owned subsidiary, ValueStar,
Inc., a California corporation ("Subsidiary"), provides a merchant rating
service, a merchant benefits service and a cardholder benefits service
(collectively, the "ValueStar System" or "ValueStar Benefits");
WHEREAS, FDMS is in the business of providing certain payment
processing services for credit and debit card transactions for merchants;
WHEREAS, pursuant to a Strategic Development, Marketing And Services
Agreement dated September 29, 2000 by and between FDMS and ValueStar
("Development Agreement"), FDMS is in the process of enhancing a system
proprietary to FDMS that will allow FDMS to match credit card numbers registered
with ValueStar with transactions at merchants registered with ValueStar which
are paid for with registered credit card numbers (the "FDMS System");
WHEREAS, FDMS is making an investment in ValueStar in the current
financing round of Series CC Convertible Preferred Stock ("Series CC Stock");
and
WHEREAS, ValueStar recognizes FDMS as a strategic investor important to
the marketing and operation of the ValueStar System.
NOW, THEREFORE, in consideration of the foregoing, FDMS and ValueStar
hereby agree as follows:
1. Investment. FDMS has agreed to purchase 44,445 shares of Series CC Stock and
warrants (the "Warrants") to purchase 1,333,350 shares of Common Stock of
ValueStar for an aggregate purchase price of $2,000,000 (the "Purchase Price")
pursuant to the Series CC Preferred Stock and Warrant Purchase Agreement dated
January 16, 2001 by and between ValueStar and the purchasers named therein (the
"Securities Purchase Agreement"). ValueStar and FDMS agree that, with respect to
FDMS's obligations to pay the Purchase Price pursuant to Section 2.2 of the
Securities Purchase Agreement, (i) $500,000 of the Purchase Price shall be
payable in cash, by wire transfer to ValueStar's account concurrent with the
closing of the Securities Purchase Agreement; and (ii) $1,500,000 of the
Purchase Price shall be payable by means of a nonrefundable credit in favor of
ValueStar, which amount shall be credited against the costs, fees and
commissions which otherwise would be payable by ValueStar to FDMS pursuant to
Sections 4, 6, 8, 10 and Exhibit E of the Development Agreement. The securities
purchased by FDMS as described in this Section 1 shall be delivered at the
Initial Closing (as defined in the Securities Purchase Agreement) and shall be
fully-paid and nonassessable. The parties further agree that, solely for tax
purposes,the cash portion of the Purchase Price shall be allocable to the
purchase of the shares of Series CC Preferred Stock, and the credit under the
Development Agreement described in (ii) above shall be allocable to the purchase
of the Warrants.
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2. Investment Option. Pursuant to Section 2.3 of the Securities Purchase
Agreement, ValueStar is authorized to issue and sell additional shares of Series
CC Stock, up to a maximum aggregate total of 500,000 shares (including shares
issued at the Initial Closing (as defined in the Securities Purchase
Agreement)). ValueStar hereby agrees to reserve, and grants FDMS or an Affiliate
(as defined in the Development Agreement) designated by FDMS, the option (the
"Option") to purchase, for cash up to 177,778 additional shares of Series CC
Stock and related warrants on the same terms as are set forth in Section 1 above
and the Securities Purchase Agreement up and to the date of March 31, 2001. This
Option may be exercised only one time and in a minimum of $1,000,000.
3. Marketing Exclusivity. Except for Union Bank, for a period of six months from
the date of this Agreement, ValueStar and its Subsidiary shall not sign a
marketing agreement with a merchant bank which is not an FDMS Bank (as defined
in the Development Agreement). Except for First National Bank of Omaha and MBNA,
for a period of six months from the date of this Agreement, ValueStar and its
Subsidiary shall not sign a marketing agreement with an issuing bank which is
not an FDMS Bank or FDR Issuer (as defined in the Strategic Development and
Marketing Agreement dated November 1, 2000 between First Data Resources, Inc.
and ValueStar).
4. Director Appointment. So long as FDMS and/or its Affiliate own at least 50%
of the securities described in Section 1 hereof and purchased pursuant to the
Securities Purchase Agreement (assuming the exercise of Warrants and adjusted
for stock splits, combinations, dividends and the like), FDMS shall have the
right, but not the obligation, to designate a nominee, reasonably acceptable to
the Board of Directors of ValueStar, to be elected as a director of ValueStar
and shall promptly notify ValueStar of such designee. Upon receipt of such
notice, ValueStar shall cause FDMS's nominee to be placed on the slate at the
next annual or special meeting of stockholders of the Company for the election
of directors (and each annual or special meeting thereafter for the election of
directors pursuant to this clause) and shall use its reasonable efforts to cause
such nominee to be elected at such meeting of stockholders. If FDMS elects not
to designate a nominee for director, or if FDMS's nominee is not elected to the
Board of Directors, FDMS, so long as it is entitled to nominate a nominee for a
directorship may designate one individual (the "FDMS Observer") to attend all
meetings of ValueStar's Board of Directors (and any committees thereof) in a
non-voting observer capacity. The FDMS Observer shall be entitled to receive all
reports, presentations and materials as if such FDMS Observer were a member of
the Company's Board of Directors. Expenses of attending meetings shall be paid
by FDMS except that any FDMS nominated director shall be entitled to receive
directors fees and expense reimbursement payable to other directors of
ValueStar. Notwithstanding the foregoing, (a) in the event the Board of
Directors intends to discuss or vote upon any matter that is subject to
attorney-client privilege, or otherwise involves confidential or proprietary
information of ValueStar, the FDMS Observer may be excluded from the portion of
the meeting at which such matter is discussed by the vote of a majority of the
directors present, and (b) in the event FDMS or any of its Affiliates or its
representatives becomes a direct competitor of ValueStar, the Chairman of the
Board of Directors or a majority of the directors present may exclude the FDMS
Observer from the meetings of the Board of Directors.
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5. Press Release. Neither party shall make a press release or other statement to
the general public regarding this Agreement or the parties' relationship without
first obtaining the prior written approval of such release or statement from the
other party unless required by law. Notwithstanding the foregoing, it is the
parties' intent to issue a mutually agreed-upon press release within 10 days of
the Effective Date to disclose the material provisions of FDMS's investment.
6. Relationship of the Parties. The parties are acting as independent
contractors and not as partners or in the capacity of any type of joint venture.
7. Entire Agreement. This Agreement, the Development Agreement, the Securities
Purchase Agreement and the exhibits thereto constitute the entire agreement
between the parties hereto and there are no representations, warranties,
covenants or obligations except as set forth herein or therein. This Agreement
supersedes all prior or contemporaneous agreements, understandings, negotiations
and discussions, written or oral, of the parties hereto, relating to any
transaction contemplated by this Agreement. Nothing in this Agreement is
intended or shall be construed to confer upon or to give any person other than
the parties hereto any rights or remedies under or by reason of this Agreement.
8. Assignment. Neither party shall assign any interest in this Agreement without
the prior written consent of an authorized executive officer of the other,
provided that FDMS may assign this Agreement to an Affiliate (not including
Alliances (as defined in the Development Agreement)) without ValueStar's prior
consent[, and ValueStar may assign or otherwise transfer this Agreement without
the consent of FDMS or any other party hereto pursuant to any sale of
substantially all of its assets or pursuant to any merger, reorganization or
exchange of shares which might otherwise be deemed an assignment.]
9. Governing Law. The rights and obligations of the parties under this Agreement
shall be governed by law of the State of New York without regard to that state's
choice of law provisions.
10. Waiver. Any failure of either party to enforce, at any time or for any
period of time, any of the provisions of this Agreement shall not be construed
as a waiver of the right of that party to enforce such provisions unless said
waiver is in writing, and signed by an authorized executive officer.
11. Term. This Agreement shall commence on the Effective Date and continue until
all obligations provided hereunder have been performed by the parties or until
September 30, 2005 whichever is earlier.
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12. Notices. Any notice required or permitted to be given under this Agreement
shall be sent in writing, by prepaid, certified, return receipt requested,
first-class air mail to the respective party at the address below, or to such
other address as each party may hereafter specify in writing to the other.
If to ValueStar: Chief Executive Officer
360 22nd Street
Oakland, CA 94612
with a copy to: Mr. Don Reinke
Bay Venture Counsel
1999 Harrison Street, Suite 1300
Oakland, CA 94111
If to FDMS:
with a copy to: General Counsel
First Data Merchant Services Corporation
12500 East Belford Avenue, Suite M16-S
Englewood, CO 80112
Fax: (720) 332-0033
All such notices shall be deemed to have been given upon receipt.
13. Severability of Provisions. Each provision of this Agreement shall be
considered severable and if for any reason any provision or provisions herein
are determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of this Agreement or affect those
portions of this Agreement, which are valid.
14. Enumerations and Headings. The enumerations and headings contained in this
Agreement are for convenience of reference only and are not intended to have any
substantive significance in interpreting this Agreement.
15. Sales Tax Matters.
a. Payment of Taxes. ValueStar shall, in addition to the other amounts
payable under the Development Agreement, pay all taxes , federal, state, or
otherwise, or duties, imposts, fees or charges, however designated (hereinafter
`taxes'), which are levied or imposed by any governmental authority by reason of
the sale or license of any services , communication equipment, software or other
goods and products provided pursuant to this Agreements except for franchise
taxes and income taxes payable by FDMS on amounts earned by FDMS and property
taxes payable by FDMS on property owned by FDMS. Without limiting the foregoing,
ValueStar shall promptly pay to FDMS an amount equal to any items actually paid
or required to be collected or paid by FDMS.
b. Calculation of Taxes. ValueStar hereby authorizes FDMS to calculate
the total amount of taxes due by ValueStar from the monies due FDMS and remit
the amount of taxes to the appropriate taxing authority on behalf of ValueStar.
FDMS's remittance of the taxes on behalf of ValueStar shall be computed by FDMS
on the information available to FDMS. In the event of the under or over
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calculation of any taxes, ValueStar shall be responsible for any additional
monies due including any penalties or interest and for collecting any refunds
due to ValueStar from the appropriate taxing authority.
c. Tax Information. Prior to FDMS making the tax remittance on behalf
of ValueStar provided in paragraph a. above, ValueStar agrees to supply FDMS
with any and all current information necessary for FDMS to compute and remit the
taxes, including any tax exempt certificate, ant tax exempt claim letter, or
evidence satisfactory to FDMS authenticating the exemption.
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IN WITNESS WHEREOF, and intending to be legally bound, the undersigned
parties have duly executed this Agreement on the Effective Date.
FIRST DATA MERCHANT SERVICES CORPORATION
By: /s/ Pamela H. Patsley
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Name: Pamela H. Patsley
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Title: President
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VALUESTAR CORPORATION
By: /s/ Jim Stein
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Name: Jim Stein
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Title: CEO
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