1
EXHIBIT 99.7
VALUESTAR CORPORATION
INVESTORS RIGHTS AGREEMENT
THIS INVESTORS RIGHTS AGREEMENT (this "Agreement") is dated effective
as of December __, 1999, by and among VALUESTAR CORPORATION, a Colorado
corporation (the "Company"), SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP, a
Delaware Limited Partnership ("Seacoast"), PACIFIC MEZZANINE FUND, L.P. a
California limited partnership ("Pacific"), TANGENT GROWTH FUND, L.P., a
California limited partnership ("Tangent"), eCOMPANIES VENTURE GROUP, L.P., a
Delaware limited partnership ("eCompanies"), Xxxxx X. Xxxxxx ("Xxxxxx"), and
Xxxxx X. Xxxxx ("Polis"), the entities or individuals set forth on Schedule 1
attached hereto and incorporated herein by reference who comprise holders of the
"Series A Stock" held by all "Purchasers" under that certain ValueStar
Corporation Series A Preferred Stock Purchase Agreement dated July 22, 1999 (the
"Series A Purchase Agreement"), and the additional entities or individuals set
forth on Schedule 1 attached hereto and incorporated herein by reference who
have entered into the ValueStar Corporation Series B Preferred Stock Purchase
Agreement dated on even date herewith (the "Series B Purchase Agreement")
(individually, each such individual or entity identified on Schedule 1 as well
as Seacoast, Pacific, Tangent, eCompanies, Xxxxxx and Polis a "Holder" and
collectively, all such individuals and entities, the "Holders").
RECITALS
A. On March 31, 1999, Seacoast, Pacific, Tangent, Xxxxxx, Polis and Xxx
Xxxxx ("Xxxxx") entered into a Shareholder Agreement (the "Shareholder
Agreement") which granted certain preemptive rights pursuant to Article II
thereunder and certain registration rights pursuant to Article VII thereunder.
B. On July 22, 1999, Seacoast, Pacific, Tangent, Barnes, Polis, Xxxxx
and the purchasers of the Series A Stock entered into a ValueStar Corporation
Registration Rights Agreement and Shareholders Agreement Amendment (the
"Registration Rights Agreement") which, among other matters, amended and
restated Article VII of the Shareholder Agreement.
C. On even date herewith, Seacoast, Pacific and Tangent as the Holders
of a majority of the Registrable Securities under the Shareholder Agreement
terminated the registration rights (Article VII) and preemptive rights (Article
II) under the Shareholder Agreement in partial consideration and contemplation
of the execution of this Agreement by the parties hereto in
2
connection herewith of the purchase by certain investors of shares of the
Company's Series B Convertible Preferred Stock pursuant to the Series B Purchase
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:
1. DEFINITIONS.
a. "COMMISSION" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
b. "CAPITAL STOCK" means the Company's common stock and any other
capital stock of the Company authorized from time to time, and any other shares,
options, interests, participations, or other equivalents (however designated) of
or in the Company, whether voting or nonvoting, including, without limitation,
common stock, options, warrants, preferred stock, phantom stock, stock
appreciation rights, preferred stock, convertible notes or debentures, stock
purchase rights, and all agreements, instruments, documents, and securities
convertible, exercisable, or exchangeable, in whole or in part, into any one or
more of the foregoing.
c. "COMMON STOCK" means any and all (i) common stock of the
Corporation issued or issuable upon conversion of the Corporation's Series A
Convertible Preferred Stock or Series B Convertible Preferred Stock , (ii) all
common stock and Other Securities of the Corporation issued or issuable pursuant
to the Warrants issued under the Warrant Purchase Agreement (collectively, (i)
and (ii) the "Stock"); (iii) any common stock of the Corporation issued as a
dividend or other distribution with respect to or in replacement of the Stock,
and (iv) any common stock of the Corporation issued in any combination or
subdivision of the Stock. In determining the amount of Common Stock held by any
Person, the sum of (i), (ii), (iii) and (iv) shall be used.
d. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended or any similar Federal statue and the rules and regulations of the
Commission thereunder all as the same shall be in effect at the time.
3
e. "INDEBTEDNESS" means for any Person: (a) all indebtedness,
whether or not represented by bonds, debentures, notes, securities, or other
evidences of indebtedness, for the repayment of money borrowed, (b) all
indebtedness representing deferred payment of the purchase price of property or
assets, (c) all indebtedness under any lease which, in conformity with GAAP, is
required to be capitalized for balance sheet purposes and leases of property or
assets made as a part of any sale and lease-back transaction if required to be
capitalized, (d) all indebtedness under guaranties, endorsements, assumptions,
or other contractual obligations, including any letters of credit, or the
obligations in respect of, or to purchase or otherwise acquire, indebtedness of
others, (e) all indebtedness secured by any lien existing on property owned,
subject to such lien, whether or not the indebtedness secured thereby shall have
been assumed by the owner thereof, (f) trade accounts payable more than one
hundred twenty (120) days past due, (g) all amendments, renewals, extensions,
modifications and refundings of any indebtedness or obligations referred to in
clauses (a), (b), (c), (d), (e) or (f).
f. "OTHER SECURITIES" Any stock other than the Corporation's common
stock, other securities, property, or other property or rights that the Holders
become entitled to receive upon exercise of the Warrants.
g. "PERSON" means any individual, corporation, trust, partnership,
association, or other entity.
h. "PUBLIC OFFERING" A public offering of shares of any class of
Capital Stock by the Company issued to the general public pursuant to a
registration statement declared effective by the United States Securities and
Exchange Commission.
i. "REGISTRABLE SECURITIES" means the Common Stock
j. "REGISTRABLE SERIES A SECURITIES" means the Common Stock acquired
as a result of the purchase of the Series A Stock.
k. "REGISTRABLE SERIES B SECURITIES" means the Common Stock acquired
as a result of the purchase of the Series B Stock.
l. "SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
4
m. "SENIOR OBLIGATIONS" means and includes any and all Indebtedness
and/or liabilities of the Company to each of Seacoast, Pacific and Tangent (each
a "Noteholder")of every kind, nature and description, direct or indirect,
secured or unsecured, joint, several, joint and several, absolute or contingent,
due or to become due, now existing or hereafter arising, under that certain
"Note Purchase Agreement" and any "Other Agreement" (as such agreements are
referenced under the Warrant Agreement) (regardless of how such Indebtedness or
liabilities arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument) and all obligations of the
Company and any of its subsidiaries to each Noteholder to perform acts or
refrain from taking any action under any of the aforementioned documents,
together with all renewals, modifications, extensions, increases, substitutions
or replacements of any of such Indebtedness.
n. "SERIES A STOCK" means all issued and outstanding Series A
Convertible Preferred Stock of the Company and any common stock shares issuable
upon conversion thereof.
o. "SERIES B STOCK" means all issued and outstanding Series B
Convertible Preferred Stock of the Company and any common stock shares issuable
upon conversion thereof.
p. "SUBSIDIARY" Each Person of which or in which the Company or its
other Subsidiaries own directly or indirectly fifty-one percent (51%) or more of
(i) the combined voting power of all classes of stock having general voting
power under ordinary circumstances to elect a majority of the board of directors
or equivalent body of such Person, if it is a corporation or similar person;
(ii) the capital interest or profits interest of such Person, if it is a
partnership, joint venture, or similar entity; or (iii) the beneficial interest
of such Person, if it is a trust, association, or other unincorporated
organization.
q. "WARRANT PURCHASE AGREEMENT" means that certain agreement by and
among certain parties hereto and Xxxxx dated March 31, 1999. Any terms not
defined herein shall have the meaning set forth in the Warrant Purchase
Agreement.
r. "WARRANTS" means collectively the "A Warrant," the "B Warrant"
and the "C Warrant" referred to in Section 2.01 of the Warrant Purchase
Agreement and all Warrants issued upon the transfer or division of, or in
substitution for, such Warrants.
5
2. REGISTRATION RIGHTS.
a. REQUIRED REGISTRATION. At any time after the earlier to occur of
either (x) the first anniversary date of this Agreement or (y) six months
following the next Public Offering, Holders of a majority of the Registrable
Securities held by Seacoast, Pacific and Tangent or Holders of a majority of the
Registrable Series B Securities may, upon not more than two (2) occasions and
not more often than once during any 180-day period, make a written request to
the Company requesting that the Company effect the registration of Registrable
Securities so long as such request is for an aggregate offering price of not
less than Five Million Dollars ($5,000,000). After receipt of such a request,
the Company will, as soon as practicable, notify all Holders of such request and
use its best efforts to effect the registration of all Registrable Securities
that the Company has been so requested to register by any Holder for sale, all
to the extent required to permit the disposition (in accordance with the
intended method or methods thereof) of the Registrable Securities so registered.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each Holder
of such Registrable Securities that the success of the offering under this
Section 2.a. would be materially and adversely affected by the inclusion of any
securities requested to be included in such offering, then the amount of
securities to be offered for the accounts of any Persons will be reduced (i)
first according to the securities proposed for registration by any Persons other
than the Holders to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters, and (ii) if such underwriter requires
reduction of the securities to be included in the offering in excess of all
securities held by such participating Persons other than the Holders, pro rata
among all participating Holders (according to the securities proposed for such
registration held by such Holders).
b. INCIDENTAL REGISTRATION. If the Company at any time proposes to
file on its behalf or on behalf of any of its security holders a registration
statement under the Securities Act on any form (other than a registration
statement on Form S-4 or S-8 or any successor form unless such forms are being
used in lieu of or as the functional equivalent of, registration rights) for any
class that is the same or similar to Registrable Securities, it will give
written notice setting forth the terms of the proposed offering and such other
information as the Holders may reasonably request to all holders of Registrable
Securities at least twenty (20) days before the initial filing with the
Commission of such registration statement, and offer to include in such filing
such Registrable
6
Securities as any Holder may request. Each Holder of any such Registrable
Securities desiring to have Registrable Securities registered under this Section
2.b. will advise the Company in writing within ten (10) days after the date of
receipt of such notice from the Company, setting forth the amount of such
Registrable Securities for which registration is requested. The Company will
thereupon include in such filing the number of Registrable Securities for which
registration is so requested, and will use its best efforts to effect
registration under the Securities Act of such Registrable Securities.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each Holder
of such Registrable Securities that the success of the offering would be
materially and adversely affected by the inclusion of the Registrable Securities
requested to be included, then the amount of securities to be offered for the
accounts of Holders will be reduced pro rata (according to the Registrable
Securities proposed for registration) to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters; provided, however,
that if securities are being offered for the account of other Persons as well as
the Company, then with respect to the Registrable Securities intended to be
offered by Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced will not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other Persons (other than the Company) is reduced; and further
provided, however, that with respect to any underwritten public offering other
than the Company's next Public Offering, no less than 25% of the total number of
Registrable Securities requested to be registered by the Holders shall be
included in the underwriting.
c. FORM S-3 REGISTRATIONS. In addition to the registration rights
provided in Sections 2.a. and 2.b. above, if at any time the Company is eligible
to use Form S-3 (or any successor form) for registration of secondary sales of
Registrable Securities, any Holders of no less than 20% of the Registrable
Securities may request in writing not more often than once during any 180-day
period that the Company register shares of Registrable Securities on such form
so long as such request is for an aggregate offering price of at least Five
Million Dollars ($5,000,000). Upon receipt of such request, the Company will
promptly notify all holders of Registrable Securities in writing of the receipt
of such request and each such Holder may elect (by written notice sent to the
Company within fifteen (15) days of receipt of the Company's notice) to have its
Registrable
7
Securities included in such registration pursuant to this Section 7.03.
Thereupon, the Company will, as soon as practicable, use its best efforts to
effect the registration on Form S-3 of all Registrable Securities that the
Company has so been requested to register by such Holder for sale. The Company
will use its best efforts to qualify and maintain its qualification for
eligibility to use Form S-3 for such purposes.
d. TERMINATION/RULE 144 AVAILABILITY. Notwithstanding the foregoing,
the Company will not be obligated to register any Registrable Securities (i) as
to which counsel reasonably acceptable to the participating Holders renders an
opinion in form and substance satisfactory to such Holders to the effect that
such Registrable Securities are freely saleable without limitation as to volume
under Rule 144 under the Securities Act or (ii) after the fifth anniversary date
of the earlier to occur of a "Qualified Liquidity Milestone" or "Qualified
Liquidation Event" as such terms are defined in the Warrant Purchase Agreement.
e. REGISTRATION PROCEDURES. In connection with any registration of
Registrable Securities under this Agreement, the Company will, as soon as
practicable:
(i) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become and remain effective until
the earlier of such time as all Registrable Securities subject to such
registration statement have been disposed of or the expiration of one
hundred eighty (180) days;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all Registrable
Securities covered by such registration statement until the earlier of
such time as all of such Registrable Securities have been disposed of
or the expiration of one hundred eighty (180) days;
(iii) furnish to each Holder such number of copies of the
registration statement and prospectus (including, without limitation, a
preliminary prospectus) in conformity with the requirements of the
Securities Act (in each case including all exhibits) and each amendment
or supplement thereto, together with such other documents as any Holder
may reasonably request;
8
(iv) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions within the United
States and Puerto Rico as each Holder reasonably requests, and do such
other acts and things as may be reasonably required of it to enable
such holder to consummate the disposition in such jurisdiction of the
securities covered by such registration statement, except any
particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already
subject to service in such jurisdiction;
(v) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
securities holders, as soon as practicable, an earnings statement
covering the period of at least twelve months beginning with the first
month after the effective date of such registration statement, which
earnings statement will satisfy the provisions of Section 11(a) of the
Securities Act;
(vi) provide and cause to be maintained a transfer agent and
registrar for Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement;
(vii) if requested by the underwriters for any underwritten
offering or Registrable Securities on behalf of a Holder of Registrable
Securities pursuant to a registration requested under Section 2.a, the
Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
provisions with respect to indemnities and contribution as are
reasonably satisfactory to such underwriters and the Holders; the
Holders on whose behalf Registrable Securities are to be distributed by
such underwriters will be parties to any such underwriting agreement
and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters,
will also be made to and for the benefit of such Holders of Registrable
Securities; and no Holder of Registrable Securities will be required by
the Company to make any representations or warranties to or agreements
with the Company or the underwriters other than reasonable and
customary
9
representations, warranties, or agreements regarding such Holder, such
Holder's Registrable Securities, such Holder's intended method or
methods of disposition, and any other representation required by law;
(viii) furnish, at the written request of any Holder, on the date
that such Registrable Securities are delivered to the underwriters for
sale pursuant to such registration, or, if such Registrable Securities
are not being sold through underwriters, on the date that the
registration statement with respect to such Registrable Securities
becomes effective, (i) an opinion in form and substance reasonably
satisfactory to such Holders, and addressing matters customarily
addressed in underwritten public offerings, of the counsel representing
the Company for the purposes of such registration (who will not be an
employee of the Company and who will be satisfactory to such Holders),
addressed to the underwriters, if any, and to the selling Holders; and
(ii) a letter (the "comfort letter") in form and substance reasonably
satisfactory to such Holders, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and
to the selling Holders making such request (and, if such accountants
refuse to deliver the comfort letter to such Holders, then the comfort
letter will be addressed to the Company and accompanied by a letter
from such accountants addressed to such Holders stating that they may
rely on the comfort letter addressed to the Company); and
(ix) during the period when the registration statement is
required to be effective, notify each selling Holder of the happening
of any event as a result of which the prospectus included in the
registration statement contains an untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and prepare a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
It will be a condition precedent to the obligation of the Company to
take any action pursuant to this Agreement in respect of the Registrable
Securities that are to be registered at the request of any Holder of Registrable
Securities that such Holder furnish to the Company such information regarding
the Registrable Securities held by such Holder and the intended method of
disposition
10
thereof as is legally required in connection with the action taken by the
Company. The managing underwriter or underwriters, if any, for any offering of
Registrable Securities to be registered pursuant to Section 2.a. or 2.c. will be
selected by the Holders of a majority of the Registrable Securities being so
registered.
f. ALLOCATION OF EXPENSES. Except as provided in the following
sentence, the Company will bear all expenses arising or incurred in connection
with any of the transactions contemplated by this Agreement, including, without
limitation, (a) all expenses incident to filing with the National Association of
Securities Dealers, Inc.; (b) registration fees; (c) printing expenses; (d)
accounting fees and expenses and the fees and expenses of one special counsel to
the selling Holders not to exceed $25,000 (except that if in the reasonable
written opinion of counsel for either the holders of a majority of the
Registrable Series A Securities or Registrable Series B Securities, there exists
a material conflict of interest between such two groups of Holders, then each
such group may be represented by separate counsel with each counsel reimbursed
for fees and expenses not to exceed $25,000); (e) expenses of any special audits
or comfort letters incident to or required by any such registration or
qualification; and (f) expenses of complying with the securities or blue sky
laws of any jurisdictions in connection with such registration or qualification.
Notwithstanding the foregoing, each Holder will severally bear the expense of
its underwriting fees, discounts, or commissions relating to its sale of
Registrable Securities in all such registrations.
g. LISTING ON SECURITIES EXCHANGE. If the Company lists any shares of
Capital Stock on any securities exchange or on the National Association of
Securities Dealers, Inc. Automated Quotation System or similar system, it will,
at its expense, list thereon, maintain and, when necessary, increase such
listing of, all Registrable Securities.
h. HOLDBACK AGREEMENTS.
(i) If any registration pursuant to Section 2.b is in connection
with an underwritten public offering, each Holder of Registrable Securities
agrees, if so required by the managing underwriter, not to effect any
public sale or distribution of Registrable Securities (other than as part
of such underwritten public offering) during the period beginning seven (7)
days prior to the effective date of such registration statement and ending
on the one hundred eightieth (180th) day after the effective date of such
registration statement; provided, however, that Xxx Xxxxx and each Person
that is an officer, director, or
11
beneficial owner of five percent (5%) or more of the outstanding shares of
any class of Capital Stock enters into such an agreement.
(ii) The Company agrees not to effect any public sale or
distribution during the period seven (7) days (or such longer period as may
be prescribed by Regulation M) prior to the effective date of the
registration statement employed in any underwritten public offering and
ending on the one hundred eightieth (180th) day after any such registration
statement contemplated by Sections 2.a. or 2.c. has become effective,
except as part of such underwritten public offering pursuant to such
registration statement and except pursuant to securities registered on
Forms S-4 or S-8 of the Commission or any successor forms, and the Company
agrees to use its best efforts to cause each holder of its equity
securities or any securities convertible into or exchangeable or
exercisable for any of such securities, in each case purchased from the
Company at any time after the date of this Agreement (other than in a
public offering), to agree not to effect any such public sale or
distribution of such securities during such period.
i. RULE 144. At all times following completion by the Company of a
Public Offering, the Company will take such action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell shares of Registrable Securities without registration pursuant to and in
accordance with (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation adopted by the
Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
j. RULE 144A. The Company agrees that, upon the request of any Holder
or any prospective purchaser of Registrable Securities designated by a Holder,
the Company will promptly provide (but in any case within fifteen (15) days of a
request) to such Holder or potential purchaser, the following publicly available
information:
(i) a brief statement of the nature of the business of the Company
and any Subsidiaries and the products and services they offer;
(ii) the most recent consolidated balance sheets and profit and
losses and retained earnings statements, and similar financial statements
of the Company for such part of the two preceding fiscal years prior to
such request as the Company has been in operation (such financial
information will be audited, to the extent reasonably available); and
12
(iii) such other publicly available information about the Company,
any Subsidiaries, and their business, financial condition, and results of
operations as the requesting Holder or purchaser of such Warrants requests
in order to comply with Rule 144A, as amended, and the antifraud provisions
of the federal and state securities laws. The Company hereby represents and
warrants to any such requesting Holder and any prospective purchaser of
Warrants or Warrant Shares from such Holder that the information provided
by the Company pursuant to this Section 2.j. will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which they were made, not misleading.
k. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. Until (i) a Qualified
Liquidity Milestone, (ii) a Qualified Liquidation Event (as each is defined in
the Company's Series A Convertible Preferred Stock Certificate of Designation
filed with the Colorado Secretary of State) (iii) the repayment of any and all
Senior Obligations owed to such Noteholder and the sale in excess of 80% of such
Noteholder's common stock shares and Other Securities issued or issuable under
the Warrants from and after the date of this Agreement or until the provisions
of Section 2.d. are applicable, the Company will not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 2.a., unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of its
securities will not reduce the amount of the Registrable Securities of the
Holders that is included or (b) to make a demand registration that could result
in such registration statement being declared effective prior to the
effectiveness of the first registration statement effected under Section 2.a. or
within one hundred twenty (120) days of the effective date of any registration
effected pursuant to Section 2.a..
l. RIGHT TO DELAY A DEMAND REGISTRATION. If, at the time of any request
to register Registrable Securities hereunder, the Company is preparing a
registration statement for a Public Offering (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
of the Commission is applicable) and such registration statement in fact is
filed and becomes effective within ninety (90) days after the request, then the
Company may at its option delay such request for a period not more than in
excess of one hundred twenty
13
(120) days from the effective date of such offering or the date of commencement
of such other activity, as the case may be. Such right to delay shall be
exercised by the Company not more than once in any twelve (12) month period.
Nothing in this Section 2.l. shall preclude a Holder of Registrable Securities
from enjoying registration rights which it might otherwise possess under this
this Agreement.
m. INDEMNIFICATION
(i) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. Each
Holder of any Registrable Securities shall, by acceptance thereof, indemnify and
hold harmless each other holder of any Registrable Securities, the Company, its
directors and officers, each above-described underwriter who contracts with the
Company or its agents and each other Person, if any, who controls the Company or
such underwriter, against any liability, joint or several, to which any such
other Holder, the Company, underwriter or any such director or officer of any
such Person may become subject under the Securities Act or any other statute or
at common law, if such liability (or actions in respect hereof) arises out of or
is based upon (i) the disposition by such Holder of such Registrable Securities
in violation of the provisions of this Agreement, (ii) any alleged untrue
statement of any material fact contained in any registration statement under
which securities were registered under the Securities Act at the request of such
Holder, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (iii) any alleged omission to state therein
a material fact required to be stated therein or necessary to make statement(s)
therein not misleading. Notwithstanding any other provision of this Section, the
indemnification rights set forth in this Section shall be given in the case of
clause (ii) or (iii) only if such alleged untrue statement or alleged omission
supplement thereto was made (1) in reliance upon and in conformity with written
information furnished to the Company by such Holder under an instrument executed
by such Holder expressly stated for use therein, and (2) not based on the
authority of an expert as to whom the holder had no reasonable ground to
believe, and did not believe, that (A) the statements made on the authority of
such expert were untrue or (B) there was an omission to state a material fact.
Such Holder shall reimburse the Company, such underwriter or such director,
officer, other Person or other Holder for any reasonable legal fees incurred in
investigating or defending any such liability if it is judicially determined
that the information furnished by such Holder contains an untrue statement of
material fact or omitted to state a material fact necessary to make the
information not misleading; provided, however, that no Holder of Registrable
Securities shall be required to
14
indemnify any Person against any liability arising from any untrue or misleading
statement or omission contained in any prospectus or for any liability which
arises out of the failure of any Person to deliver a prospectus as required by
the Securities Act; and provided further, that the obligations of such Holder of
Registrable Securities for the indemnity hereunder shall be limited to an amount
equal to the net proceeds received by such Holder of Registrable Securities upon
disposition thereof and shall not extend to any settlement of claims related
thereto without the express written consent of such Holder of Registrable
Securities, which consent shall not be unreasonably withheld.
(ii) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any of the Registrable Shares under the Securities Act pursuant
to this Agreement, then to the extent permitted by law the Company shall
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading;
and the Company shall reimburse such seller, underwriter and each such
controlling person for reasonable legal or any other expenses incurred by such
seller, underwriter or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon (i) any
untrue statement or omission made in such Registration Statement, preliminary
prospectus or prospectus, or any such amendment or supplement, in reliance upon
and in conformity with information furnished to the Company, in writing, by or
on behalf of such seller, underwriter or controlling person specifically for use
in the preparation thereof. or (ii) on the authority of an "expert" within
15
the meaning of that term as defined in the Securities Act (but only if the
Company had no reasonable ground to believe, and did not believe, that the
statements made on the authority of such expert were untrue or that there was an
omission to state a material fact). The Company shall not be required to
indemnify any Person against any liability arising from (i) any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) for any liability which
arises out of the failure of any Person to deliver a prospectus as required by
the Securities Act.
n. NOMINEES FOR BENEFICIAL OWNERS/TRANSFERS. In the event that any
Registrable Securities are held by a nominee for the beneficial owner of such
Registrable Securities, the beneficial owner of Registrable Securities may, at
its election, be treated as the Holder of such Registrable Securities for
purposes of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities. In no event will a Holder be required to exercise the
Warrant as a condition to the registration of such Warrant or Registrable
Securities thereunder. The registration rights set forth in this Section 2 are
only assignable by each original Holder hereunder to each assignee of no less
than the lesser of all of Holder's Registrable Securities held as of the date
hereof or at least one hundred thousand (100,000) Registrable Securities
conveyed in accordance herewith (appropriately adjusted in all cases for stock
splits, combinations, recapitalizations and the like), provided that such
assignee promptly agrees in writing to be bound by the terms and conditions of
this Agreement.
3. PREEMPTIVE RIGHTS.
a. EQUITY PREEMPTIVE RIGHT. The Company will not issue or sell any
Capital Stock (other than any Series B Stock, or other than any securities that,
with the unanimous consent of the Company's Board of Directors, are not issued
to any existing shareholder of the Company or other than any such other equity
or any such rights to acquire equity which are excluded from the definition of
"Additional Shares of Common Stock" under the Company's Series B Convertible
Preferred Stock Certificate of Designation (including any options or other
convertible securities exercisable for shares excluded from such definition))
(the "New Securities") without first
16
complying with this Section 3. The Company hereby grants to each of Seacoast,
Pacific, Tangent and each Holder of at least 20% of the Registrable Series B
Securities originally outstanding (each a "Preemptive Right Holder") the
preemptive right to purchase, pro rata, any part of the New Securities that the
Company may, from time to time, propose to sell or issue. In the event New
Securities are offered or sold as part of a unit with other New Securities, the
preemptive right granted by this Section3 will apply to such units and not to
the individual New Securities composing such units. Each Holder's pro rata share
for purposes of Section 3 is the ratio that the number of shares of Common Stock
owned by such Holder immediately prior to the issuance of the New Securities
bears to the sum of the total number of shares of Common Stock then outstanding.
Any payment due from Holder in connection with the exercise of the preemptive
right granted pursuant to this Section 3.a may be satisfied, at the option of
the Holder, by (i) cancellation of any debt and/or accrued interest owed by the
Company to the Holder or (ii) cancellation of Warrant Shares, valued at Fair
Market Value.
b. DEBT PREEMPTIVE RIGHT. The Company will not incur any additional
debt other than the debt due under the Note or any Permitted Indebtedness, (as
defined in the Note Agreement) without first complying with this Section 3 and
Section 12.15 of the Note Agreement.
c. NOTICE TO PREEMPTIVE RIGHT HOLDERS.
(i) In the event the Company proposes to issue or sell New
Securities, it will give each Preemptive Right Holder written notice of
its intention, describing the type of New Securities and the price and
terms upon which the Company proposes to issue or sell the New
Securities. Each Preemptive Right Holder will have fifteen (15) days
from the date of receipt of any such notice and such information as the
Preemptive Right Holder may reasonably request to facilitate its
investment decision to agree to purchase up to its respective pro rata
share of the New Securities for the price (valued at Fair Market Value
for any noncash consideration) and upon the terms specified in the
notice by giving written notice to the Company stating the quantity of
New Securities agreed to be purchased.
(ii) In the event the Company proposes to incur additional debt
to which Section 3.b above (but not Section 3.a above)would apply (the
"New Financing"), the Company shall first offer to each of Seacoast,
Pacific and Tangent, on a pari passu and pro rata basis, based upon the
principal amount of the Senior Obligations outstanding to such
17
parties (except that if the Senior Obligations have been paid in full,
based upon the amount of Capital Stock owned by such parties), the
right to provide all or any part of the New Financing proposed to be
incurred, on the most favorable terms for lender(s) to be providing
such New Financing. Such offer shall describe the New Financing in
reasonable detail. Thereafter, each such party shall have fifteen (15)
days in which to accept the Company's offer and closing of the
transaction shall take place within sixty (60) days of acceptance. If
any such Holder does not accept the offer or accepts only a part of it,
such Holder shall notify the Company and the other two Holders, and the
other two Holders shall thereupon have the right, within an additional
ten (10) day period, to agree to provide on a pro rata basis the New
Financing not so provided by the non-accepting Holder, and closing of
such transaction shall take place within sixty (60) days of acceptance.
If no such Holder accepts the offer, or if each such Holder elects to
provide only a part of the New Financing offered, then the Company may
then offer to third parties such New Financing, or a portion thereof
not provided by any such Holder, on terms and conditions no more
favorable to the lenders thereof than those provided by, or offered to,
such Holders, provided that any such funding occurs within one hundred
eighty (180) days of such Holders' non-acceptance or partial acceptance
of the Company's original offer. Any New Financing thereafter must
first be reoffered to each of Seacoast, Pacific and Tangent under the
terms of this Section 3.c(ii).
d. ALLOCATION OF UNSUBSCRIBED NEW SECURITIES. In the event a
Preemptive Right Holder fails to exercise such equity preemptive right in full
within such fifteen (15) day period, the other Preemptive Right Holders, if any,
will have an additional five (5) day period to purchase such Holder's portion
not so agreed to be purchased in the same proportion in which such other Holders
were entitled to purchase the New Securities (excluding for such purposes such
nonpurchasing Holder). Thereafter, the Company will have ninety (90) days to
sell the New Securities not elected to be purchased by the Preemptive Right
Holders at the same price and upon the same terms specified in the Company's
notice described in Section 3.c(i). In the event the Company has not sold the
New Securities within such ninety (90) day period, the Company will not
thereafter issue or sell any New Securities without first offering such
securities in the manner provided above.
18
e. TERMINATION OF PREEMPTIVE RIGHTS. The rights granted pursuant to
this Section 3 shall terminate upon the earlier to occur of (i) a Qualified
Liquidation Event or (ii) a Qualified Liquidity Milestone.
4. MISCELLANEOUS.
a. HEADINGS. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement.
b. SEVERABILITY. The parties to this Agreement expressly agree that
it is not their intention to violate any public policy, statutory or common law
rules, regulations, or decisions of any governmental or regulatory body. If any
provision of this Agreement is judicially or administratively interpreted or
construed as being in violation of any such policy, rule, regulation, or
decision, the provision, section, sentence, word, clause, or combination thereof
causing such violation will be inoperative (and in lieu thereof there will be
inserted such provision, sentence, word, clause, or combination thereof as may
be valid and consistent with the intent of the parties under this Agreement) and
the remainder of this Agreement, as amended, will remain binding upon the
parties to this Agreement, unless the inoperative provision would cause
enforcement of the remainder of this Agreement to be inequitable under the
circumstances.
c. NOTICES. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration, or other communication be given to or
served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
will be deemed to have been validly served, given, or delivered (and "the date
of such notice" or words of similar effect will mean the date) five (5) days
after deposit in the United States mails, certified mail, return receipt
requested, with proper postage prepaid, or upon receipt thereof (whether by
non-certified mail, telecopy, telegram, express delivery, or otherwise),
whichever is earlier, and addressed to the party to be notified as follows:
If to eCompaniesVenture Group, L.P., at
If to Seacoast, at Seacoast Capital Partners Limited Partnership
Xxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
19
Seacoast Capital Partners Limited Partnership
c/o Seacoast Capital Corporation
00 Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx Xxxxxxx
Fax: (000) 000-0000
If to Pacific, at Pacific Mezzanine Fund, L.P.
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx
Fax: (000) 000-0000
If to Tangent, at Tangent Growth Fund, L.P.
0 Xxxxx Xxxxxx
000 Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
Fax: (000) 000-0000
with courtesy copies to: Xxxxxx Xxxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
Howard, Rice, Nemerovski, Canady, Xxxx & Rabkin
Three Embarcadero Center, Xxxxxxx Xxxxx
Xxx Xxxxxxxxx, XX 00000-0000
Xxxxx X. Xxxx, Esq.
If to the Company, at ValueStar Corporation
000 00xx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
FAX: (000) 000-0000
Attention: Xxx Xxxxx
with courtesy copies to: Bay Venture Counsel, LLP
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
20
If to Xxxxxx: Xxxxx X. Xxxxxx
0000 Xxxxxx Xxxx Xxxxx
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
If to Polis: Xxxxx X. Xxxxx
000 Xxxxxxxx Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxx 00000
Fax: (000) 000-0000
If to any other Holder: As set forth on Schedule 1.
or to such other address as each party may designate for itself by like
notice. Notice to any other Holder will be delivered as set forth above to the
address shown on the stock transfer books of the Company unless such Holder has
advised the Company in writing of a different address to which notices are to be
sent under this Agreement. Failure or delay in delivering the courtesy copies of
any notice, demand, request, consent, approval, declaration, or other
communication to the persons designated above to receive copies of the actual
notice will in no way adversely affect the effectiveness of such notice, demand,
request, consent, approval, declaration, or other communication. No notice,
demand, request, consent, approval, declaration, or other communication will be
deemed to have been given or received unless and until it sets forth all items
of information required to be set forth therein pursuant to the terms of this
Agreement.
d. SUCCESSORS/AMENDMENTS. This Agreement will be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns.. Except as otherwise expressly provided herein, the provisions of this
Agreement may be amended and the Company 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 Holders holding at least sixty-six and
two-thirds percent (66-2/3%) or more of the then outstanding Registrable
Securities; provided, however, that any amendment or action which would
adversely affect only one class of Holders shall also require the written
consent of the Holders holding at least sixty-six and two-thirds percent
(66-2/3%) or more of the then outstanding Registrable Securities of such class.
Notwithstanding the foregoing, this Section 4.d. shall not be amended without
the consent of all Holders.
e. REMEDIES. The failure of any party to enforce any right or remedy
under this agreement, or to enforce any such right or remedy promptly, will not
constitute a waiver thereof, nor give rise to any estoppel against such party,
nor excuse any other party from its obligations under
21
this Agreement. Any waiver of any such right or remedy by any party must be in
writing and signed by the party against which such waiver is sought to be
enforced.
f. FEES. Any and all fees, costs, and expenses, of whatever kind and
nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings arising
out of or in connection with this Agreement will, to the extent provided in this
Agreement, be borne and paid by the Company within ten (10) days of demand by
the Holders.
g. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
h. CHOICE OF LAW. THIS AGREEMENT HAS BEEN EXECUTED, DELIVERED, AND
ACCEPTED BY THE PARTIES AND WILL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF
CALIFORNIA AND WILL BE INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE THERETO AND THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AN AGREEMENT EXECUTED,
DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES
THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE
SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
22
SIGNATURE PAGES TO VALUESTAR CORPORATION INVESTORS RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
VALUESTAR CORPORATION
By:
-----------------------------------------
Its: President and Chief Executive Officer
--------------------------------------------
Xxxxx X. Xxxxxx, individually, as President
of Sunrise Capital, Inc. and General Partner
of Xxxxxxx Investments, and as General
Partner of Xxxxxxx Investments Limited
Partnership
--------------------------------------------
Xxxxx X. Xxxxx, individually, as President
of Davric Corporation and Trustee of the
Xxxxx X. Xxxxx Family Trust
23
SCHEDULE 1
SIGNATURE PAGES TO VALUESTAR CORPORATION INVESTORS RIGHTS AGREEMENT
eCOMPANIES VENTURE GROUP, L.P.
By
----------------------------------------
Name: Xxxxxx Xxxxxx
Its: Managing General Partner
SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By
----------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Its: Vice President
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital
its general partner
By
----------------------------------------
` Name: Xxxxxx X. Xxxxx
Its: General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management, LLC
its general partner
By
----------------------------------------
Name: Xxxx X. Xxxxxx
Its: Vice President
24
SCHEDULE 1
SIGNATURE PAGES TO VALUESTAR CORPORATION INVESTORS RIGHTS AGREEMENT
---------------------------------------
Name of Holder
---------------------------------------
Authorized Signature
---------------------------------------
Print Name and Title of Signatory
ADDRESS
---------------------------------------
---------------------------------------
---------------------------------------
