EXHIBIT 4.28
VALUESTAR CORPORATION
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
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December 8, 1999
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SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
dated for reference purposes only as of December 8, 1999, 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 B 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.
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"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.
"Investors Rights Agreement" means the Investors Rights Agreement
attached hereto as Exhibit B.
"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 Investors 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.
"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 B Stock" means the shares of Series B Convertible Preferred
Stock of the Corporation issued to the Purchasers pursuant to this Agreement.
II. SALE AND ISSUANCE OF SERIES B STOCK
2.1 Purchase and Sale of Series B 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 B Stock set forth opposite
its name in Schedule 1 attached hereto at a per share purchase price of $17.50
per share.
2.2 Issuance and Payment. The initial closing of the sale and purchase
of at least Five Hundred Fourteen Thousand Two Hundred Ninety Eight (514,298)
shares of the Series B Stock will take place at the offices of BAY VENTURE
COUNSEL, LLP, 0000 Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx 00000, at
10:00 a.m. on December 8, 1999, or such other time and place as the parties may
mutually agree (the "Initial Closing"). At each "Closing" (as defined in Section
2.3), the Corporation will deliver to each Purchaser a duly issued and executed
certificate of the Series B Stock to be purchased by it,
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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 B Preferred Stock. The Corporation may
sell up to an additional Two Hundred Eighty Five Thousand Seven Hundred
Two_(285,702) shares of Series B Stock to such Persons as the Corporation may
determine at any time after the Initial Closing and on, or before, December 31,
1999, at no less than $17.50 per share and otherwise upon the same terms and
conditions as 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 Investors 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 Investors 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;
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(f) evidence reasonably acceptable to the Purchaser's that
each of the Corporation's key employees has executed a non-disclosure and
assignment of inventions agreement; and
(f) such other documents referenced within any Schedule or
relating to the transactions contemplated by this Agreement as the Purchasers
may reasonably request.
3.3 Proceedings. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby to be consummated
at or prior to the Initial Closing and all documents incident thereto or
required to be delivered prior to or at the Closing will be satisfactory in form
and substance to the Purchasers. Without limiting the generality of the
preceding sentence, the Board of Directors of the Corporation immediately
following the Initial Closing shall consist of seven members, two of which shall
have been nominated and/or elected, as appropriate, by a majority of the holders
of Series B Stock at any time on or after the Initial Closing in accordance with
the Certificate of Designation.
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 B Stock.
3.7 Reservation of Stock. The Corporation's board of directors will
have reserved sufficient shares of its authorized but unissued Common Stock for
the exclusive purpose of issuance upon conversion of the Series B Stock.
3.8 Capital Outstanding. As of the Initial Closing (but without giving
effect thereto), the Corporation will have a total of no more than that number
of shares of Preferred Stock and Common Stock issued and outstanding as listed
and described in Schedule 5.12(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.
3.11 Purchasers' Legal Fees and Expenses. The Corporation will have
paid or provided for, as of the Initial Closing, the fees and disbursements of
counsel for the eCompanies Venture Group, L.P., Howard, Rice, Nemerovski,
Canady, Xxxx & Xxxxx, P.C., in an amount not to exceed $15,000.
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IV. CONDITIONS OF THE CORPORATION'S OBLIGATIONS.
The obligation of the Corporation to issue the Series B Stock with
respect to any one Purchaser is subject to the satisfaction on or before the
date of the Closing of the following conditions with respect to such Purchaser,
all or any of which may be waived in writing by the Corporation:
4.1 Performance. Each such Purchaser shall have duly performed and
complied in all material respects with each of the terms, agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing.
4.2 Representations and Warranties. The representations and warranties
of each Purchaser contained in Article VI and in any other documents delivered
at or prior to the Closing shall be true and accurate on and as of the Closing
with the same effect as though made on and as of the date of the Closing.
4.3 Instruments and Documents. All instruments and documents required
to carry out this Agreement or incidental thereto shall be reasonably
satisfactory to the Corporation and its counsel.
4.4 Suits/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
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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.
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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.
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5.7 Rights in Properties; Liens. Except as disclosed on Schedule 5.7,
the Corporation and the Subsidiary have good and marketable title to all
properties and assets reflected on their balance sheets, and none of such
properties or assets is subject to any Liens. The Corporation and the Subsidiary
enjoy peaceful and undisturbed possession under all leases necessary for the
operation of their other properties, assets, and businesses and all such leases
are valid and subsisting and are in full force and effect. There exists no
default under any provision of any lease which would permit the lessor
thereunder to terminate any such lease or to exercise any rights under such
lease which, individually or together with all other such defaults, could have a
Material Adverse Effect. The Corporation and the Subsidiary have the exclusive
right to use all of the Intellectual Property necessary to their business as
presently conducted, and the Corporation's and the Subsidiary's use of the
Intellectual Property does not infringe on the rights of any other Person where
such nonexclusivity or infringement would not have a Material Adverse Effect. To
the best of the Corporation's knowledge, no other Person is infringing the
rights of the Corporation or the Subsidiary in any of the Intellectual Property.
Neither the Corporation nor the Subsidiary owe any royalties, honoraria or fees
to any Person by reason of its use of the Intellectual Property.
5.8 Enforceability. This Agreement and the Other Agreements to which
the Corporation is a party, when delivered, shall constitute the legal, valid
and binding obligations of the Corporation, enforceable against the Corporation
in accordance with their respective terms.
5.9 Indebtedness. Except as disclosed on the financial statements
identified in Section 5.2 and on Schedule 5.9, neither the Corporation nor the
Subsidiary have any Indebtedness. All Indebtedness owed by the Corporation or
the Subsidiary to any Affiliate is set forth on Schedule 5.9.
5.10 Taxes. Except as set forth on Schedule 5.10, the Corporation and
the Subsidiary have timely filed all tax returns (federal, state, and local)
required to be filed, including, without limitation, all income, franchise,
employment, property, and sales taxes, and have timely paid all of their tax
liabilities, other than immaterial amounts and taxes that are being contested by
the Corporation or the Subsidiary in good faith by appropriate actions or
proceedings diligently pursued, and for which adequate reserves in conformity
with GAAP with respect thereto have 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
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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 Investors 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 B Stock.
10
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 B Stock and any
Common Stock issuable upon conversion of the Series B Stock for investment
purposes only for its own account, and not with a view to, or for resale in
connection with, any distribution thereof, and it has no present intention of
selling or distributing any such securities. Purchaser understands that the
Series B Stock (and any shares of Common Stock issued upon conversion of the
Series B Stock) have not been registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment as
expressed herein. All such securities are hereinafter collectively referred to
as the "Securities".
6.2 Rule 144. The Purchaser acknowledges that because the Securities
have not been registered under the Securities Act, the Securities must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. It is aware of the provisions of
Rule 144 promulgated under the Securities Act which permits limited resale of
shares purchased in a private placement under certain circumstances.
6.3 Access to Data. The Purchaser has had an opportunity to discuss the
Corporation's business, management and financial affairs with its management and
to obtain any additional information necessary or appropriate for deciding
whether or not to purchase the Securities.
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
11
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 B Stock and the performance of the Purchaser's
obligations hereunder has been taken or will be taken prior to the Closing. This
Agreement is a legal, valid and binding obligation of the Purchaser enforceable
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws and equitable
principles relating to or affecting the enforcement of creditors' rights in
general and by general principles of equity.
6.7 Accredited Investor. Purchaser is an "accredited investor" as that
term is defined in Regulation D promulgated by the Securities and Exchange
Commission. The term "Accredited Investor" under Regulation D refers to:
(i) A person or entity who is a director or executive officer
of the Corporation;
(ii) Any bank as defined in Section 3(a)(2) of the Securities
Act, or any savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to Section 15 of
the Exchange Act; insurance Corporation as defined in Section 2(13) of the
Securities Act; investment Corporation registered under the Investment
Corporation Act of 1940; or a business development Corporation as defined in
Section 2(a)(48) of that Act; Small Business Investment Corporation licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such Act, which is
either a bank, savings and loan association, insurance Corporation, or
registered investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment decision
made solely by persons that are accredited investors;
(iii) Any private business development Corporation as defined
in Section 202(a)(22) of the Investment Advisers Act of 1940;
(iv) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the Securities
offered, with total assets in excess of $5,000,000;
(v) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his purchase exceeds
$1,000,000;
(vi) Any natural person who had an individual income in excess
of $200,000 during each of the previous two years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the Securities offered, whose
purchase is directed by a person who has such knowledge
12
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 XXX or Xxxxx 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
at least twenty percent (20%) of all shares of the Series B Stock issued and
sold in the Closings, the Corporation shall furnish the following to such
Purchaser until the conversion of such Series B 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
13
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) So long as the Corporation is obligated to provide the
following financial statements to the holders of the Corporation's senior
subordinated 8% debt, as soon as available, and in any event within thirty (30)
days after the end of each calendar month, a copy of an unaudited financial
report of the Corporation as of the end of such calendar month and for the
portion of the fiscal year then ended, containing consolidated balance sheets,
statements of income and statements of cash flow, in each case setting forth in
comparative form the figures for the corresponding period of the preceding
fiscal year, together with a comparison of the actual results during such period
to those originally budgeted by the Corporation for such period.
(d) On or before thirty (30) days after receipt by Corporation
of written request for such information, which request may only be given during
the last quarter of any fiscal year of the Corporation, an annual budget or
business plan of the Corporation for the next fiscal year approved by a majority
of the Board of Directors.
(e) 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.
(f) 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 B 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,
14
(ii) alters or changes the rights, preferences or privileges of the
Series B Stock so as to materially and adversely affect such shares,
(iii) increases or decreases the number of authorized shares of Series
B Stock,
(iv) authorizes the issuance of securities having a preference over or
on parity with the Series B 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 B
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. INVESTORS RIGHTS AGREEMENT.
The Corporation shall at the Initial Closing enter into the Investors
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 B 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 B 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
15
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: Howard, Rice, Nemerovski, Canady, Xxxx & Rabkin, A
Professional Corporation
Attn. Xxxxx X. Xxxx, Esq.
0 Xxxxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
FAX: (000) 000-0000
Xxxxxx Xxxxx LLP
Attn: Xxxxxxx X. Xxxxxx
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
FAX: (000) 000-0000
If to the Corporation: Valuestar Corporation
Attn: Xxx Xxxxx
000 - 00xx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
FAX: (000) 000-0000
With a Copy to: Bay Venture Counsel, LLP
Attn: Xxxxxx X. Xxxxxx, Esq.
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
FAX: (000) 000-0000
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.
16
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
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the respective Closing dates.
(SIGNATURES FOLLOW ON NEXT PAGE)
17
\Signature Pages to the Series B Preferred Stock 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/XXXXX XXXXX
Name: Xxxxx Xxxxx
Its: President and Chief Executive Officer
S-1
Signature Pages to the Series B Preferred Stock Purchase Agreement
PURCHASER:
eCOMPANIES VENTURE GROUP, L.P.
By:/s/ XXXXX XXXXXX
Name: Xxxxx Xxxxxx
Title: Managing General Partner
SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:/s/ XXXXXXX X. XXXXXXX
Name: Xxxxxxx X. Xxxxxxx
Title: Vice President
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital
its general partner
By: /s/ XXXXXX X. XXXXX
` Name: Xxxxxx X. Xxxxx
Its: Managing General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management LLC
its general partner
By:/s/ XXXX X. XXXXXX
Name: Xxxx X. Xxxxxx
Title: Vice President
S-2
Signature Pages to the Series B Preferred Stock Purchase Agreement
(Individual Pages Differ as to Purchaser Name and Personal Information)
---------------------------------------
Name of Holder
---------------------------------------
Authorized Signature
---------------------------------------
Print Name and Title of Signatory
VALUESTAR CORPORATION
DISCLOSURE SCHEDULE TO
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
December 8, 1999
In connection with the execution and delivery of that certain Series B
Preferred Stock Purchase Agreement (the "Agreement") dated as of December [
],1999 by and among Valuestar Corporation, a Colorado corporation (the
"Corporation"), and the Purchasers identified on Schedule 1 of the Agreement,
the Corporation, the Corporation hereby delivers this Disclosure Schedule (this
"Schedule") to the Company's representations and warranties given in Section 5
of the Agreement. References to any document do not purport to be complete and
are qualified in their entirety by the document itself. Unless the context
otherwise requires, all capitalized terms used in this Schedule shall have the
respective meanings assigned to them in the Agreement.
No reference to or disclosure of any item or other matter in this
Schedule shall be construed as an admission or indication that such item or
other matter is material or that such item or other matter is required to be
referred or disclosed in this Schedule. No reference in this Schedule to any
agreement or document shall be construed as an admission or indication that such
agreement or document is enforceable or currently in effect or that there are
any obligations remaining to be performed or any rights that may be exercised
under such agreement or document. No disclosure in this Schedule relating to any
possible breach or violation of any agreement, law or regulation shall be
construed as an admission or indication that any such breach or violation exists
or has actually occurred.
This Schedule and the information and disclosures contained herein are
intended only to list those items required to be listed in Section 5 of the
Agreement, and to qualify and limit the representations, warranties and
covenants of the Company contained in the Agreement and shall not be deemed to
expand in anyway the scope or effect of any of such representations, warranties
or covenants.
Notwithstanding anything to the contrary contained in this Schedule or
in the Agreement, the information and disclosures contained in each section of
this Schedule shall be deemed to be disclosed and incorporated by reference in
each of the other sections of this Schedule as though fully set forth in such
other sections (whether or not specific cross references are made).
The headings contained in this Schedule are included for convenience
only, and are not intended to limit the effect of the disclosures contain in
this Schedule or to expand the scope of the information required to be disclosed
in this Schedule.
Schedule 5.2
to
Stock Purchase Agreement
Disclosures For Previous Financial Statements
NONE
Schedule 5.3
to
Stock Purchase Agreement
Defaults under Existing Agreements
Pursuant to the terms of a Waiver Agreement effective as of June 30, 1999,
Seacoast Capital Partners Limited Partnership, Pacific Mezzanine Fund, LP and
Tangent Growth Fund, LP waived certain defaults by the Corporation under Section
7.9 of the Note Purchase Agreement that requires the Corporation to obtain a
minimum EBITDA of ($800,000) and a loss of no more than ($1,000,000) for the
fiscal quarter ending June 30, 1999. ValueStar Corporation had an EBITDA and a
lower net income than these minimums. The Senior Lenders also amended financial
covenants by the First Amendment to Note Purchase Agreement dated September 9,
1999 and by Second Amendment to Note Purchase Agreement dated December 8, 1999.
Schedule 5.4
to
Stock Purchase Agreement
Authorizations, Approvals, Consents and Filings
NONE (other than by Seacoast Capital Partners Limited Partnership, Pacific
Mezzanine Fund, L.P., Tangent Growth Fund, L.P. and the holders of a majority of
the Series A Preferred Stock).
Schedule 5.5
To
Stock Purchase Agreement
Environmental Condition of Property
NONE
Schedule 5.6
To
Stock Purchase Agreement
Litigation and Judgments
NONE
Schedule 5.7
To
Stock Purchase Agreement
Please see the attachments to Schedule 11.1 (b) of the Note Purchase Agreement.
Additionally, the company has leased an additional $250,964.50 of computer,
voice and office equipment through various sources since the March 31 closing.
Liens have been placed or are pending on the equipment detailed below:
Leasing/Lending Lease #'s Equip Description Buyout
Institution Cost Info
-------------------------------------------------------------------------------------------------------------------------
Preferred Capital 000-0000000-000 20,880.50 Dell Srvr, 1 laptop, 6 clients $1 Buyout
000 X. Xxxx Xxxx. 000-0000000-000 11,284.00 2 Dell Servers $1 Buyout
Xxxxx Xxxx, XX 00000
(Colonial Pacific
does the billing)
New Cal Industries Not Yet Assigned 26,000.00 2 Konica 7033 digital copiers FMV
0000 Xxxxxxxxxx Xx.
Xxxxxxx, XX 00000
Konica Leasing Not Yet Assigned 13,000.00 1 Konica 7033 digital copier FMV
XX Xxx 0000
Xxxx, XX 00000-0000
Pacifica Capital Not Yet Assigned 19,800.00 12 400 Mhz Celerons FMV
4 Venture, Ste. 260 1 Inspiron 0000 Xxxxxx
Xxxxxx, XX 00000 1 Poweredge 2300 Server
Davric Corporation Note Payable 160,000.00 Siemens Telephone Switch Full Ownership
Schedule 5.9
to
Stock Purchase Agreement
Permitted Indebtedness
Reference is made to that Note Purchase Agreement ("Note Purchase Agreement")
dated as of March 31, 1999, as amended, by and among Valuestar, Inc., the
Corporation's wholly-owned subsidiary, Seacoast Capital Partners Limited
Partnership ("Seacoast"), Pacific Mezzanine Fund, L.P. ("Pacific"), and Tangent
Growth Fund, L.P. ("Tangent"), pursuant to which Valuestar, Inc. issued and sold
to each of Seacoast, Pacific and Tangent (collectively, the "Holders") senior,
secured 8% notes ("Senior Notes") in the principal amount of $2,450,000, with
detachable warrants. As set forth more fully in the Note Agreement, the Senior
Notes are secured by substantially all assets of the Corporation and Valuestar,
Inc., including a key person life insurance, as well as the pledge by Xxx Xxxxx,
Xxxxx X. Xxxxxx and Xxxxx X. Xxxxx (the "Shareholders") of an aggregate of
2,861,557 shares of Common Stock (which does not include any Series A Stock (or
Common Stock issuable upon conversion thereof) purchased by any entity
controlled or owned by any Shareholder under the Purchase Agreement). Principal
on the Senior Notes is due in 16 quarterly installments of $153,125 commencing
in March 2002, with the final payment scheduled in December 2005. Certain
events, including the loss of Xxx Xxxxx as President, may result in certain
prepayment penalties and the acceleration of payment under the Senior Notes. The
Senior Notes also contain various financial covenants, primarily relating to
minimum net worth, maximum debt, capital additions and net income or loss.
The following is a list of Subordinated Lenders and the principal amount of the
debt as of the date hereof:
As of November 30, 1999
Payee (short name) Date Principal
12% Subordinated Notes Due June 30, 2000
Canusa Trading Ltd. 12/5/1997 $50,000
Neo Optics Ltd. 11/25/1997 $50,000
Xxx Xxxx 12/30/1997 $50,000
Xxxxx X. Xxxxx, Trustee 12/30/1997 $50,000
Xxxxxxx Xxxxxxx 12/30/1997 $50,000
Xxxxxx X. Xxxxxx 1/5/1998 $25,000
Amgest Ltd. Properties Nevada One Account 1/5/1998 $35,000
Xxxxx X. Xxxxx 1/5/1998 $12,500
Xxxx X. Xxxxxxx 1/8/1998 $25,000
Xxxxxx X. Xxxxxx, M.D. Profit Sharing Trust 1/9/1998 $100,000
Xxxxx Xxxxxxxxxx 1/15/1998 $25,000
Xxxxxxx X. Xxxxxx, M.D. Ltd. Money 1/15/1998 $35,000
Purchase Pension Plan and Trust
Xxxxxxx X. Xxxxxx 1/20/1998 $50,000
Xxxxxxx Xxxxxx 1/22/1998 $50,000
Xxxx Xxxxxxx 1/23/1998 $25,000
Xxxxxx Xxxxxxxxxx Trust 1/26/1998 $50,000
The Xxxxxxx Xxxxx and Xxxxxxx Xxxxx 1/25/1998 $12,500
1993 Living Trust, dated January 25, 1993
Xxxx X. Xxxxx 2/15/1998 $25,000
Xxxxx X. Xxxxxxxx 2/24/1998 $50,000
Xxxxxxx Xxxxxx 3/4/1998 $25,000
Xxxxx Xxxxxxxx 3/13/1998 $25,000
Xxxx X. Xxxxxx 3/17/1998 $50,000
Xxxx X. Xxxxxx 3/24/1998 $18,750
Xxxxxx X. Xxxxxxx 3/26/1998 $50,000
Xxxxx X. Xxxxx, Trustee 3/26/1998 $5,000
The Polis Family LLC 4/13/1998 $25,000
$968,750
12% Subordinated Notes w Warrants due March 31, 2001
Xxxxxx House 7/6/1998 $50,000
Xxxxxxxxx X. Xxxxx 7/6/1998 $50,000
$100,000
8% Senior Debt w Warrants due December 31, 2005
Seacoast Capital 3/31/1999 $1,500,000
Pacific Mezzanine Fund 3/31/1999 $650,000
Tangent Management Fund 3/31/1999 $300,000
$2,450,000
Payee (short name) Date Principal
Davric 15% Note Due June 30, 2000, as amended
Davric Corporation 11/15/1998 $300,000
Davric Secured 15% Equipment Term Note Maturing 8/14/2003
Davric Corporation 8/14/1998 $69,275
Davric Secured 15% Equipment Term Note Maturing 6/23/2002
Davric Corporation 6/23/1999 $131,830
Lease Obligations $151,040
10% Convertible Debt (to convert to Series B) 11/24/99 $250,000
Schedule 5.10
to
Stock Purchase Agreement
Taxes
The tax returns listed below are filed, but they were not timely filed by the
previous controller. 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 XX0 Xxxx & Withholding Report
0000 0xx Xxx Xxxxxxxxxx XX0 Xxxx & Withholding Report
1997 Form DE7 California Annual Reconciliation
1997 Form 1042 Annual Withholding Tax Return
2nd Qtr 0000 Xxxxxxxxxx Xxxxx Sales Tax Return
1998 1st Qtr California XX0 Xxxx & Withholding Report
0000 0xx Xxx Xxxxxxxxxx XX0 Xxxx & Withholding Report
The Corporation has no outstanding penalties or assessments. The Corporation
does not believe any additional penalties or assessments will arise from late
filings described above.
Schedule 5.13
to
Stock Purchase Agreement
Disclosure
Reference is made to the Note Purchase Agreement, described more fully in
Schedule 5.9.
Reference is made to that Warrant Purchase Agreement dated as of March 31, 1999
by and among the Corporation, and each of the Holders, pursuant to which the
Corporation issued and sold to the Holders (i) A Warrants to purchase, at an
exercise price of $1.00 per share, up to an aggregate of 1,527,250 shares of the
Corporation's Common Stock, (ii) B Warrants to purchase, at an exercise price of
$0.00025 per share, up to an aggregate of 527,514 shares of the Corporation's
Common Stock, and (iii) C Warrants to purchase, at an exercise price of $1.00
per share, up to an aggregate of 231,132 shares of the Corporation's Common
Stock. Each of the A Warrants, B Warrants and C Warrants (collectively, the
"Warrants") is exercisable on or prior to the earlier of (i) six years after the
date of full payment of the Senior Note, or (ii) March 31, 2009. The C Warrants
or underlying shares of Common Stock may be repurchased by the Corporation at
$6.00 per share (less any unpaid exercise price) on an all or none basis until
March 31, 2004 as long as the Corporation is not in default with respect to the
Senior Note or related agreements. The Warrants may be exercised by payment of
cash, cancellation of debt or on a cashless basis. The Warrant Purchase
Agreement contains provisions which provide the Holders with certain
antidilution protection such that prior to a qualifying public offering
(proceeds of $15 million at a price of at least $5.00 per share and a valuation
of at least $40 million), qualified sale (valuation of at least $40 million and
minimum proceeds of $5.00 to $7.00 per share to Holders) or a qualifying stock
market listing (Nasdaq National Market or New York Stock Exchange and minimum
price and trading volume), in the event of a sale or disposition of the
Corporation or substantially all of its assets, the number of shares of Common
Stock for which the Warrants may be exercised may be increased, without a
corresponding increase in the aggregate consideration to provide additional
consideration to the Holders based on a revenue based valuation.
Reference is made to that Shareholder Agreement dated as of March 31, 1999 by
and among the Corporation, each of the Holders, Xxx Xxxxx, Xxxxx Xxxxxx, and
Xxxxx Xxxxx, pursuant to which the Corporation (i) granted to each Holder
preemptive rights to purchase, pro rata, any New Securities (as defined in the
Shareholder Agreement) issued and sold by the Corporation, (ii) agreed not to
incur any other additional debt, other than as permitted under and pursuant to
the terms of the Shareholder Agreement, (iii) as more fully described in
Articles IV and V of the Shareholder Agreement and below, granted to each Holder
certain drag-along rights and call option rights with respect to certain of the
Corporation's securities held by each of them, and (iv) as more fully described
in the Shareholder Agreement, granted to each of Holder certain rights of first
refusal, co-sale rights and registration rights (which registration rights have
been amended as set forth in the Registration Rights Agreement and Shareholder
Agreement Amendment). Furthermore, the Shareholder Agreement, the Corporation's
three directors, Xxx Xxxxx, Xxxxx X. Xxxxxx and Xxxxx X. Xxxxx (the
"Shareholders"), pledged an aggregate of 2,861,557 shares of Common Stock of the
Corporation to secure obligations related to the issuance of the Senior Notes
and Warrants. The Shareholder Agreement also (i) limits resales by the
Shareholders of their shares in the open market and, as disclosed above, grants
certain first refusal and co-sale rights to the Holders, and (ii) obligates the
Shareholders to vote their shares of Common Stock to elect one director each for
Seacoast and Pacific if so designated by them. These provisions generally
terminate upon completion of a qualifying public offering by the Corporation, a
qualifying stock market listing or the sale of 80% of the Holders shares of
Common Stock
underlying the warrants. In addition, the "drag-along-rights" granted under the
Shareholder Agreement provide that until a qualifying public offering or sale is
completed by the Corporation or a qualifying market listing is achieved, then
upon either (i) a change in control (the Shareholders owning less than 20% of
the Corporation on a fully diluted basis), or (ii) the loss of Xx. Xxxxx as
President without a replacement acceptable to the Holders, or (iii) a
non-qualifying public offering, or (iv) certain defaults under the Senior Notes,
and (v) at any time between April 2004 and April 2009 (unless the rights are
earlier terminated), the Holders may seek a buyer for the Corporation or its
assets and the Corporation and the Shareholders are obligated to cooperate and
take such actions to complete a sale, consistent with their fiduciary duties.
Upon such a sale, the Warrants may be exercised for additional shares of Common
Stock as described above resulting in additional dilution to existing
shareholders of the Corporation.
References is made to that Stock Purchase Warrant issued to Davric Corporation
dated effective June 30, 1999, pursuant to which the Corporation issued Davric
Corporation a four-year warrant to purchase up to 30,000 shares of its Common
Stock at a per share price of $1.50 per share.
Reference is made to the Second Amendment to the Shareholder Agreement
terminating certain "drag-along" rights.
Schedule 5.14 (b)
to
Stock Purchase Agreement
Outstanding documents regarding the capital stock of the Corporation
The capitalization of ValueStar, Inc. 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 which 1,000,000 shares having a par value of
$0.00025 per share are designated Series A Preferred Stock.
At December 6, 1999 there were 10,380,406 common shares outstanding and 225,000
Series A Preferred Stock shares were outstanding.
At December 6, 1999 the following summarizes agreements binding upon the Parent
granting Persons the right to purchase or acquire shares of the Parent's capital
stock:
Outstanding stock option purchase agreements 2,060,701
Stock purchase warrant agreements 4,548,624
Series A Convertible stock 1,125,000
Undeclared dividends on Series A 32,959
Some of the above instruments contain certain adjustment provisions standard to
warrant agreements.
Reference is made to the First Amendment dated effective June 30, 1999, to the
15% Subordinated Promissory Note Dated November 15, 1999, issued to Davric
Corporation in the principal amount of $300,000.
Reference is made to the First Amendment to Stock Purchase Warrant dated
effective July 15, 1999 by and between Valuestar Corporation and Xxxxx X.
Xxxxxxxxx.
Reference is made to the First Amendment to Stock Purchase Warrant dated
effective July 15, 1999 by and between Valuestar Corporation and Xxxx XxXxxxxx.
References is made to that Stock Purchase Warrant issued to Davric Corporation
dated effective June 30, 1999, pursuant to which the Corporation issued Davric
Corporation a four-year warrant to purchase up to 30,000 shares of its Common
Stock at a per share price of $1.50 per share.
Reference is made to 10% Convertible Debt agreements.
Schedule 5.14(c)
to
Stock Purchase Agreement
Contract, Warrants, Options,
See summary on Schedule 5.14 (b)
Reference is made to the Note Purchase Agreement, Warrant Purchase Agreement and
Shareholder Agreement.
Schedule 5.15
to
Stock Purchase Agreement
Current Locations
a. Principal place of business:
ValueStar Home Xxxxxx
000 00xx Xx., 0xx Xxxxx
Xxxxxxx, XX 00000
Leased from: Broadlake Plaza, a California Limited Partnership
b. All locations where the Corporation maintains books or records relating
to assets: See a. above
c. All other locations where the Corporation has a place of business:
Branch Offices:
ValueStar Chicago Market Xxxxxx
0000 X Xxxx Xxxx Xxx., Xxx. 000
Xxxxxxx, XX 00000
Leased from: OmniOffices, Inc.
ValueStar Southern California Market Xxxxxx
0000 Xxxxxxx Xxxxxxxxx Xx., Xxx 000
Xxx Xxxxxxx, XX 00000
Leased from: OmniOffices, Inc.
ValueStar Dallas Market Xxxxxx
0000 XXX Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Leased from OmniOffices, Inc.
ValueStar Xxxxxxx Xxxxxx Xxxxxx
0000 Xxxxxxxxx Xxxxxx, XX
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Leased from OmniOffices, Inc.
ValueStar Xxxxxxx Xxxxxx Xxxxxx
Xxx Xxxxx Xxxxxx, 00xx Xxxxx
000 Xxxxx Xx.
Xxxxxxx, XX 00000
Leased from OmniOffices, Inc.
ValueStar Philadelphia Market Office
Chesterbrook Corporate Center
0000 Xxxxxx Xx.
Xxxxx, XX 00000
Leased from OmniOffices, Inc.
ValueStar Washington DC Xxxxxx Xxxxxx
Xxxxxxxxx Xxxxx, 0xx Xxxxx
0000 Xxxxxx Xxxxxx Xx.
Xxxxxx, XX 00000
Leased from OmniOffices, Inc.
d. Each address of the company where assets are located: See a. above.
Schedule 5.20
to
Stock Purchase Agreement
Brokers
Reference is made to the Series B term sheet wherein the Company described that
it is obligated to pay one of its financial advisors, Xxxxxxxx Xxxx, an
aggregate of 75,000 warrants exercisable at $2.50 per share plus a consultancy
fee of $2,500 per month for twelve months.
Schedule 5.22
to
Stock Purchase Agreement
Conduct of Business
The Corporation, through its subsidiary, Valuestar, Inc., 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.
