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EXHIBIT 99.1
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WARRANT PURCHASE AGREEMENT
VALUESTAR CORPORATION
THE "COMPANY"
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇
COLLECTIVELY THE "SHAREHOLDER"
AND
SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP
PACIFIC MEZZANINE FUND, L.P.
TANGENT GROWTH FUND, L.P.
COLLECTIVELY THE "PURCHASER"
MARCH , 1999
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TABLE OF CONTENTS
Page
Article I Definitions.......................................................
Article II The Warrant
2.01 The Warrant..............................................
2.02 Legend...................................................
2.03 Exercise Price...........................................
2.04 Exercise.................................................
2.05 Taxes....................................................
2.06 Warrant Register.........................................
2.07 Transfer and Exchange....................................
2.08 Adjustments to Number of Warrant
Shares Purchasable...................................
2.09 Lost, Stolen, Mutilated, or
Destroyed Warrants...................................
2.10 Stock Legend.............................................
Article III Representations and Warranties....................................
3.01 Representations and Warranties of the
Company and the Shareholder..........................
3.02 Representations and Warranties of the
Purchasers...........................................
Article IV Covenants.........................................................
4.01 Financial Statements.....................................
4.02 Laws
4.03 Inspection...............................................
4.04 Certain Actions..........................................
4.05 Records..................................................
4.06 Accountants..............................................
4.07 Existence................................................
4.08 Notice...................................................
4.09 Taxes....................................................
4.10 Warrant Rights...........................................
4.11 Board of Directors.......................................
4.12 Small Business Investment Act............................
4.13 Non-Compete Agreement....................................
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Article V Conditions........................................................
5.01 Opinion..................................................
5.02 Note Agreement Conditions................................
5.03 Material Change..........................................
5.04 Shareholder Agreement....................................
5.05 Representations and Agreements...........................
5.06 Proceedings; Consents....................................
5.07 Small Business Concern Documents.........................
Article VI Miscellaneous.....................................................
6.01 Indemnification..........................................
6.02 Default..................................................
6.03 Integration..............................................
6.04 Headings.................................................
6.05 Severability.............................................
6.06 Notices..................................................
6.07 Successors...............................................
6.08 Remedies.................................................
6.09 Survival.................................................
6.10 Fees.....................................................
6.11 Counterparts.............................................
6.12 Other Business...........................................
6.13 Choice of Law............................................
6.14 Duties Among Holders.....................................
6.15 Small Business Investment Act............................
6.16 Confidentiality..........................................
ANNEX A Form of Shareholder Agreement
ANNEX B-1 Form of Warrant A
ANNEX B-2 Form of Warrant B
ANNEX B-3 Form of Warrant C
SCHEDULE 3.01(a)
SCHEDULE 3.01(d)
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WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (the "Agreement") made as of March 31,1999,
by and between VALUESTAR CORPORATION, a Colorado corporation, (the "Company"),
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇ (individually and collectively,
the "Shareholder"), and SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP, a
Delaware limited partnership ("Seacoast") PACIFIC MEZZANINE FUND, L.P. a
California limited partnership, ("Pacific") and TANGENT GROWTH FUND, L.P., a
California limited partnership ("Tangent"), (individually and collectively,
"Purchaser").
W I T N E S S E T H:
WHEREAS, the Company owns beneficially and of record all of the issued
and outstanding capital stock of the ValueStar, Inc., a California corporation
(or "Borrower");
WHEREAS, the Borrower and Purchaser have entered into a Note Purchase
Agreement (the "Note Agreement") dated of even date with this Agreement;
WHEREAS, the Company, the Purchaser and the Shareholder have entered
into a Shareholder Agreement (the "Shareholder Agreement") dated of even date
with this Agreement; and
WHEREAS, Purchaser is willing to enter into and consummate the
transactions contemplated by the Note Agreement only if, among other things, the
Company and the Shareholder enter into, and perform under, this Agreement and
the Shareholder Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Purchaser, the
Shareholder, and the Company, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the meanings
indicated:
Act. This term is defined in Section 3.01(k).
Additional Securities. This term is defined in Section 2.08(a)(iv).
Affiliate. 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
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the management and policies of such corporation, whether through the
ownership of voting securities, by contract, or otherwise.
Agreement. This term is defined in the preamble.
Appraised Value. The value determined in accordance with the following
procedures. For a period of thirty (30) days after the date of a
Valuation Event (the "Negotiation Period"), each party to this
Agreement agrees to negotiate in good faith to reach agreement upon the
Appraised Value of the securities or property at issue, as of the date
of the Valuation Event, which will be the fair market value of such
securities or property, without premium for control or discount for
minority interests, illiquidity, or restrictions on transfer. In the
event that the parties are unable to agree upon the Appraised Value of
such securities or other property by the end of the Negotiation Period,
then the Appraised Value of such securities or property will be
determined for purposes of this Agreement by a recognized appraisal or
investment banking firm mutually agreeable to the Holders and the
Company (the "Appraiser"). If the Holders and the Company cannot agree
on an Appraiser within fifteen (15) days after the end of the
Negotiation Period, the Company, on the one hand, and the Holders, on
the other hand, shall each select an Appraiser within twenty-one (21)
days after the end of the Negotiation Period and those two Appraisers
shall select within twenty-five (25) days after the end of the
Negotiation Period an independent Appraiser to determine the fair
market value of such securities or property, without premium for
control or discount for minority interests. Such independent Appraiser
shall be directed to determine fair market value of such securities or
property as soon as practicable, but in no event later than thirty (30)
days from the date of its selection. The determination by an Appraiser
of the fair market value will be conclusive and binding on all parties
to this Agreement. Appraised Value of each share of Common Stock at a
time when (i) the Company is not a reporting company under the Exchange
Act and (ii) the Common Stock is not traded in the organized securities
markets, will, in all cases, be calculated by determining the Appraised
Value of the entire Company taken as a whole (plus the exercise price
of all Common Stock Equivalents having an exercise price per share less
than the Fair Market Value of such Common Stock Equivalents) and
dividing that value by the sum of (x) the number of shares of Common
Stock then outstanding plus (y) the number of shares of Common Stock
Equivalents having an exercise price per share less than the Fair
Market Value of such Common Stock Equivalents, without premium for
control or discount for minority interests, illiquidity, or
restrictions on transfer. The costs of the Appraiser will be borne
equally by the Company and Purchaser. In no event will the Appraised
Value of the Common Stock or Other Securities be less than the per
share consideration received or receivable with respect to the Common
Stock or securities or property of the same class as the Other
Securities, as the case may be, in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or
transfer of all or a majority of its assets or revenue or income
generating capacity, or similar transaction. The prevailing market
prices for any security or property will not be dispositive of the
Appraised Value thereof.
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Appraiser. This term is defined in the definition of Appraised Value.
Average Market Value. The average of the Closing Price for the
security in question for the thirty (30) trading days immediately
preceding the date of determination.
Business Day. This term is defined in Section 11.1 of the Note
Agreement.
Buyer. This term is defined in Section 6.02(a)(ii) of the Shareholder
Agreement.
Call Option. This term is defined in Section 5.01 of the Shareholder
Agreement.
Call Option Closing. This term is defined in Section 5.04 of the
Shareholder Agreement.
Call Option Period. This term is defined in Section 5.01 of the
Shareholder Agreement.
Capital Stock. As to any Person, its common stock and any other capital
stock of such Person authorized from time to time, and any other
shares, options, interests, participations, or other equivalents
(however designated) of or in such Person, 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.
Closing Date. March 31, 1999.
Closing Price.
(a) If the primary market for the security in question is a
national securities exchange registered under the Exchange Act, the
National Association of Securities Dealers Automated Quotation System
-- National Market System, or other market or quotation system in which
last sale transactions are reported on a contemporaneous basis, the
last reported sales price, regular way, of such security for such day,
or, if there has not been a sale on such trading day, the highest
closing or last bid quotation therefor on such trading day (excluding,
in any case, any price that is not the result of bona fide arm's length
trading); or
(b) If the primary market for such security is not an exchange
or quotation system in which last sale transactions are
contemporaneously reported, the highest closing or last bona fide bid
or asked quotation by disinterested Persons in the over-the-counter
market on such trading day as reported by the National Association of
Securities Dealers through its Automated Quotation System or its
successor or such other generally accepted source of publicly reported
bid quotations as the Holders designate.
Common Stock. The common stock, .00025 par value, of the Company.
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Common Stock Equivalent. Any option, warrant, right, or similar
security exercisable into, exchangeable for, or convertible to Common
Stock.
Commission. The Securities and Exchange Commission and any successor
federal agency having similar powers.
Company. ValueStar Corporation and any successor or assign, and, unless
the context requires otherwise, the term Company includes any
Subsidiary, including Borrower.
Co-Sell Shares. This term is defined in Section 6.02(d) of the
Shareholder Agreement.
Co-Sellers. This term is defined in Section 6.02(d) of the Shareholder
Agreement.
Dilution Fee. This term is defined in Article III of the Shareholder
Agreement.
Drag-Along Call Option. This term is defined in Section 4.02 of the
Shareholder Agreement.
Drag-Along Call Option Closing. This term is defined in Section 4.05 of
the Shareholder Agreement.
Drag-Along Call Option Period. This term is defined in Section 4.02 of
the Shareholder Agreement.
Drag-Along Call Option Price. This term is defined in Section 4.03 of
the Shareholder Agreement.
Drag-Along Call Option Shares. This term is defined in Section 4.03 of
the Shareholder Agreement.
Election Notice. This term is defined in Section 6.02(b) of the
Shareholder Agreement.
Exchange Act. The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Exchange Common Stock. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exchange Company. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exchange Notice. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exercise Price. The price per share specified in Section 2.03 as
adjusted from time to time pursuant to the provisions of this
Agreement.
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Fair Market Value.
(a) As to securities regularly traded in the organized
securities markets, the higher of (i) the Average Market Value
determined on a per share basis, (ii) the value of the securities as
carried on the books of the Company, determined on a per share basis or
(iii) an amount determined using the value attributable to equity in a
concurrent Public Offering or sale of business or merger,
consolidation, reorganization, share exchange, recapitalization, or
similar transaction or series of related transactions involving a
change of control of the Company or disposition of all or substantially
all of the assets or revenue or income generating capacity of the
Company, determined on a per share basis; provided, however, that, at
the election of the Holders, the Fair Market Value of such securities
and other property will be the Appraised Value; and
(b) as to all securities not regularly traded in the
securities markets and other property, (i) the fair market value of
such securities or property as determined in good faith by the Board of
Directors of the Company at the time it authorizes the transaction (a
"Valuation Event") requiring a determination of Fair Market Value under
this Agreement, determined on a per share basis, (ii) the value of the
securities as carried on the books of the Company, determined on a per
share basis or (iii) an amount determined using the value attributable
to equity in a concurrent sale of business or merger, consolidation,
reorganization, share exchange, recapitalization, or similar
transaction or series of related transactions involving a change of
control of the Company or disposition of all or substantially all of
the assets or revenue or income generating capacity of the Company,
determined on a per share basis; provided, however, that, at the
election of the Holders, the Fair Market Value of such securities and
other property will be the Appraised Value.
GAAP. The 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, provided, that the Company may not change the
use or application of any accounting method, practice or principle
without the prior written consent of Purchaser, which consent may
require that an adjustment be made to any and all the financial
covenants and the capital expenditure covenant set forth herein.
Accounting principles are applied on a "consistent basis" when the
accounting principles observed in a current period are comparable in
all material respects to those accounting principles applied in a
preceding period.
Holders. Purchaser, and all Persons holding Registrable Securities,
except that neither the Company nor any Shareholder nor any Affiliate
of the Company or the Shareholder (other than Purchaser) will at any
time be a Holder. Unless otherwise provided in this Agreement or in the
Intercreditor Agreement (as defined in the Note Agreement), in each
instance that the Holders are required to request, consent, amend,
modify, waive or terminate in concert with respect to any provision in
this Agreement or to an action
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directly or indirectly relating to this Agreement, the Holders will be
deemed to have undertaken or approved such action if the Holders of a
majority-in-interest of the Registrable Securities so request or
consent.
Indebtedness. 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 a 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 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).
Indemnified Party. This term is defined in Section 6.01 hereof and in
Section 11.01 of the Shareholder Agreement.
Initial Holders. Each Purchaser and any Affiliate of Purchaser to which
any of the Warrants or any part of or interest in the Warrants is
assigned.
Issuable Warrant Shares. Shares of Common Stock or Other Securities
issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other Securities
issued on exercise of the Warrants.
Lien. 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.
Negotiation Period. This term is defined in the definition of Appraised
Value.
New Securities. Any Capital Stock other than the Warrant Shares and the
Permitted Stock.
Non-Compete Agreements. This term is defined in Section 11.1 of the
Note Agreement.
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Note. All or any portion of any of the Senior Note (as defined in the
Note Agreement) and any and all documents evidencing the indebtedness
under the Note and any refinancing, refunding, or replacement of the
Note.
Note Agreement. This term is defined in the preamble and includes the
Note Purchase Agreement of even date with this Agreement between the
Company and Purchaser and all documents evidencing indebtedness
thereunder or otherwise related to the Note Agreement as the same may
be amended from time to time, and any refinancing, refunding, or
replacements of the indebtedness under the Note Agreement.
Notice of Proposed Drag-Along Sale. This term is defined in Section
4.01 of the Shareholder Agreement.
Notice of Sale. This term is defined in Section 6.02(a) of the
Shareholder Agreement.
Other Securities. Any stock, other securities, property, or other
property or rights (other than Common Stock) that the Holders become
entitled to receive upon exercise of the Warrants.
Permitted Stock. Any stock issued or issuable by the Company pursuant
to any securities outstanding on the Closing Date as disclosed on
Schedules 3.01 (a) or 3.01 (d) and up to 385,900 shares reserved for
issuance but not yet issued under the Company's 1992, 1996 and 1997
Stock Option Plans (and the reissuance of any cancelled or expired
options issued thereunder).
Person. This term will be interpreted broadly to include any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, company, entity,
or government authority (whether national, federal, state, county,
city, municipal, or otherwise, including, without limitation, any
instrumentality, division, agency, body, or department of any of the
foregoing).
Proposed Sale. This term is defined in Section 4.01 of the Shareholder
Agreement.
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.
Purchaser. This term is defined in the preamble.
Qualified Liquidation Event. Either (i) a Public Offering of common
stock completed by and resulting in proceeds (before underwriting
discounts and commissions and adjusted for any stock splits, stock
dividends, reorganization, reverse stock split, or any other change in
the Capital Stock of the Company) to the Company or Subsidiary, as
applicable, of at least $15,000,000, at a price of not less than $5.00
per share (adjusted for any stock splits, stock dividends,
reorganization, reverse stock split, or any other change in the
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Capital Stock of the Company) and which results in an aggregate
valuation of all of the outstanding shares of Common Stock of the
Company on a fully diluted basis immediately prior to the consummation
of such offering of at least $40,000,000, or (ii) a sale of stock or
assets of the Company in an amount not less than $40,000,000, provided
that the Purchaser receives cash consideration of not less than (x)
$5.00 per Warrant Share (adjusted for any stock splits, stock
dividends, reorganization, reverse stock split, or any other change in
the Capital Stock of the Company) if such sale occurs on or before
March 31, 2002, or (y) $7.00 per Warrant Share (adjusted for any stock
splits, stock dividends, reorganization, reverse stock split, or any
other change in the Capital Stock of the Company) if such sale occurs
after March 31, 2002.
Qualified Liquidity Milestone. A date on which the Common Stock has
qualified for and is trading on the National Association of Securities
Dealers Automated Quotation System -- National Market System or the New
York Stock Exchange with one calendar quarter of average trading volume
of 25,000 shares per day with an average share price during such
quarter at $5.00 (such price to be adjusted for any stock split, stock
dividend, reverse stock split or other subdivision of the Common Stock)
if the quarter occurs within the first three (3) years of the date
hereof and $7.00 (such price to be adjusted for any stock split, stock
dividend, reverse stock split or other subdivision of the Common Stock)
per share thereafter.
Register, registered, and registration refer to a registration effected
by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of
such registration statement.
Registrable Securities. (a) The Issuable Warrant Shares and (b) the
Issued Warrant Shares that have not been previously sold to the public.
Related Party. An entity wholly owned by a Selling Shareholder or one
or more Related Parties.
Revenue. The gross revenue of the Company calculated in accordance with
GAAP.
Revenue Value. Shall mean the sum of (a) the product of (i) three and
one half (3.5) times (ii) Revenue for such period, less (b) funded
Indebtedness (excluding trade accounts payable more than 120 days due)
and the liquidation or redemption value of any outstanding preferred
stock, plus (c) the exercise price of any Common Stock Equivalents,
that have a Fair Market Value greater than the exercise price of such
Common Stock Equivalents, plus (d) cash of the Company, cash
equivalents and the Fair Market Value of marketable securities held by
or for the Company; and dividing that value by the sum of (x) the
number of shares of Common Stock then outstanding plus (y) the number
of shares of Common Stock Equivalents having an exercise price per
share less than the Fair Market Value of such Common Stock Equivalents,
without premium for control or discount for minority interests,
illiquidity, or restrictions on transfer, provided, however, the
Revenue Value will be equal to the value determined using either (aa)
the twelve (12) month period
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comprising the immediately preceding fiscal year, or (bb) the
immediately preceding twelve (12) calendar months, prior to the date
notice is given of the exercise of the Drag-Along Call Option,
whichever is greater.
Selling Shareholder. This term is defined in Section 6.02 of the
Shareholder Agreement.
Securities Act. The Securities Act of 1933, as amended, and the rules
and regulations thereunder.
Shareholder. This term is defined in the preamble.
Shareholder Agreement. This term is defined in the preamble and
includes the Shareholder Agreement dated as of the Closing Date between
the Company, the Shareholder and Purchaser in substantially the form
attached to this Agreement as Annex A and incorporated in this
Agreement by reference.
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.
Valuation Event. This term is defined in the definition of Fair Market
Value.
Warrant Agreement. This term is defined in the preamble to the
Shareholder Agreement and includes this Agreement and all documents
related to this Agreement as this Agreement may be amended from time to
time.
Warrants. This term means collectively the "A Warrant," the "B Warrant"
and the "C Warrant" referred to in Section 2.01, dated as of the
Closing Date, issued to Initial Holders, and all Warrants issued upon
the transfer or division of, or in substitution for, such Warrants.
Warrant Shares. The Issued Warrant Shares and the Issuable Warrant
Shares.
ARTICLE II
THE WARRANTS
2.01 The Warrants. On the Closing Date, each Purchaser agrees to
purchase from the Company for the purchase price set forth beneath the name of
each Purchaser on the signature page of this Agreement, and the Company agrees
to issue to each Purchaser, certain warrants designated as the "A Warrant," the
"B Warrant" and the "C Warrant" each in substantially the form attached to this
Agreement as Annex ▇-▇, ▇-▇ and B-3, respectively, and incorporated in this
Agreement by reference
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to purchase the number of shares of Common Stock corresponding to the type of
Warrant set forth beneath the name of each Purchaser on the signature page of
this Agreement, all in accordance with the terms and conditions of this
Agreement.
2.02 Legend. The Company will deliver to each Purchaser on the Closing
Date one or more certificates representing the A Warrant, the B Warrant, and the
C Warrant purchased by each Purchaser in such denominations as such Purchaser
requests. Such certificates will be issued in each Purchaser's name or in the
name or names of its designee or designees, as the case may be. It is understood
and agreed that the certificates evidencing the Warrants will bear the following
legend:
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN
CONNECTION WITH THE DISTRIBUTION HEREOF. THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION
FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO THE TERMS AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT AND
A SHAREHOLDER AGREEMENT, EACH DATED AS OF MARCH 31, 1999, BETWEEN
VALUESTAR CORPORATION (THE "COMPANY"), ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
AND ▇▇▇▇▇ ▇. ▇▇▇▇▇, SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP,
PACIFIC MEZZANINE FUND, L.P. AND TANGENT GROWTH FUND, L.P. (AS SUCH
AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM
TIME TO TIME, THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE
AT THE EXECUTIVE OFFICES OF THE COMPANY."
2.03 Exercise Price.
(a) The Exercise Price in connection with the A Warrant per
share will be $1.00 for each share of Common Stock covered by the A
Warrant; provided, however, that in no event will the aggregate
Exercise Price for all of the shares of Common Stock covered by all A
Warrants exceed $1,527,250 whether as a result of any change in the par
value of the Common Stock or Other Securities, as a result of any
change in the number of shares purchasable as provided in this Article
II, or otherwise; provided, further, that such limitation of the
aggregate Exercise Price will have no effect whatsoever upon the amount
or number of Warrant Shares for which the A Warrant may be exercised.
(b) The Exercise Price in connection with the B Warrant per
share will be $0.00025 for each share of Common Stock covered by the B
Warrant; provided, however, that in no event will the aggregate
Exercise Price for all of the shares of Common Stock covered by all B
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Warrants exceed $131.88, whether as a result of any change in the par
value of the Common Stock or Other Securities, as a result of any
change in the number of shares purchasable as provided in this Article
II, or otherwise; provided, further, that such limitation of the
aggregate Exercise Price will have no effect whatsoever upon the amount
or number of Warrant Shares for which the B Warrant may be exercised.
(c) The Exercise Price in connection with the C Warrant per
share will be $1.00 for each share of Common Stock covered by the C
Warrant; provided, however, that in no event will the aggregate
Exercise Price for all of the shares of Common Stock covered by all C
Warrants exceed $231,132 whether as a result of any change in the par
value of the Common Stock or Other Securities, as a result of any
change in the number of shares purchasable as provided in this Article
II, or otherwise; provided, further, that such limitation of the
aggregate Exercise Price will have no effect whatsoever upon the amount
or number of Warrant Shares for which the C Warrant may be exercised.
2.04 Exercise.
(a) Each of the Warrants may be exercised at any time or from
time to time on or after the Closing Date and prior to the earlier of
(i) six (6) years from the date the Note is paid in full or (ii) ten
(10) years from the date hereof, on any day that is a Business Day, for
all or any part of the number of Issuable Warrant Shares purchasable
upon its exercise. In order to exercise any Warrant, in whole or in
part, the Holder will deliver to the Company at the address designated
by the Company pursuant to Section 6.06, (x) a written notice of such
Holder's election to exercise its Warrant, which notice will specify
the number of Issuable Warrant Shares to be purchased pursuant to such
exercise, (y) payment of the Exercise Price, in an amount equal to the
aggregate purchase price for all Issuable Warrant Shares to be
purchased pursuant to such exercise, and (z) the Warrant. Such notice
will be substantially in the form of the Subscription Form appearing at
the end of the Warrants. Upon receipt of such notice, the Company will,
as promptly as practicable, and in any event within ten (10) Business
Days (or such longer period of time as is reasonably necessary to
complete any required calculations or determinations), execute, or
cause to be executed, and deliver to such Holder a certificate or
certificates representing the aggregate number of full shares of Common
Stock and Other Securities issuable upon such exercise, as provided in
this Agreement. The stock certificate or certificates so delivered will
be in such denominations as may be specified in such notice and will be
registered in the name of such Holder, or such other name as designated
in such notice. Warrants will be deemed to have been exercised, such
certificate or certificates will be deemed to have been issued, and
such Holder or any other Person so designated or named in such notice
will be deemed to have become a holder of record of such shares for all
purposes, as of the date that such notice, together with payment of the
Exercise Price and the Warrant, is received by the Company. If the
Warrant has been exercised in part, the Company will, at the time of
delivery of such certificate or certificates, deliver to such Holder a
new Warrant evidencing the rights of such Holder to purchase a number
of Issuable Warrant Shares with respect to which the Warrant has not
been exercised, which new Warrant will, in all other respects, be
identical with the Warrants, or, at the request of such Holder,
appropriate notation may be made on the Warrant and the Warrant
returned to such Holder.
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(b) Payment of the Exercise Price will be made, at the option
of the Holder, by (i) company or individual check, certified or
official bank check, (ii) cancellation of any debt and/or accrued
interest owed by the Company to the Holder, or (iii) cancellation of
Warrant Shares, valued at Fair Market Value (but no Appraised Value
shall be required for purposes of this calculation). If the Holder
surrenders a combination of cash or cancellation of any debt owed by
the Company to the Holder or Warrants, the Holder will specify the
respective number of shares of Common Stock to be purchased with each
form of consideration, and the foregoing provisions will be applied to
each form of consideration with the same effect as if the Warrant were
being separately exercised with respect to each form of consideration;
provided, however, that a Holder may designate that any cash to be
remitted to a Holder in payment of debt be applied, together with other
monies, to the exercise of the portion of the Warrant being exercised
for cash; provided further, that so long as any amounts due under the
Note remain outstanding, Holder will first apply such outstanding debt
due under the Note towards the cost of exercising Warrants before
applying any value in Warrants or Warrant Shares towards such exercise
cost, but only if, such priority does not result in a greater tax
liability than if Holder applied such outstanding debt due under the
Note towards the cost of exercising Warrants after applying any value
in Warrants or Warrant Shares towards such exercise cost.
2.05 Taxes. The issuance of any Common Stock or Other Securities upon
the exercise of the Warrant will be made without charge to any Holder for any
tax, other than income taxes assessed on such Holder, in respect of such
issuance.
2.06 Warrant Register. The Company will, at all times while any of the
Warrants remain outstanding and exercisable, keep and maintain at its principal
office a register in which the registration, transfer, and exchange of the
Warrants will be provided for. The Company will not at any time, except upon the
dissolution, liquidation, or winding up of the Company, close such register so
as to result in preventing or delaying the exercise or transfer of any Warrant.
2.07 Transfer and Exchange. The Warrants and all options and rights
under the Warrants are transferable, as to all or any part of the number of
Issuable Warrant Shares purchasable upon its exercise, by the Holders of the
Warrants, in person or by duly authorized attorney, on the books of the Company
upon surrender of the Warrants at the principal offices of the Company, together
with the form of transfer authorization attached to the Warrants duly executed.
Absent any such transfer and subject to the Shareholder Agreement, the Company
may deem and treat the registered Holders of the Warrants at any time as the
absolute owners of the Warrants for all purposes and will not be affected by any
notice to the contrary. If any Warrant is transferred in part, the Company will,
at the time of surrender of such Warrant, issue to the transferee a Warrant
covering the number of Issuable Warrant Shares transferred and to the transferor
a Warrant covering the number of Issuable Warrant Shares not transferred.
2.08 Adjustments to Number of Shares Purchasable.
(a) The Warrants will be exercisable for the number of shares
of Common Stock in such manner that, following the complete and full
exercise of the Warrant of each Holder, the
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amount of Common Stock issued to all Holders will equal the aggregate
number of shares of Common Stock set forth beneath the name of
Purchaser on the signature pages of this Agreement in connection with
each type of Warrant, as adjusted, to the extent necessary, to give
effect to the following events:
(i) In case at any time or from time to
time, the holders of any class of Common Stock or Common Stock
Equivalent have received, or (on or after the record date
fixed for the determination of shareholders eligible to
receive) have become entitled to receive, without payment
therefor:
(A) consideration (other than cash) by
way of dividend or distribution; or
(B) consideration (including cash) by
way of spin-off, split-up, reclassification
(including any reclassification in connection with a
consolidation or merger in which the Company is the
surviving corporation), recapitalization,
combination of shares into a smaller number of
shares, or similar corporate restructuring;
other than additional shares of Common Stock issued as a
stock dividend or in a stock-split (adjustments in respect
of which are provided for in Sections 2.08(a)(ii) and
(iii)), then, and in each such case, the Holders, on the
exercise of the Warrants, will be entitled to receive for
each share of Common Stock issuable under the Warrants as of
the record date fixed for such distribution, the greatest
per share amount of consideration received by any holder of
any class of Common Stock or Common Stock Equivalent or to
which such holder is entitled less the amount of any
Dilution Fee actually and irrevocably paid to such Holders.
All such consideration receivable upon exercise of the
Warrant with respect to such a distribution will be deemed
to be outstanding and owned by such Holder for purposes of
determining the amount of consideration to which such Holder
is entitled upon exercise of the Warrant with respect to any
subsequent distribution.
(ii) If at any time there occurs any stock
split, stock dividend, reverse stock split, or other
subdivision of the Common Stock, then the number of shares of
Common Stock to be received by the Holder of the Warrant and
the Exercise Price, subject to the limitations set forth in
this Agreement, will be proportionately adjusted.
(iii) In the case of any reclassification or
change of outstanding shares of any class of Common Stock or
Common Stock Equivalent (other than a change in par value, or
from par value to no par value, or from no par value to par
value), or in the case of any consolidation of the Company
with, or merger or share exchange of the Company with or into,
another Person, or in the case of any sale of all or a
majority of the property, assets, business, income or revenue
generating capacity, or goodwill of the Company, the Company,
or such successor or other Person, as the case may be, will
provide in writing that the Holder of this Warrant will
thereafter be entitled to
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receive the highest per share kind and amount of
consideration received or receivable (including cash) upon
such reclassification, change, consolidation, merger, share
exchange, or sale by any holder of any class of Common Stock
or Common Stock Equivalent that the Warrant entitles the
Holder to receive immediately prior to such
reclassification, change, consolidation, merger, share
exchange, or sale (as adjusted pursuant to Section
2.08(a)(i) and otherwise in this Agreement). Any such
successor Person, which thereafter will be deemed to be the
Company for purposes of the Warrants, will provide for
adjustments that are as nearly equivalent as may be possible
to the adjustments provided for by this Section 2.08.
(iv) If at any time the Company issues or
sells any shares of any Common Stock or any Common Stock
Equivalent, other than Permitted Stock, at a per unit or share
consideration (which consideration will include the price paid
upon issuance plus the minimum amount of any exercise,
conversion, or similar payment made upon exercise or
conversion of any Common Stock Equivalent) less than the then
current Fair Market Value per share of Common Stock
immediately prior to the time such Common Stock or Common
Stock Equivalent is issued or sold (the "Additional
Securities"), then:
(A) the Exercise Price will be reduced
to the lower of the prices calculated by:
(I) dividing (x) an amount equal to
the sum of (1) the number of shares of
Common Stock outstanding on a fully diluted
basis immediately prior to such issuance or
sale multiplied by the then existing
Exercise Price plus (2) the aggregate
consideration, if any, received by the
Company upon such issuance or sale, by (y)
the total number of shares of Common Stock
outstanding immediately after such issuance
or sale on a fully diluted basis; and
(II) multiplying the then existing
Exercise Price by a fraction, the numerator
of which is (x) the sum of (1) the number of
shares of Common Stock outstanding on a
fully diluted basis immediately prior to
such issuance or sale, multiplied by the
Fair Market Value per share of Common Stock
immediately prior to such issuance or sale,
plus (2) the aggregate consideration
received by the Company upon such issuance
or sale, (y) divided by the total number of
shares of Common Stock outstanding on a
fully diluted basis immediately after such
issuance or sale, and the denominator of
which is the Fair Market Value per share of
Common Stock immediately prior to such
issuance or sale (for purposes of this
subsection (II), the date as of which the
Fair Market Value per share of Common Stock
will be computed will be the earlier of the
date upon which the Company (aa) enters into
a firm contract for the issuance of such
shares, or (bb) issues such shares); and
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(B) the number of shares of Common Stock
for which any of the Warrants may be exercised at the
Exercise Price resulting from the adjustment
described in subsection (A) above will be equal to
the product of the number of shares of Common Stock
purchasable under such Warrants immediately prior to
such adjustment multiplied by a fraction, the
numerator of which is the Exercise Price in effect
immediately prior to such adjustment and the
denominator of which is the Exercise Price resulting
from such adjustment.
(v) In the case any event occurs as to which
the preceding Sections 2.08(a)(i) through (iv) are not
strictly applicable, but as to which the failure to make any
adjustment would not fairly protect the purchase rights
represented by the Warrants in accordance with the essential
intent and principles of this Agreement, then, in each such
case, the Holder may appoint an independent investment bank or
firm of independent public accountants, which will give its
opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established in this
Agreement, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the
Company will promptly deliver a copy of such opinion to the
Holder and will make the adjustments described in such
opinion. The fees and expenses of such investment bank or
independent public accountants will be borne by the Company.
(vi) In the event of, and as a condition
precedent to the effectiveness of, any sale or other
disposition of all or substantially all of the stock or assets
of the Company or any of its Subsidiaries in a single
transaction or series of transactions prior to the occurrence
of a Qualified Liquidation Event or a Qualified Liquidity
Milestone (a "Sale"), the number of shares of Common Stock for
which the Warrants may be exercised shall be increased so that
each Holder's share of the proceeds from any such Sale is not
less than the Revenue Value of each Holder's Warrant Shares
(calculated immediately prior to the consummation of such Sale
after deducting the Exercise Price). The adjustments set forth
in the immediately preceding sentence are in addition to, and
not in lieu of, any other adjustments to the Warrants, the
Warrant Shares and/or the Exercise Price provided for in this
Agreement.
(b) The Company and the Shareholder will not by any action
including, without limitation, amending, or permitting the amendment
of, the charter documents, bylaws, or similar instruments of the
Company or through any reorganization, reclassification, transfer of
assets, consolidation, merger, share exchange, dissolution, issue or
sale of securities, or any other similar voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Agreement or the Warrants, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of the
Holders against impairment or dilution. Without limiting the generality
of the foregoing, each of the Company and the Shareholder will (i) use
their reasonable efforts to take all such action as may be necessary or
appropriate in order that
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the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock and Other Securities, free and clear of all
liens, encumbrances, equities, and claims and (ii) use its reasonable
efforts to obtain all such authorizations, exemptions, or consents from
any public regulatory body having jurisdiction as may be necessary to
enable the Company to perform its obligations under the Warrants.
(c) Any calculation under this Section 2.08 will be made to
the nearest one ten-thousandth of a share and the number of Issuable
Warrant Shares resulting from such calculation will be rounded up to
the next whole share of Common Stock or Other Securities comprising
Issuable Warrant Shares.
(d) The Company will not permit any Subsidiary to issue any
Capital Stock other than to the Company.
2.09 Lost, Stolen, Mutilated, or Destroyed Warrants. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of any Warrants and, in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company or, in the event of such
mutilation upon surrender and cancellation of the Warrants, the Company, without
charge to the Holder thereof, will make and deliver a new Warrant of like tenor
and the same series in lieu of such lost, stolen, destroyed or mutilated
Warrant. If any such lost, stolen or destroyed Warrant is owned by Purchaser or
any other Holder whose credit is satisfactory to the Company, then the affidavit
of an authorized officer of such owner setting forth the fact of loss, theft or
destruction and of its ownership of the Warrant at the time of such loss, theft
or destruction shall be accepted as satisfactory evidence thereof, and no
further indemnity shall be required as a condition to the execution and delivery
of a new Warrant, other than a written agreement of such owner (in form
reasonably satisfactory to the Company) to indemnify the Company.
2.10 Stock Legend. Unless there is an effective registration statement
and qualification respecting the Warrant Shares under the Securities Act or
under applicable state securities laws, any stock certificate issued pursuant to
the exercise of a Warrant will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES
LAWS AND (B) ARE SUBJECT TO THE TERMS OF AND PROVISIONS OF A WARRANT
PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED AS OF MARCH
31, 1999 BETWEEN VALUESTAR CORPORATION (THE "COMPANY"), ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ AND ▇▇▇▇▇ ▇. ▇▇▇▇▇, SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP, PACIFIC MEZZANINE FUND, L.P. AND TANGENT GROWTH FUND. L.P.
(AS SUCH AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED,
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AMENDED, OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF
THE AGREEMENTS ARE AVAILABLE AT THE OFFICES OF THE COMPANY."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of the Company. The Company
represents and warrants to Purchaser that:
(a) The Company is a corporation duly organized and existing
and in good standing under the laws of its state of incorporation and
is qualified or licensed to do business in all other countries, states,
and jurisdictions the laws of which require it to be so qualified or
licensed, where the failure to so qualify or license would have a
Material Adverse Effect on the Company. The Company has no Subsidiaries
or debt or equity investment in any Person other than Borrower. Except
as set forth on Schedule 3.01(a), no Person has any rights, whether
granted by the Company or any other Person, to acquire any portion of
the equity interest of the Company or the assets of the Company. The
Company owns 100% of the equity interest of the Borrower free and clear
of all liens, claims, and encumbrances, and no Person has any rights,
whether granted by the Borrower, the Company or any other Person, to
acquire any portion of the equity interest of the Borrower or the
assets of the Borrower.
(b) The Company has, and at all times that this Agreement is
in force will have, the right and power, and is duly authorized, to
enter into, execute, deliver, and perform this Agreement, the
Shareholder Agreement, and the Warrants, and the officers of Company
executing and delivering this Agreement, the Shareholder Agreement, and
the Warrants are duly authorized to do so. This Agreement, the
Shareholder Agreement, and the Warrants have been duly and validly
executed, issued, and delivered and constitute the legal, valid, and
binding obligations of Company, enforceable in accordance with their
respective terms.
(c) The execution, delivery, and performance of this
Agreement, the Shareholder Agreement, and the Warrants will not, by the
lapse of time, the giving of notice, or otherwise, constitute a
violation of any applicable provision contained in the charter, bylaws,
or organizational documents of the Company or contained in any
agreement, instrument, or document to which the Company is a party or
by which it is bound.
(d) As of the Closing Date, the authorized capital stock of
the Company consists of 25,000,000 shares of capital stock, of which
20,000,000 are Common Stock .00025 par value, 5,000,000 are preferred
stock .00025 par value, and of which 9,312,996 shares of Common Stock
are issued and outstanding and no shares of preferred stock are
outstanding. One million five hundred twenty-seven thousand two hundred
fifty (1,527,250) shares of Common Stock are reserved for issuance on
exercise of the A Warrants. Five hundred twenty-seven thousand five
hundred fourteen (527,514) shares of Common Stock are reserved for
issuance on exercise of the B Warrants. Two hundred thirty-one thousand
one hundred thirty-two (231,132) shares of Common Stock are reserved
for issuance on exercise of the C
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Warrants. All such issued and outstanding shares have been duly
authorized and validly issued, are fully paid and nonassessable, and
have been offered, issued, sold, and delivered by Company free from
preemptive rights, rights of first refusal, or similar rights and in
compliance with applicable federal and state securities laws. Except as
disclosed on Schedule 3.01(a) and pursuant to this Agreement, the
Company is not obligated to issue or sell any Capital Stock, and,
except for this Agreement and the Shareholder Agreement, the Company is
not party to, or otherwise bound by, any agreement affecting the voting
of any Capital Stock. Except as disclosed on Schedule 3.01(d) and the
Shareholder Agreement, the Company is not, nor will it be, a party to,
or otherwise bound by, any agreement obligating it to register any of
its Capital Stock.
(e) The shares of Common Stock issuable on exercise of the
Warrants have been duly and validly authorized and reserved for
issuance and, when issued in accordance with the terms of the Warrants
will be validly issued, fully paid, and nonassessable and free of
preemptive rights, rights of first refusal, or similar rights.
(f) The Company has good, indefeasible, merchantable, and
marketable title to, and ownership of, all of its assets free and clear
of all liens, pledges, security interests, claims, or other
encumbrances except those in favor of (i) the Purchaser pursuant to the
Note Agreement or (ii) the Permitted Liens (as defined in the Note
Agreement).
(g) There is not now, and at no time during the term of this
Agreement or the Shareholder Agreement will there be, any agreement,
arrangement, or understanding by and between the Company and any
security holder, other than this Agreement, the Shareholder Agreement,
and the documents contemplated hereby and thereby, modifying,
restricting, or in any way affecting the rights of any security holder
to vote securities of the Company in contravention of this Agreement or
the Shareholder Agreement.
(h) Each of the representations and warranties made by the
Company pursuant to the Note Agreement and the Shareholder Agreement is
true and correct.
(i) None of the documents, instruments, or other information
furnished to the Purchaser by the Company, 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 Company in this
Agreement, the Note Agreement, or the Shareholder 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 Company or any of
its Subsidiaries that has not been disclosed in the documents provided
to Purchaser.
(j) Small Business Concern. The Company is a "small business
concern" as defined in Section 103(5) of the Small Business Investment
Act of 1958, as amended and in
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effect from time to time, and the regulations promulgated thereunder
(the "Act"), which for purposes of size eligibility meets the
applicable criteria set forth in Section 121.802(a)(3) of Title 13 of
the Code of Federal Regulations.
3.02 Representations and Warranties of Purchaser. Each of the
representations and warranties of each of the Purchasers set forth in Article
III of the Note Agreement is hereby restated and incorporated by reference in
this Agreement as though set forth in this Agreement and is made by each
Purchaser as representations and warranties of each Purchaser, with respect to
itself and not with respect to any other Purchaser, for the benefit of the
Company. Each Purchaser also represents and warrants to the Company with respect
to itself and not with respect to any other Purchaser as follows:
(a) Seacoast represents and warrants to the Company that it is
a limited partnership duly organized and existing and in good standing
under the laws of the state of its organization.
(b) Pacific represents and warrants to the Company that it is
a limited partnership duly organized and existing in good standing
under the laws of the State of its organization.
(c) Tangent represents and warrants to the Company that it is
a limited liability company duly organized and existing in good
standing under the laws of the State of its organization.
(d) Each Purchaser represents and warrants to the Company that
it has the right and power and is duly authorized to enter into,
execute, deliver, and perform this Agreement and the Shareholder
Agreement, and its partners, officers or agents executing and
delivering this Agreement and the Shareholder Agreement are duly
authorized to do so. This Agreement and the Shareholder Agreement have
been duly and validly executed, issued, and delivered and constitute
the legal, valid, and binding obligation of Purchaser, enforceable in
accordance with its terms.
(e) Each Purchaser represents and warrants to the Company that
it, (i) is an "accredited investor," as that term is defined in
Regulation D under the Securities Act; and (ii) has such knowledge,
skill, and experience in business and financial matters, based on
actual participation, that it is capable of evaluating the merits and
risks of an investment in the Company and the suitability thereof as an
investment for Purchaser.
(f) Each Purchaser represents and warrants to the Company
that, except as otherwise contemplated by this Agreement and the
Shareholder Agreement, Purchaser is acquiring its Warrant and any
securities issuable upon exercise of the Warrant for investment for its
own account and not with a view to any distribution thereof in
violation of applicable securities laws.
(g) Each Purchaser represents and warrants to the Company that
it agrees that the certificates representing its Warrant and any Issued
Warrant Shares will bear the legends referenced in this Agreement, and
such Warrant or securities issuable upon exercise of the
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Warrant and pursuant to the Shareholder Agreement, as the case may be,
will not be offered, sold, or transferred in the absence of
registration or exemption under applicable securities laws.
ARTICLE IV
COVENANTS
The Company covenants and agrees as follows:
4.01 Financial Statements. The Company will furnish to each Purchaser:
(a) As soon as available, and in any event within ninety (90)
days after the end of each fiscal year of the Company, beginning with the fiscal
year ending June 30, 1999, (i) a copy of the annual audit report of the Company
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, in each case setting forth in
comparative form the figures for the preceding fiscal year, all in reasonable
detail and audited and certified by independent certified public accountants of
recognized standing selected by the Company and consented to by Purchaser
(provided Purchaser's consent shall not unreasonably be withheld) to the effect
that such report has been prepared in accordance with GAAP; (ii) a certificate
delivered to Purchaser by such independent certified public accountants
confirming the calculations set forth in the officers' certificate delivered to
Purchaser simultaneously therewith in accordance with Section 6.2(a); and (iii)
a comparison of the actual results during such fiscal year to those originally
budgeted by the Company prior to the beginning of such fiscal year, together
with a summary analysis of variances prepared by the Company's management. The
Company shall deliver copies of all material reports and correspondence sent to
the Company or the Company by its independent certified public accountants
promptly upon receipt thereof.
(b) As soon as available, and in any event within thirty (30)
days after the end of each calendar month, a copy of an unaudited consolidated
financial report of the Company as of the end of such calendar month and for the
portion of the fiscal year then ended (with notes as to any consolidating
entries), 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 Company for such period together with a written summary analysis
of variances prepared by the Company's management.
(c) 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 Company 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), 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 Company for such period together with a written summary analysis
of variances prepared by the Company's management.
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(d) On or before thirty (30) days prior to the beginning of
each fiscal year of the Company, an annual budget or business plan for such
fiscal year on a monthly basis, including projected consolidated balance sheets,
income statements, and cash flow statements for each month of such fiscal year
(with notes as to any consolidating entries), and, at the beginning of each
fiscal quarter, all revisions thereto approved by the board of directors of the
Company.
4.02 Laws. The Company will comply with all applicable statutes,
regulations, and orders of the United States, domestic and foreign states, and
municipalities, agencies, and instrumentalities of the foregoing applicable to
the Company.
4.03 Inspection. Subject to Section 6.16 of this Agreement, the Company
will permit any representative designated by the Holders to (a) visit and
inspect any of the properties of the Company; (b) examine the corporate and
financial records of the Company and make copies thereof or extracts therefrom;
and (c) discuss the affairs, finances, and accounts of the Company with the
directors, officers, key employees, and independent accountants of the Company.
4.04 Certain Actions. Without the prior written consent of the Holders
(except that with respect to Sections 4.04(c), (d) and (i), in which case the
consent of each Holder shall be required), which consent may be withheld in the
sole discretion of the Holders, the Company will not:
(a) permit to occur any amendment, alteration, or modification
of its Articles of Incorporation, Bylaws or other charter or
organizational documents of the Company, as constituted on the date of
this Agreement, the effect of which, in the sole judgment of the
Holders, would be to alter, impair, or affect adversely, either the
rights and benefits of the Holders or the duties and obligations of
Company or the Shareholder under this Agreement, the Warrants, or the
Shareholder Agreement;
(b) declare or make any dividends or distributions of its
cash, stock, property, or assets or redeem, retire, purchase, or
otherwise acquire, directly or indirectly, any of the Capital Stock or
capital stock or securities of any Affiliate of the Company, or any
securities convertible or exchangeable into Capital Stock or capital
stock or securities of any Affiliate of the Company;
(c) effect any sale, lease, assignment, transfer, or other
conveyance of any portion of the assets or operations or the revenue or
income generating capacity of the Company in excess of $25,000 in the
aggregate (other than inventory in the ordinary course of business and
other assets reasonably and in good faith determined by the Company to
be obsolete or no longer necessary to the business of the Company) or
to take any such action that has the effect of any of the foregoing;
(d) except pursuant to this Agreement or the Shareholder
Agreement, issue or sell, or otherwise dispose of any Capital Stock of
any Subsidiary, dissolve or liquidate, or effect any consolidation or
merger involving the Company or any Subsidiary or any reclassification,
corporate reorganization, stock split or reverse stock split, or other
change of any class of Capital Stock;
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(e) enter into any business that the Company is not conducting
on the date of this Agreement or acquire any substantial business
operation or assets (through a stock or asset purchase or otherwise);
(f) enter into any transaction or transactions with any
director, officer, employee, or 5% or greater shareholder of the
Company, who is not an officer, director or employee of the Company, or
the Shareholder, or any Affiliate or relative of the foregoing except
upon terms that, in the opinion of the Holders, are fair and reasonable
and that are, in any event, at least as favorable as would result in a
comparable arm's-length transaction with a Person not a director,
officer, employee, shareholder, or Affiliate of the Company or the
Shareholder or any Affiliate or related party of the foregoing, or
advance any monies to any such Persons, except for travel advances in
the ordinary course of business;
(g) increase the amount of benefits payable under any benefit
plan in the aggregate, or increase, beyond the amounts permitted
pursuant to the Note Agreement as of the date of this Agreement, the
aggregate amount of salary and any other direct and indirect
remuneration (including, but not limited to, employee benefits,
professional, management, and consulting fees and expenses, and bonuses
under any plans) paid or accrued by the Company during any fiscal year
to or for the direct or indirect benefit of any of its officers,
directors, Affiliates or any 5% or greater shareholder of the Company;
(h) acquire any debt or equity interest in any Person or
establish or acquire a Subsidiary or make any additional capital
contribution or purchase any additional equity in any Subsidiary or
make any advances or loans to any Subsidiary except Borrower or
transfer any technology or assets to any Subsidiary except Borrower;
(i) modify, amend, terminate or waive any provision of the
Non-Compete Agreement or consent to ▇▇▇▇▇ ▇▇▇▇▇ ceasing to perform the
functions of president and chief executive officer of the Company;
(j) allow the aggregate par value of the Capital Stock subject
to the Warrants from time to time to exceed the price payable upon
exercise of the Warrants, as adjusted from time to time; or
(k) agree to take, permit or enter into any of the events
described in subsections (a) through (j) above.
4.05 Records. The Company and each of its Subsidiaries will keep books
and records of account in which full, true, and correct entries will be made of
all dealings and transactions in relation to its business and affairs in
accordance with GAAP.
4.06 Accountants. The Company will retain independent public
accountants who will certify the consolidated financial statements of the
Company at the end of each fiscal year, and in the event that the services of
the independent public accountants so selected, or any firm of independent
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public accounts hereafter employed by Company, are terminated, the Company will
promptly thereafter notify each Holder and upon the Holders' request, the
Company will request the firm of independent public accountants whose services
are terminated to deliver (without liability for such firm) to each Holder a
letter of such firm setting forth the reasons for the termination of their
services and in its notice to each Holder the Company will state whether the
change of accountants was recommended or approved by the board of directors of
the Company or any committee thereof.
4.07 Existence. The Company will maintain in full force and effect its
corporate existence, rights, and franchises and all licenses and other rights to
use intellectual property where such failure would have a Material Adverse
Effect on the Company.
4.08 Notice.
(a) In the event of (i) any setting by the Company of a record
date with respect to the holders of any class of Capital Stock for the
purpose of determining which of such holders are entitled to dividends,
repurchases of securities or other distributions, or any right to
subscribe for, purchase or otherwise acquire any shares of Capital
Stock or other property or to receive any other right; or (ii) any
capital reorganization of the Company, or reclassification or
recapitalization of the Capital Stock or any transfer of all or a
majority of the assets, business, or revenue or income generating
capacity of the Company, or consolidation, merger, share exchange,
reorganization, or similar transaction involving the Company; or (iii)
any voluntary or involuntary dissolution, liquidation, or winding up of
the Company; or (iv) any proposed issue or grant by the Company of any
Capital Stock, or any right or option to subscribe for, purchase, or
otherwise acquire any Capital Stock (other than the issue of Issuable
Warrant Shares upon exercise of the Warrants or the issuance of
Permitted Stock), then, in each such event, the Company will deliver or
cause to be delivered to the Holders a notice specifying, as the case
may be, (A) the date on which any such record is to be set for the
purpose of such dividend, distribution, or right, and stating the
amount and character of such dividend, distribution, or right; (B) the
date as of which the holders of record will be entitled to vote on any
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up; (C) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up is to take place and the time, if any is to
be fixed, as of which the holders of record of any class of Capital
Stock will be entitled to exchange their shares of Capital Stock for
securities or other property deliverable upon such event; (D) the
amount and character of any Capital Stock, property, or rights proposed
to be issued or granted, the consideration to be received therefor,
and, in the case of rights or options, the exercise price thereof, and
the date of such proposed issue or grant and the Persons or class of
Persons to whom such proposed issue or grant will be offered or made;
and (E) such other information as the Holders may reasonably request.
Any such notice will be deposited in the United States mail, postage
prepaid, at least twenty (20) days prior to the date therein specified,
and notwithstanding anything in this Agreement or the Warrants to the
contrary the Holders may exercise the Warrants within twenty (20) days
from the receipt of such notice.
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(b) If there is any adjustment as provided above in Article
II, or if any Other Securities become issuable in lieu of shares of
such Common Stock upon exercise of the Warrants, the Company will
immediately cause written notice thereof to be sent to the each Holder,
which notice, if requested by Holder, will be accompanied by a
certificate of the independent public accountants of the Company
setting forth in reasonable detail the basis for the Holders' becoming
entitled to receive such Other Securities, the facts requiring any such
adjustment in the number of shares receivable after such adjustment, or
the kind and amount of any Other Securities so purchasable upon the
exercise of the Warrants, as the case may be. At the request of any
Holder and upon surrender of the Warrant of such Holder, the Company
will reissue the Warrant of such Holder in a form conforming to such
adjustments.
4.09 Taxes. The Company will file all required tax returns, reports,
and requests for refunds on a timely basis and will pay on a timely basis all
taxes imposed on either of it or upon any of its assets, income, or franchises.
4.10 Warrant Rights. The Company covenants and agrees that during the
term of this Agreement and so long as any Warrant is outstanding, (a) the
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock and Other Securities, to provide for the exercise in full
of the rights represented by the Warrants and the exercise in full of the rights
of the Holders under the Shareholder Agreement; (b) the Company will not
increase or permit to be increased the par value per share or stated capital of
the Issuable Warrant Shares or the consideration receivable upon issuance of its
Issuable Warrant Shares; and (c) in the event that the exercise of the Warrant
would require the payment by the Holder of consideration for the Common Stock or
Other Securities receivable upon such exercise of less than the par or stated
value of such Issuable Warrant Shares, the Company and the Shareholder will
promptly take such action as may be necessary to change the par or stated value
of such Issuable Warrant Shares to an amount less than or equal to such
consideration.
4.11 Small Business Investment Act. At the request of any Holder, the
Company will, and each Shareholder will use his/her/its best efforts to,
promptly correct any defect, error or omission with respect to the Act that may
be discovered in the contents of this Agreement or the documents executed in
connection herewith or in the execution or acknowledgment thereof, and will
execute, acknowledge and deliver such further instruments and do such further
acts as may be necessary for this Agreement and such other documents, and all
transactions contemplated thereby, to comply with the Act.
4.12 Non-Compete Agreement. Subject to any limitations established or
existing under applicable law, the Company will maintain the Non-Compete
Agreement in full force and effect, and will diligently enforce the Non-Compete
Agreement against any parties thereto who violate or attempt to violate such
Non-Compete Agreement.
ARTICLE V
CONDITIONS
The obligations of Purchaser to effect the transactions contemplated by
this Agreement are subject to the following conditions precedent:
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5.01 Opinion. Purchaser will have received favorable opinions, dated
the Closing Date, from Bay Venture Counsel, LLP, counsel for the Company
covering matters raised by the Note Agreement, this Agreement, the Shareholder
Agreement, and such other matters as Purchaser or its counsel may request, and
otherwise in form and substance satisfactory to Purchaser and its counsel, and
written permission from each other firm issuing an opinion to the Company in
connection with this Agreement, the Note Agreement or any Other Agreement, as
defined in the Note Agreement, authorizing Purchaser to rely on such opinions.
5.02 Note Agreement Conditions. All of the conditions precedent to the
obligations of Purchaser under the Note Agreement will have been satisfied in
full.
5.03 Material Change. There will have occurred no material adverse
change in the business, prospects, results, operations, or condition, financial
or otherwise, of the Company.
5.04 Shareholder Agreement. The Company and the Shareholder will have
entered into the Shareholder Agreement with Purchaser.
5.05 Representations and Agreements. Each representation and warranty
of the Company and the Shareholder set forth in this Agreement will be true and
correct when made and as of the Closing Date, and the Company and the
Shareholder will have fully performed all their covenants and agreements set
forth in this Agreement.
5.06 Proceedings; Consents. All proceedings taken in connection with
the transactions contemplated by this Agreement, and all documents necessary to
the consummation of this Agreement, will be satisfactory in form and substance
to Purchaser and their counsel, and Purchaser and their counsel will have
received certificates of compliance and copies (executed or certified as may be
appropriate) of all documents, instruments, and agreements that Purchaser or
such counsel may request in connection with the consummation of such
transactions. All consents of any Person necessary to the consummation of the
transactions contemplated by this Agreement and the Shareholder Agreement will
have been received, be in full force and effect, and not be subject to any
onerous condition.
5.07 Small Business Concern Documents. The Company will have completed,
executed and delivered to Purchaser a Size Status Declaration on SBA Form 480, a
Non-Discrimination Certificate on SBA Form 652-D and shall have provided
Purchaser the information necessary to complete the Portfolio Financing Report
on SBA Form 1031.
ARTICLE VI
MISCELLANEOUS
6.01 Indemnification. In addition to any other rights or remedies to
which Purchaser and the Holders may be entitled, the Company agrees to and will
indemnify and hold harmless Purchaser, the Holders, and their Affiliates and
their respective successors, assigns, officers, directors, employees, attorneys,
and agents (individually and collectively, an "Indemnified Party") from and
against any and
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all losses, claims, obligations, liabilities, deficiencies, diminutions in
value, penalties, causes of action, damages, costs, and expenses (including,
without limitation, costs of investigation and defense, attorneys' fees, and
expenses), including, without limitation, those arising out of the sole or
contributory negligence of any Indemnified Party, that the Indemnified Party may
suffer, incur, or be responsible for, arising or resulting from any
misrepresentation, breach of warranty, or nonfulfillment of any covenant or
agreement on the part of the Company or the Shareholder under this Agreement,
the Shareholder Agreement, or under any other agreement to which the Company or
the Shareholder is a party in connection with this transaction, or from any
misrepresentation in or omission from any certificate or other instrument
furnished or to be furnished to Purchaser or the Holders under this Agreement.
6.02 Default. It is agreed that a violation by any party of the terms
of this Agreement cannot be adequately measured or compensated in money damages,
and that any breach or threatened breach of this Agreement by a party to this
Agreement would do irreparable injury to the nondefaulting party. It is,
therefore, agreed that in the event of any breach or threatened breach by a
party to this Agreement of the terms and conditions set forth in this Agreement,
the nondefaulting party will be entitled, in addition to any and all other
rights and remedies that it may have in law or in equity, to apply for and
obtain injunctive relief requiring the defaulting party to be restrained from
any such breach or threatened breach or to refrain from a continuation of any
actual breach.
6.03 Integration. This Agreement and the Shareholder Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all previous written, and all previous
or contemporaneous oral, negotiations, understandings, arrangements, and
agreements. This Agreement may not be amended or supplemented except by a
writing signed by Company, the Shareholder and the Holders.
6.04 Headings. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement. References
in this Agreement to Sections and Articles are references to the Sections and
Articles of this Agreement unless otherwise specified.
6.05 Severability. The parties to this Agreement expressly agree that
it is not the intention of any of them 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, unless the inoperative provision would
cause enforcement of the remainder of this Agreement to be inequitable under the
circumstances.
6.06 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
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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 the Purchaser, at Seacoast Capital Partners Limited
Partnership
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Seacoast Capital Partners Limited
Partnership
c/o Seacoast Capital Corporation
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Pacific Mezzanine Fund, L.P.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tangent Growth Fund, L.P.
▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with courtesy copies to: ▇▇▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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If to the Company, at ValueStar Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with courtesy copies to: Bay Venture Counsel, LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Shareholder, at: ▇▇▇▇▇ ▇▇▇▇▇
ValueStar, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as each party may designate for itself by like notice.
Notice to any Holder other than Purchaser will be delivered as set forth above
to the address shown on the stock transfer books of the Company or the Warrant
Register 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 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.
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6.07 Successors. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
6.08 Remedies. The failure of any party to enforce any right or remedy
under this Agreement, or promptly to enforce any such right or remedy, will not
constitute a waiver thereof, nor give rise to any estoppel against such party,
nor excuse any other party from its obligations under 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.
6.09 Survival. All warranties, representations, and covenants made by
any party in this Agreement or in any certificate or other instrument delivered
by such party or on its behalf under this Agreement will be considered to have
been relied upon by the party to which it is delivered and will survive the
Closing Date, regardless of any investigation made by such party or on its
behalf. All statements in any such certificate or other instrument will
constitute warranties and representations under this Agreement.
6.10 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 be borne and paid by the
Company within ten (10) days of demand by the Holders.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
6.12 Other Business. It is understood and accepted that Purchaser, the
Holders, and their Affiliates have interests in other business ventures that may
be in conflict with the activities of the Company and that nothing in this
Agreement will limit the current or future business activities of such parties
whether or not such activities are competitive with those of the Company. The
Company and the Shareholder agree that all business opportunities in any field
substantially related to the business of the Company will be pursued exclusively
through the Company.
6.13 CHOICE OF LAW. THIS AGREEMENT HAS BEEN EXECUTED, DELIVERED, AND
ACCEPTED BY THE PARTIES IN THE STATE OF CALIFORNIA 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.
6.14 Duties Among Holders. Each Holder agrees that no other Holder will
by virtue of this Agreement be under any fiduciary or other duty to give or
withhold any consent or approval under this Agreement or to take any other
action or omit to take any action under this Agreement, and that each
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other Holder may act or refrain from acting under this Agreement as such other
Holder may, in its discretion, elect.
6.15 Small Business Investment Act. This Agreement, the other purchase
documents executed in connection herewith, and all transactions contemplated
hereby and thereby are subject to the provisions of the Act, and shall be
governed thereby to the extent of any conflict therewith.
6.16 Confidentiality. Each Holder agrees to keep confidential any
information delivered by the Company to such Holder under this Agreement that
the Company clearly indicates in writing to be confidential information;
provided, however, that nothing in this Section 6.16 will prevent such Holder
from disclosing such information (a) to any Affiliate of such Holder or any
actual or potential purchaser, participant, assignee, or transferee of such
Holder's rights or obligations hereunder that agrees to be bound by the terms of
this Section 6.16, (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 Holder, (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 Holder, (f) in connection with the exercise of any
remedy under this Agreement, or (g) to the certified public accountants for such
Holder. The Company agrees that such Holder will be presumed to have met its
obligations under this Section 6.16 to the extent that it exercises the same
degree of care with respect to information provided by the Company as it
exercises with respect to its own information of similar character.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
VALUESTAR CORPORATION
By:
------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: President and Chief Executive
Officer
SHAREHOLDERS:
---------------------------------------
▇▇▇▇▇ ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, individually, as
President of Sunrise Capital, Inc. and
General Partner of ▇▇▇▇▇▇▇ Investments,
and as General Partner of ▇▇▇▇▇▇▇
Investments Limited Partnership
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, individually, as
President of Davric Corporation and
Trustee of the ▇▇▇▇▇ ▇. ▇▇▇▇▇ Family
Trust
35
PURCHASER:
SEACOAST CAPITAL PARTNERS
LIMITED PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By:
-----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax: (415) 956-459
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Number of Warrant Shares in connection
with the A Warrant: 935,051
Number of Warrant Shares in connection
with the B Warrant: 322,968
Number of Warrant shares in connection
with the C Warrant: 141,509
36
PACIFIC MEZZANINE FUND. L.P.
By: Pacific Private Capital
its general partner
By:
------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
General Partner
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Number of Warrant Shares in connection
with the A Warrant: 374,021
Number of Warrant Shares in connection
with the B Warrant: 129,187
Number of Warrant shares in connection
with the C Warrant: 56,604
37
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management LLC,
General Partner
By:
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President
▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Number of Warrant Shares in connection
with the A Warrant: 218,178
Number of Warrant Shares in connection
with the B Warrant: 75,359
Number of Warrant shares in connection
with the C Warrant: 33,019
38
SCHEDULE 3.01(a)
39
SCHEDULE 3.01(d)
40
ANNEX A
FORM OF SHAREHOLDER AGREEMENT
(SEE ATTACHED)
41
ANNEX B-1
FORM OF A WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH THE
DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
TERMS AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT
EACH DATED AS OF MARCH ______, 1999, AMONG VALUESTAR, CORPORATION (THE
"COMPANY") ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ AND ▇▇▇▇▇ ▇. ▇▇▇▇▇ (INDIVIDUALLY AND
COLLECTIVELY, THE "SHAREHOLDER") AND SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP (THE "PURCHASER"), PACIFIC MEZZANINE FUND, L.P. ("PACIFIC") AND
TANGENT FUND MANAGEMENT, LLC ("TANGENT") (AS SUCH AGREEMENTS MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES
OF THE COMPANY.
shares of
------------- Warrant No.
Common Stock ---------
WARRANT TO PURCHASE COMMON STOCK OF
VALUESTAR CORPORATION
This is to certify that, in consideration of ten dollars ($10.00) and
other valuable consideration, which is hereby acknowledged as received, the
Purchaser, its successors and registered assigns, is entitled at any time after
the Closing Date (as defined in the Agreements) and prior to the earlier to
occur of (i) the expiration of six (6) years from the date the obligations
evidenced by the Senior Note, dated as of March ___, 1999 executed by ValueStar,
Inc., a California corporation, (the "Subsidiary") and payable to the Purchaser,
as the same may be amended, modified and extended from time to time, are paid in
full pursuant to the terms of the Note Purchase Agreement, dated as of March
_____, 1999, between the Subsidiary and the Purchaser as the same may be amended
from time to time, (ii) 5:00 p.m. March _____, 2009, to
42
exercise this Warrant to purchase _________________ (________) shares of the
Common Stock of ValueStar Corporation, a Colorado corporation (the "Company"),
as the same shall be adjusted from time to time pursuant to the provisions of
the Agreements at a price per share as specified in the Agreements and to
exercise the other rights, powers, and privileges hereinafter provided, all on
the terms and subject to the conditions specified in this Warrant and in the
Agreements.
This Warrant is issued under, and the rights represented hereby are
subject to the terms and provisions contained in the Agreements, to all terms
and provisions of which the registered holder of this Warrant, by acceptance of
this Warrant, assents. Reference is hereby made to the Agreements for a more
complete statement of the rights and limitations of rights of the registered
holder of this Warrant and the rights and duties of the Company under this
Warrant. Copies of the Agreements are on file at the office of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed this ____ day of March, 1999.
VALUESTAR CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
43
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases ________ of the number of shares of Common Stock
of ValueStar Corporation purchasable with this Warrant, and herewith makes
payment therefor, all at the price and on the terms and conditions specified in
this Warrant and requests that certificates for the shares of Common Stock
hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to _______________________
whose address is ___________________________________________, and if such shares
of Common Stock do not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable thereunder to be delivered to the
undersigned.
Dated: , .
--------------- -------
-------------------------------
By:
----------------------------
Name:
-------------------------
Title:
-------------------------
Address:
----------------------
----------------------
----------------------
44
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
No. of Shares Name and Address of Assignee
------------- ----------------------------
and does hereby irrevocably constitute and appoint as attorney
______________________ to register such transfer on the books of ValueStar
Corporation maintained for the purpose, with full power of substitution in the
premises.
Dated: , .
--------------- -------
By:
----------------------------
Name:
-------------------------
Title:
-------------------------
45
ANNEX B-2
FORM OF B WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH THE
DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
TERMS AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT
EACH DATED AS OF MARCH ______, 1999, AMONG VALUESTAR, CORPORATION (THE
"COMPANY") ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ AND ▇▇▇▇▇ ▇. ▇▇▇▇▇ (INDIVIDUALLY AND
COLLECTIVELY, THE "SHAREHOLDER") AND SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP (THE "PURCHASER"), PACIFIC MEZZANINE FUND, L.P. ("PACIFIC") AND
TANGENT FUND MANAGEMENT, LLC ("TANGENT") (AS SUCH AGREEMENTS MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES
OF THE COMPANY.
shares of
------------- Warrant No.
Common Stock ---------
WARRANT TO PURCHASE COMMON STOCK OF
VALUESTAR CORPORATION
This is to certify that, in consideration of ten dollars ($10.00) and
other valuable consideration, which is hereby acknowledged as received, the
Purchaser, its successors and registered assigns, is entitled at any time after
the Closing Date (as defined in the Agreements) and prior to the earlier to
occur of (i) the expiration of six (6) years from the date the obligations
evidenced by the Senior Note, dated as of March ___, 1999 executed by ValueStar,
Inc., a California corporation, (the "Subsidiary") and payable to the Purchaser,
as the same may be amended, modified and extended from time to time, are paid in
full pursuant to the terms of the Note Purchase Agreement, dated as of March
_____, 1999, between the Subsidiary and the Purchaser as the same may be amended
from time to time, (ii) 5:00 p.m. March _____, 2009, to
46
exercise this Warrant to purchase _________________ (________) shares of the
Common Stock of ValueStar Corporation, a Colorado corporation (the "Company"),
as the same shall be adjusted from time to time pursuant to the provisions of
the Agreements at a price per share as specified in the Agreements and to
exercise the other rights, powers, and privileges hereinafter provided, all on
the terms and subject to the conditions specified in this Warrant and in the
Agreements.
This Warrant is issued under, and the rights represented hereby are
subject to the terms and provisions contained in the Agreements, to all terms
and provisions of which the registered holder of this Warrant, by acceptance of
this Warrant, assents. Reference is hereby made to the Agreements for a more
complete statement of the rights and limitations of rights of the registered
holder of this Warrant and the rights and duties of the Company under this
Warrant. Copies of the Agreements are on file at the office of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed this ____ day of March, 1999.
VALUESTAR CORPORATION
By:
-------------------------
Name:
-----------------------
Title:
----------------------
47
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases ________ of the number of shares of Common Stock
of ValueStar Corporation purchasable with this Warrant, and herewith makes
payment therefor, all at the price and on the terms and conditions specified in
this Warrant and requests that certificates for the shares of Common Stock
hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to _______________________
whose address is ___________________________________________, and if such shares
of Common Stock do not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable thereunder to be delivered to the
undersigned.
Dated: , .
--------------- -------
-------------------------------
By:
----------------------------
Name:
-------------------------
Title:
-------------------------
Address:
----------------------
----------------------
----------------------
48
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
No. of Shares Name and Address of Assignee
------------- ----------------------------
and does hereby irrevocably constitute and appoint as attorney
______________________ to register such transfer on the books of ValueStar
Corporation maintained for the purpose, with full power of substitution in the
premises.
Dated: , .
--------------- -------
By:
----------------------------
Name:
-------------------------
Title:
-------------------------
49
ANNEX B-3
FORM OF C WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH THE
DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
TERMS AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT
EACH DATED AS OF MARCH ______, 1999, AMONG VALUESTAR, CORPORATION (THE
"COMPANY") ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ AND ▇▇▇▇▇ ▇. ▇▇▇▇▇ (INDIVIDUALLY AND
COLLECTIVELY, THE "SHAREHOLDER") AND SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP (THE "PURCHASER"), PACIFIC MEZZANINE FUND, L.P. ("PACIFIC") AND
TANGENT FUND MANAGEMENT, LLC ("TANGENT") (AS SUCH AGREEMENTS MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES
OF THE COMPANY.
shares of
-------------
Common Stock Warrant No.
---------
WARRANT TO PURCHASE COMMON STOCK OF
VALUESTAR CORPORATION
This is to certify that, in consideration of ten dollars ($10.00) and
other valuable consideration, which is hereby acknowledged as received, the
Purchaser, its successors and registered assigns, is entitled at any time after
the Closing Date (as defined in the Agreements) and prior to the earlier to
occur of (i) the expiration of six (6) years from the date the obligations
evidenced by the Senior Note, dated as of March ___, 1999 executed by ValueStar,
Inc., a California corporation, (the "Subsidiary") and payable to the Purchaser,
as the same may be amended, modified and extended from time to time, are paid in
full pursuant to the terms of the Note Purchase Agreement, dated as of March
_____, 1999, between the Subsidiary and the Purchaser as the same may be amended
from time to time, (ii) 5:00 p.m. March _____, 2009, to
50
exercise this Warrant to purchase _________________ (________) shares of the
Common Stock of ValueStar Corporation, a Colorado corporation (the "Company"),
as the same shall be adjusted from time to time pursuant to the provisions of
the Agreements at a price per share as specified in the Agreements and to
exercise the other rights, powers, and privileges hereinafter provided, all on
the terms and subject to the conditions specified in this Warrant and in the
Agreements.
This Warrant is issued under, and the rights represented hereby are
subject to the terms and provisions contained in the Agreements, to all terms
and provisions of which the registered holder of this Warrant, by acceptance of
this Warrant, assents. Reference is hereby made to the Agreements for a more
complete statement of the rights and limitations of rights of the registered
holder of this Warrant and the rights and duties of the Company under this
Warrant. Copies of the Agreements are on file at the office of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed this ____ day of March, 1999.
VALUESTAR CORPORATION
By:
--------------------------
Name:
------------------------
Title:
-----------------------
51
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases ________ of the number of shares of Common Stock
of ValueStar Corporation purchasable with this Warrant, and herewith makes
payment therefor, all at the price and on the terms and conditions specified in
this Warrant and requests that certificates for the shares of Common Stock
hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to _______________________
whose address is ___________________________________________, and if such shares
of Common Stock do not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable thereunder to be delivered to the
undersigned.
Dated: , .
--------------- -------
-------------------------------
By:
----------------------------
Name:
-------------------------
Title:
-------------------------
Address:
----------------------
----------------------
----------------------
52
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
No. of Shares Name and Address of Assignee
------------- ----------------------------
and does hereby irrevocably constitute and appoint as attorney
______________________ to register such transfer on the books of ValueStar
Corporation maintained for the purpose, with full power of substitution in the
premises.
Dated: , .
--------------- -------
By:
----------------------------
Name:
-------------------------
Title:
-------------------------
