EXHIBIT 4.29
VALUESTAR CORPORATION
INVESTORS RIGHTS AGREEMENT
THIS INVESTORS RIGHTS AGREEMENT (this "Agreement") is dated effective
as of December __, 1999, by and among VALUESTAR CORPORATION, a Colorado
corporation (the "Company"), SEACOAST CAPITAL PARTNERS LIMITED PARTNERSHIP, a
Delaware Limited Partnership ("Seacoast"), PACIFIC MEZZANINE FUND, L.P. a
California limited partnership ("Pacific"), TANGENT GROWTH FUND, L.P., a
California limited partnership ("Tangent"), eCOMPANIES VENTURE GROUP, L.P., a
Delaware limited partnership ("eCompanies"), Xxxxx X. Xxxxxx ("Xxxxxx"), and
Xxxxx X. Xxxxx ("Polis"), the entities or individuals set forth on Schedule 1
attached hereto and incorporated herein by reference who comprise holders of the
"Series A Stock" held by all "Purchasers" under that certain ValueStar
Corporation Series A Preferred Stock Purchase Agreement dated July 22, 1999 (the
"Series A Purchase Agreement"), and the additional entities or individuals set
forth on Schedule 1 attached hereto and incorporated herein by reference who
have entered into the ValueStar Corporation Series B Preferred Stock Purchase
Agreement dated on even date herewith (the "Series B Purchase Agreement")
(individually, each such individual or entity identified on Schedule 1 as well
as Seacoast, Pacific, Tangent, eCompanies, Xxxxxx and Polis a "Holder" and
collectively, all such individuals and entities, the "Holders").
RECITALS
A. On March 31, 1999, Seacoast, Pacific, Tangent, Xxxxxx, Polis and Xxx
Xxxxx ("Xxxxx") entered into a Shareholder Agreement (the "Shareholder
Agreement") which granted certain preemptive rights pursuant to Article II
thereunder and certain registration rights pursuant to Article VII thereunder.
B. On July 22, 1999, Seacoast, Pacific, Tangent, Barnes, Polis, Xxxxx
and the purchasers of the Series A Stock entered into a ValueStar Corporation
Registration Rights Agreement and Shareholders Agreement Amendment (the
"Registration Rights Agreement") which, among other matters, amended and
restated Article VII of the Shareholder Agreement.
C. On even date herewith, Seacoast, Pacific and Tangent as the Holders
of a majority of the Registrable Securities under the Shareholder Agreement
terminated the registration rights (Article VII) and preemptive rights (Article
II) under the Shareholder Agreement in partial consideration and contemplation
of the execution of this Agreement by the parties hereto in connection herewith
of the purchase by certain investors of shares of the Company's Series B
Convertible Preferred Stock pursuant to the Series B Purchase Agreement.
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AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:
1. Definitions.
a. "Commission" means the Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act.
b. "Capital Stock" means the Company's common stock and any
other capital stock of the Company authorized from time to time, and any other
shares, options, interests, participations, or other equivalents (however
designated) of or in the Company, whether voting or nonvoting, including,
without limitation, common stock, options, warrants, preferred stock, phantom
stock, stock appreciation rights, preferred stock, convertible notes or
debentures, stock purchase rights, and all agreements, instruments, documents,
and securities convertible, exercisable, or exchangeable, in whole or in part,
into any one or more of the foregoing.
c. "Common Stock" means any and all (i) common stock of the
Corporation issued or issuable upon conversion of the Corporation's Series A
Convertible Preferred Stock or Series B Convertible Preferred Stock , (ii) all
common stock and Other Securities of the Corporation issued or issuable pursuant
to the Warrants issued under the Warrant Purchase Agreement (collectively, (i)
and (ii) the "Stock"); (iii) any common stock of the Corporation issued as a
dividend or other distribution with respect to or in replacement of the Stock,
and (iv) any common stock of the Corporation issued in any combination or
subdivision of the Stock. In determining the amount of Common Stock held by any
Person, the sum of (i), (ii), (iii) and (iv) shall be used.
d. "Exchange Act" means the Securities Exchange Act of 1934,
as amended or any similar Federal statue and the rules and regulations of the
Commission thereunder all as the same shall be in effect at the time.
e. "Indebtedness" means for any Person: (a) all indebtedness,
whether or not represented by bonds, debentures, notes, securities, or other
evidences of indebtedness, for the repayment of money borrowed, (b) all
indebtedness representing deferred payment of the purchase price of property or
assets, (c) all indebtedness under any lease which, in conformity with GAAP, is
required to be capitalized for balance sheet purposes and leases of property or
assets made as a part of any sale and lease-back transaction if required to be
capitalized, (d) all indebtedness under guaranties, endorsements, assumptions,
or other contractual obligations, including any letters of credit, or the
obligations in respect of, or to purchase or otherwise acquire, indebtedness of
others, (e) all indebtedness secured by any lien existing on property owned,
subject to such lien, whether or not the indebtedness secured thereby shall have
been assumed by the
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owner thereof, (f) trade accounts payable more than one hundred twenty (120)
days past due, (g) all amendments, renewals, extensions, modifications and
refundings of any indebtedness or obligations referred to in clauses (a), (b),
(c), (d), (e) or (f).
f. "Other Securities" Any stock other than the Corporation's
common stock, other securities, property, or other property or rights that the
Holders become entitled to receive upon exercise of the Warrants.
g. "Person" means any individual, corporation, trust,
partnership, association, or other entity.
h. "Public Offering" A public offering of shares of any class
of Capital Stock by the Company issued to the general public pursuant to a
registration statement declared effective by the United States Securities and
Exchange Commission.
i. "Registrable Securities" means the Common Stock
j. "Registrable Series A Securities" means the Common Stock
acquired as a result of the purchase of the Series A Stock.
k. "Registrable Series B Securities" means the Common Stock
acquired as a result of the purchase of the Series B Stock.
l. "Securities Act" means the Securities Act of 1933, as
amended, or any similar Federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
m. "Senior Obligations" means and includes any and all
Indebtedness and/or liabilities of the Company to each of Seacoast, Pacific and
Tangent (each a "Noteholder")of every kind, nature and description, direct or
indirect, secured or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter arising, under that
certain "Note Purchase Agreement" and any "Other Agreement" (as such agreements
are referenced under the Warrant Agreement) (regardless of how such Indebtedness
or liabilities arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument) and all obligations of the
Company and any of its subsidiaries to each Noteholder to perform acts or
refrain from taking any action under any of the aforementioned documents,
together with all renewals, modifications, extensions, increases, substitutions
or replacements of any of such Indebtedness.
n. "Series A Stock" means all issued and outstanding Series A
Convertible Preferred Stock of the Company and any common stock shares issuable
upon conversion thereof.
o. "Series B Stock" means all issued and outstanding Series B
Convertible Preferred Stock of the Company and any common stock shares issuable
upon conversion thereof.
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p. "Subsidiary" Each Person of which or in which the Company
or its other Subsidiaries own directly or indirectly fifty-one percent (51%) or
more of (i) the combined voting power of all classes of stock having general
voting power under ordinary circumstances to elect a majority of the board of
directors or equivalent body of such Person, if it is a corporation or similar
person; (ii) the capital interest or profits interest of such Person, if it is a
partnership, joint venture, or similar entity; or (iii) the beneficial interest
of such Person, if it is a trust, association, or other unincorporated
organization.
q. "Warrant Purchase Agreement" means that certain agreement
by and among certain parties hereto and Xxxxx dated March 31, 1999. Any terms
not defined herein shall have the meaning set forth in the Warrant Purchase
Agreement.
r. "Warrants" means collectively the "A Warrant," the "B
Warrant" and the "C Warrant" referred to in Section 2.01 of the Warrant Purchase
Agreement and all Warrants issued upon the transfer or division of, or in
substitution for, such Warrants.
2. Registration Rights.
a. Required Registration. At any time after the earlier to
occur of either (x) the first anniversary date of this Agreement or (y) six
months following the next Public Offering, Holders of a majority of the
Registrable Securities held by Seacoast, Pacific and Tangent or Holders of a
majority of the Registrable Series B Securities may, upon not more than two (2)
occasions and not more often than once during any 180-day period, make a written
request to the Company requesting that the Company effect the registration of
Registrable Securities so long as such request is for an aggregate offering
price of not less than Five Million Dollars ($5,000,000). After receipt of such
a request, the Company will, as soon as practicable, notify all Holders of such
request and use its best efforts to effect the registration of all Registrable
Securities that the Company has been so requested to register by any Holder for
sale, all to the extent required to permit the disposition (in accordance with
the intended method or methods thereof) of the Registrable Securities so
registered.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each Holder
of such Registrable Securities that the success of the offering under this
Section 2.a. would be materially and adversely affected by the inclusion of any
securities requested to be included in such offering, then the amount of
securities to be offered for the accounts of any Persons will be reduced (i)
first according to the securities proposed for registration by any Persons other
than the Holders to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters, and (ii) if such underwriter requires
reduction of the securities to be included in the offering in excess of all
securities held
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by such participating Persons other than the Holders, pro rata among all
participating Holders (according to the securities proposed for such
registration held by such Holders).
b. Incidental Registration. If the Company at any time
proposes to file on its behalf or on behalf of any of its security holders a
registration statement under the Securities Act on any form (other than a
registration statement on Form S-4 or S-8 or any successor form unless such
forms are being used in lieu of or as the functional equivalent of, registration
rights) for any class that is the same or similar to Registrable Securities, it
will give written notice setting forth the terms of the proposed offering and
such other information as the Holders may reasonably request to all holders of
Registrable Securities at least twenty (20) days before the initial filing with
the Commission of such registration statement, and offer to include in such
filing such Registrable Securities as any Holder may request. Each Holder of any
such Registrable Securities desiring to have Registrable Securities registered
under this Section 2.b. will advise the Company in writing within ten (10) days
after the date of receipt of such notice from the Company, setting forth the
amount of such Registrable Securities for which registration is requested. The
Company will thereupon include in such filing the number of Registrable
Securities for which registration is so requested, and will use its best efforts
to effect registration under the Securities Act of such Registrable Securities.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each Holder
of such Registrable Securities that the success of the offering would be
materially and adversely affected by the inclusion of the Registrable Securities
requested to be included, then the amount of securities to be offered for the
accounts of Holders will be reduced pro rata (according to the Registrable
Securities proposed for registration) to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters; provided, however,
that if securities are being offered for the account of other Persons as well as
the Company, then with respect to the Registrable Securities intended to be
offered by Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced will not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other Persons (other than the Company) is reduced; and further
provided, however, that with respect to any underwritten public offering other
than the Company's next Public Offering, no less than 25% of the total number of
Registrable Securities requested to be registered by the Holders shall be
included in the underwriting.
c. Form S-3 Registrations. In addition to the registration
rights provided in Sections 2.a. and 2.b. above, if at any time the Company is
eligible to use Form S-3 (or any successor form) for registration of secondary
sales of Registrable Securities, any Holders of no less than 20% of the
Registrable
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Securities may request in writing not more often than once during any 180-day
period that the Company register shares of Registrable Securities on such form
so long as such request is for an aggregate offering price of at least Five
Million Dollars ($5,000,000). Upon receipt of such request, the Company will
promptly notify all holders of Registrable Securities in writing of the receipt
of such request and each such Holder may elect (by written notice sent to the
Company within fifteen (15) days of receipt of the Company's notice) to have its
Registrable Securities included in such registration pursuant to this Section
7.03. Thereupon, the Company will, as soon as practicable, use its best efforts
to effect the registration on Form S-3 of all Registrable Securities that the
Company has so been requested to register by such Holder for sale. The Company
will use its best efforts to qualify and maintain its qualification for
eligibility to use Form S-3 for such purposes.
d. Termination/Rule 144 Availability. Notwithstanding the
foregoing, the Company will not be obligated to register any Registrable
Securities (i) as to which counsel reasonably acceptable to the participating
Holders renders an opinion in form and substance satisfactory to such Holders to
the effect that such Registrable Securities are freely saleable without
limitation as to volume under Rule 144 under the Securities Act or (ii) after
the fifth anniversary date of the earlier to occur of a "Qualified Liquidity
Milestone" or "Qualified Liquidation Event" as such terms are defined in the
Warrant Purchase Agreement.
e. Registration Procedures. In connection with any
registration of Registrable Securities under this Agreement, the Company will,
as soon as practicable:
(i) prepare and file with the Commission a
registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become and
remain effective until the earlier of such time as all Registrable
Securities subject to such registration statement have been disposed of
or the expiration of one hundred eighty (180) days;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of
all Registrable Securities covered by such registration statement until
the earlier of such time as all of such Registrable Securities have
been disposed of or the expiration of one hundred eighty (180) days;
(iii) furnish to each Holder such number of copies
of the registration statement and prospectus (including, without
limitation, a preliminary prospectus) in conformity with the
requirements of the Securities Act (in each case including all
exhibits) and each amendment or supplement thereto, together with such
other documents as any Holder may reasonably request;
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(iv) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions within the
United States and Puerto Rico as each Holder reasonably requests, and
do such other acts and things as may be reasonably required of it to
enable such holder to consummate the disposition in such jurisdiction
of the securities covered by such registration statement, except any
particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already
subject to service in such jurisdiction;
(v) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its securities holders, as soon as practicable, an earnings
statement covering the period of at least twelve months beginning with
the first month after the effective date of such registration
statement, which earnings statement will satisfy the provisions of
Section 11(a) of the Securities Act;
(vi) provide and cause to be maintained a transfer
agent and registrar for Registrable Securities covered by such
registration statement from and after a date not later than the
effective date of such registration statement;
(vii) if requested by the underwriters for any
underwritten offering or Registrable Securities on behalf of a Holder
of Registrable Securities pursuant to a registration requested under
Section 2.a, the Company will enter into an underwriting agreement with
such underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
provisions with respect to indemnities and contribution as are
reasonably satisfactory to such underwriters and the Holders; the
Holders on whose behalf Registrable Securities are to be distributed by
such underwriters will be parties to any such underwriting agreement
and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters,
will also be made to and for the benefit of such Holders of Registrable
Securities; and no Holder of Registrable Securities will be required by
the Company to make any representations or warranties to or agreements
with the Company or the underwriters other than reasonable and
customary representations, warranties, or agreements regarding such
Holder, such Holder's Registrable Securities, such Holder's intended
method or methods of disposition, and any other representation required
by law;
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(viii) furnish, at the written request of any Holder,
on the date that such Registrable Securities are delivered to the
underwriters for sale pursuant to such registration, or, if such
Registrable Securities are not being sold through underwriters, on the
date that the registration statement with respect to such Registrable
Securities becomes effective, (i) an opinion in form and substance
reasonably satisfactory to such Holders, and addressing matters
customarily addressed in underwritten public offerings, of the counsel
representing the Company for the purposes of such registration (who
will not be an employee of the Company and who will be satisfactory to
such Holders), addressed to the underwriters, if any, and to the
selling Holders; and (ii) a letter (the "comfort letter") in form and
substance reasonably satisfactory to such Holders, from the independent
certified public accountants of the Company, addressed to the
underwriters, if any, and to the selling Holders making such request
(and, if such accountants refuse to deliver the comfort letter to such
Holders, then the comfort letter will be addressed to the Company and
accompanied by a letter from such accountants addressed to such Holders
stating that they may rely on the comfort letter addressed to the
Company); and
(ix) during the period when the registration
statement is required to be effective, notify each selling Holder of
the happening of any event as a result of which the prospectus included
in the registration statement contains an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
It will be a condition precedent to the obligation of the
Company to take any action pursuant to this Agreement in respect of the
Registrable Securities that are to be registered at the request of any Holder of
Registrable Securities that such Holder furnish to the Company such information
regarding the Registrable Securities held by such Holder and the intended method
of disposition thereof as is legally required in connection with the action
taken by the Company. The managing underwriter or underwriters, if any, for any
offering of Registrable Securities to be registered pursuant to Section 2.a. or
2.c. will be selected by the Holders of a majority of the Registrable Securities
being so registered.
f. Allocation of Expenses. Except as provided in the following
sentence, the Company will bear all expenses arising or incurred in connection
with any of the transactions contemplated by this Agreement, including, without
limitation, (a) all expenses incident to filing with the National Association of
Securities Dealers, Inc.; (b) registration fees; (c) printing expenses; (d)
accounting fees and
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expenses and the fees and expenses of one special counsel to the selling Holders
not to exceed $25,000 (except that if in the reasonable written opinion of
counsel for either the holders of a majority of the Registrable Series A
Securities or Registrable Series B Securities, there exists a material conflict
of interest between such two groups of Holders, then each such group may be
represented by separate counsel with each counsel reimbursed for fees and
expenses not to exceed $25,000); (e) expenses of any special audits or comfort
letters incident to or required by any such registration or qualification; and
(f) expenses of complying with the securities or blue sky laws of any
jurisdictions in connection with such registration or qualification.
Notwithstanding the foregoing, each Holder will severally bear the expense of
its underwriting fees, discounts, or commissions relating to its sale of
Registrable Securities in all such registrations.
g. Listing on Securities Exchange. If the Company lists any
shares of Capital Stock on any securities exchange or on the National
Association of Securities Dealers, Inc. Automated Quotation System or similar
system, it will, at its expense, list thereon, maintain and, when necessary,
increase such listing of, all Registrable Securities.
h. Holdback Agreements.
(i) If any registration pursuant to Section 2.b is
in connection with an underwritten public offering, each Holder of
Registrable Securities agrees, if so required by the managing
underwriter, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten public
offering) during the period beginning seven (7) days prior to the
effective date of such registration statement and ending on the one
hundred eightieth (180th) day after the effective date of such
registration statement; provided, however, that Xxx Xxxxx and each
Person that is an officer, director, or beneficial owner of five
percent (5%) or more of the outstanding shares of any class of Capital
Stock enters into such an agreement.
(ii) The Company agrees not to effect any public sale
or distribution during the period seven (7) days (or such longer period
as may be prescribed by Regulation M) prior to the effective date of
the registration statement employed in any underwritten public offering
and ending on the one hundred eightieth (180th) day after any such
registration statement contemplated by Sections 2.a. or 2.c. has become
effective, except as part of such underwritten public offering pursuant
to such registration statement and except pursuant to securities
registered on Forms S-4 or S-8 of the Commission or any successor
forms, and the Company agrees to use its best efforts to cause each
holder of its equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, in each case
purchased from the Company at any time after the date of this Agreement
(other than in a public offering), to agree not to effect any such
public sale or distribution of such securities during such period.
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i. Rule 144. At all times following completion by the Company
of a Public Offering, the Company will take such action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell shares of Registrable Securities without registration pursuant to
and in accordance with (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation adopted by
the Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
j. Rule 144A. The Company agrees that, upon the request of any
Holder or any prospective purchaser of Registrable Securities designated by a
Holder, the Company will promptly provide (but in any case within fifteen (15)
days of a request) to such Holder or potential purchaser, the following publicly
available information:
(i) a brief statement of the nature of the business
of the Company and any Subsidiaries and the products and services they
offer;
(ii) the most recent consolidated balance sheets and
profit and losses and retained earnings statements, and similar
financial statements of the Company for such part of the two preceding
fiscal years prior to such request as the Company has been in operation
(such financial information will be audited, to the extent reasonably
available); and
(iii) such other publicly available information about
the Company, any Subsidiaries, and their business, financial condition,
and results of operations as the requesting Holder or purchaser of such
Warrants requests in order to comply with Rule 144A, as amended, and
the antifraud provisions of the federal and state securities laws. The
Company hereby represents and warrants to any such requesting Holder
and any prospective purchaser of Warrants or Warrant Shares from such
Holder that the information provided by the Company pursuant to this
Section 2.j. will not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were
made, not misleading.
k. Limitations on Subsequent Registration Rights. Until (i) a
Qualified Liquidity Milestone, (ii) a Qualified Liquidation Event (as each is
defined in the Company's Series A Convertible Preferred Stock Certificate of
Designation filed with the Colorado Secretary of State) (iii) the repayment of
any and all Senior Obligations owed to such Noteholder and the sale in excess of
80% of such Noteholder's common stock shares and Other Securities issued or
issuable under the Warrants from and after the date of this Agreement or until
the provisions of Section 2.d. are applicable, the Company will not, without the
prior written consent of the Holders of a majority of the outstanding
Registrable Securities, enter into any
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agreement with any holder or prospective holder of any securities of the Company
that would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 2.a., unless under the terms
of such agreement, such holder or prospective holder may include such securities
in any such registration only to the extent that the inclusion of its securities
will not reduce the amount of the Registrable Securities of the Holders that is
included or (b) to make a demand registration that could result in such
registration statement being declared effective prior to the effectiveness of
the first registration statement effected under Section 2.a. or within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 2.a..
l. Right to Delay a Demand Registration. If, at the time of
any request to register Registrable Securities hereunder, the Company is
preparing a registration statement for a Public Offering (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 of the Commission is applicable) and such
registration statement in fact is filed and becomes effective within ninety (90)
days after the request, then the Company may at its option delay such request
for a period not more than in excess of one hundred twenty (120) days from the
effective date of such offering or the date of commencement of such other
activity, as the case may be. Such right to delay shall be exercised by the
Company not more than once in any twelve (12) month period. Nothing in this
Section 2.l. shall preclude a Holder of Registrable Securities from enjoying
registration rights which it might otherwise possess under this this Agreement.
m. Indemnification
(i) Indemnification By Holders of Registrable
Securities. Each Holder of any Registrable Securities shall, by acceptance
thereof, indemnify and hold harmless each other holder of any Registrable
Securities, the Company, its directors and officers, each above-described
underwriter who contracts with the Company or its agents and each other Person,
if any, who controls the Company or such underwriter, against any liability,
joint or several, to which any such other Holder, the Company, underwriter or
any such director or officer of any such Person may become subject under the
Securities Act or any other statute or at common law, if such liability (or
actions in respect hereof) arises out of or is based upon (i) the disposition by
such Holder of such Registrable Securities in violation of the provisions of
this Agreement, (ii) any alleged untrue statement of any material fact contained
in any registration statement under which securities were registered under the
Securities Act at the request of such Holder, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, or
(iii) any alleged omission to state therein a material fact required to be
stated therein or necessary to make statement(s) therein not misleading.
Notwithstanding any other provision of this Section, the indemnification rights
set forth in this Section shall be given in the case of clause (ii) or (iii)
only if such alleged untrue statement or alleged
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omission supplement thereto was made (1) in reliance upon and in conformity with
written information furnished to the Company by such Holder under an instrument
executed by such Holder expressly stated for use therein, and (2) not based on
the authority of an expert as to whom the holder had no reasonable ground to
believe, and did not believe, that (A) the statements made on the authority of
such expert were untrue or (B) there was an omission to state a material fact.
Such Holder shall reimburse the Company, such underwriter or such director,
officer, other Person or other Holder for any reasonable legal fees incurred in
investigating or defending any such liability if it is judicially determined
that the information furnished by such Holder contains an untrue statement of
material fact or omitted to state a material fact necessary to make the
information not misleading; provided, however, that no Holder of Registrable
Securities shall be required to indemnify any Person against any liability
arising from any untrue or misleading statement or omission contained in any
prospectus or for any liability which arises out of the failure of any Person to
deliver a prospectus as required by the Securities Act; and provided further,
that the obligations of such Holder of Registrable Securities for the indemnity
hereunder shall be limited to an amount equal to the net proceeds received by
such Holder of Registrable Securities upon disposition thereof and shall not
extend to any settlement of claims related thereto without the express written
consent of such Holder of Registrable Securities, which consent shall not be
unreasonably withheld.
(ii) Indemnification by the Company. In the event of
any registration of any of the Registrable Shares under the Securities Act
pursuant to this Agreement, then to the extent permitted by law the Company
shall indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading;
and the Company shall reimburse such seller, underwriter and each such
controlling person for reasonable legal or any other expenses incurred by such
seller, underwriter or controlling person in connection with investigating or
defending any such loss, claim,
12
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon (i) any untrue statement or omission
made in such Registration Statement, preliminary prospectus or prospectus, or
any such amendment or supplement, in reliance upon and in conformity with
information furnished to the Company, in writing, by or on behalf of such
seller, underwriter or controlling person specifically for use in the
preparation thereof. or (ii) on the authority of an "expert" within the meaning
of that term as defined in the Securities Act (but only if the Company had no
reasonable ground to believe, and did not believe, that the statements made on
the authority of such expert were untrue or that there was an omission to state
a material fact). The Company shall not be required to indemnify any Person
against any liability arising from (i) any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is corrected
in the final prospectus or (ii) for any liability which arises out of the
failure of any Person to deliver a prospectus as required by the Securities Act.
n. Nominees for Beneficial Owners/Transfers. In the event that
any Registrable Securities are held by a nominee for the beneficial owner of
such Registrable Securities, the beneficial owner of Registrable Securities may,
at its election, be treated as the Holder of such Registrable Securities for
purposes of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities. In no event will a Holder be required to exercise the
Warrant as a condition to the registration of such Warrant or Registrable
Securities thereunder. The registration rights set forth in this Section 2 are
only assignable by each original Holder hereunder to each assignee of no less
than the lesser of all of Holder's Registrable Securities held as of the date
hereof or at least one hundred thousand (100,000) Registrable Securities
conveyed in accordance herewith (appropriately adjusted in all cases for stock
splits, combinations, recapitalizations and the like), provided that such
assignee promptly agrees in writing to be bound by the terms and conditions of
this Agreement.
3. Preemptive Rights.
a. Equity Preemptive Right. The Company will not issue or sell
any Capital Stock (other than any Series B Stock, or other than any securities
that, with the unanimous consent of the Company's Board of Directors, are not
issued to any existing shareholder of the Company or other than any such other
equity or any such rights to acquire equity which are excluded from the
definition of "Additional Shares of Common Stock" under the Company's Series B
Convertible Preferred Stock Certificate of Designation (including any options or
other convertible securities exercisable for shares excluded from such
13
definition)) ( the "New Securities") without first complying with this Section
3. The Company hereby grants to each of Seacoast, Pacific, Tangent and each
Holder of at least 20% of the Registrable Series B Securities originally
outstanding (each a "Preemptive Right Holder") the preemptive right to purchase,
pro rata, any part of the New Securities that the Company may, from time to
time, propose to sell or issue. In the event New Securities are offered or sold
as part of a unit with other New Securities, the preemptive right granted by
this Section3 will apply to such units and not to the individual New Securities
composing such units. Each Holder's pro rata share for purposes of Section 3 is
the ratio that the number of shares of Common Stock owned by such Holder
immediately prior to the issuance of the New Securities bears to the sum of the
total number of shares of Common Stock then outstanding. Any payment due from
Holder in connection with the exercise of the preemptive right granted pursuant
to this Section 3.a may be satisfied, at the option of the Holder, by (i)
cancellation of any debt and/or accrued interest owed by the Company to the
Holder or (ii) cancellation of Warrant Shares, valued at Fair Market Value.
b. Debt Preemptive Right. The Company will not incur any
additional debt other than the debt due under the Note or any Permitted
Indebtedness, (as defined in the Note Agreement) without first complying with
this Section 3 and Section 12.15 of the Note Agreement.
c. Notice to Preemptive Right Holders.
(i) In the event the Company proposes to issue or
sell New Securities, it will give each Preemptive Right Holder written
notice of its intention, describing the type of New Securities and the
price and terms upon which the Company proposes to issue or sell the
New Securities. Each Preemptive Right Holder will have fifteen (15)
days from the date of receipt of any such notice and such information
as the Preemptive Right Holder may reasonably request to facilitate its
investment decision to agree to purchase up to its respective pro rata
share of the New Securities for the price (valued at Fair Market Value
for any noncash consideration) and upon the terms specified in the
notice by giving written notice to the Company stating the quantity of
New Securities agreed to be purchased.
(ii) In the event the Company proposes to incur
additional debt to which Section 3.b above (but not Section 3.a
above)would apply (the "New Financing"), the Company shall first offer
to each of Seacoast, Pacific and Tangent, on a pari passu and pro rata
basis, based upon the principal amount of the Senior Obligations
outstanding to such parties (except that if the Senior Obligations have
been paid in full, based upon the amount of Capital Stock owned by such
parties), the right to provide all or any part of the New Financing
proposed to be incurred, on the most favorable terms for lender(s) to
be providing such New Financing. Such offer shall describe
14
the New Financing in reasonable detail. Thereafter, each such party
shall have fifteen (15) days in which to accept the Company's offer and
closing of the transaction shall take place within sixty (60) days of
acceptance. If any such Holder does not accept the offer or accepts
only a part of it, such Holder shall notify the Company and the other
two Holders, and the other two Holders shall thereupon have the right,
within an additional ten (10) day period, to agree to provide on a pro
rata basis the New Financing not so provided by the non-accepting
Holder, and closing of such transaction shall take place within sixty
(60) days of acceptance. If no such Holder accepts the offer, or if
each such Holder elects to provide only a part of the New Financing
offered, then the Company may then offer to third parties such New
Financing, or a portion thereof not provided by any such Holder, on
terms and conditions no more favorable to the lenders thereof than
those provided by, or offered to, such Holders, provided that any such
funding occurs within one hundred eighty (180) days of such Holders'
non-acceptance or partial acceptance of the Company's original offer.
Any New Financing thereafter must first be reoffered to each of
Seacoast, Pacific and Tangent under the terms of this Section 3.c(ii).
d. Allocation of Unsubscribed New Securities. In the event a
Preemptive Right Holder fails to exercise such equity preemptive right in full
within such fifteen (15) day period, the other Preemptive Right Holders, if any,
will have an additional five (5) day period to purchase such Holder's portion
not so agreed to be purchased in the same proportion in which such other Holders
were entitled to purchase the New Securities (excluding for such purposes such
nonpurchasing Holder). Thereafter, the Company will have ninety (90) days to
sell the New Securities not elected to be purchased by the Preemptive Right
Holders at the same price and upon the same terms specified in the Company's
notice described in Section 3.c(i). In the event the Company has not sold the
New Securities within such ninety (90) day period, the Company will not
thereafter issue or sell any New Securities without first offering such
securities in the manner provided above.
e. Termination of Preemptive Rights. The rights granted
pursuant to this Section 3 shall terminate upon the earlier to occur of (i) a
Qualified Liquidation Event or (ii) a Qualified Liquidity Milestone.
4. Miscellaneous.
a. Headings. The headings in this Agreement are for
convenience and reference only and are not part of the substance of this
Agreement.
b. Severability. The parties to this Agreement expressly agree
that it is not their intention to violate any public policy, statutory or common
law rules, regulations, or decisions of any governmental or regulatory body. If
any provision of this Agreement is judicially or administratively
15
interpreted or construed as being in violation of any such policy, rule,
regulation, or decision, the provision, section, sentence, word, clause, or
combination thereof causing such violation will be inoperative (and in lieu
thereof there will be inserted such provision, sentence, word, clause, or
combination thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this Agreement, as amended,
will remain binding upon the parties to this Agreement, unless the inoperative
provision would cause enforcement of the remainder of this Agreement to be
inequitable under the circumstances.
c. Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration, or other communication be given
to or served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
will be deemed to have been validly served, given, or delivered (and "the date
of such notice" or words of similar effect will mean the date) five (5) days
after deposit in the United States mails, certified mail, return receipt
requested, with proper postage prepaid, or upon receipt thereof (whether by
non-certified mail, telecopy, telegram, express delivery, or otherwise),
whichever is earlier, and addressed to the party to be notified as follows:
If to eCompaniesVenture Group, L.P., at
If to Seacoast, at Seacoast Capital Partners Limited Partnership
Xxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
Seacoast Capital Partners Limited Partnership
c/o Seacoast Capital Corporation
00 Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx Xxxxxxx
Fax: (000) 000-0000
If to Pacific, at Pacific Mezzanine Fund, L.P.
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx
Fax: (000) 000-0000
If to Tangent, at Tangent Growth Fund, L.P.
0 Xxxxx Xxxxxx
000 Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
16
Attention: Xxxx X. Xxxxxx
Fax: (000) 000-0000
with courtesy copies to: Xxxxxx Xxxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
Howard, Rice, Nemerovski, Canady, Xxxx & Rabkin
Three Embarcadero Center, Xxxxxxx Xxxxx
Xxx Xxxxxxxxx, XX 00000-0000
Xxxxx X. Xxxx, Esq.
.....................................
If to the Company, at ValueStar Corporation
000 00xx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
FAX: (000) 000-0000
Attention: Xxx Xxxxx
with courtesy copies to: Bay Venture Counsel, LLP
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
If to Xxxxxx: Xxxxx X. Xxxxxx
0000 Xxxxxx Xxxx Xxxxx
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
If to Polis: Xxxxx X. Xxxxx
000 Xxxxxxxx Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxx 00000
Fax: (000) 000-0000
If to any other Holder: As set forth on Schedule 1.
or to such other address as each party may designate for itself by like
notice. Notice to any other Holder will be delivered as set forth above to the
address shown on the stock transfer books of the Company unless such Holder has
advised the Company in writing of a different address to which notices are to be
sent under this Agreement. Failure or delay in delivering the courtesy copies of
any notice, demand, request, consent, approval, declaration, or other
communication to the persons designated above to receive copies of the actual
notice will in no way adversely affect the effectiveness of such notice, demand,
request, consent, approval, declaration, or other communication. No notice,
demand, request, consent, approval,
17
declaration, or other communication will be deemed to have been given or
received unless and until it sets forth all items of information required to be
set forth therein pursuant to the terms of this Agreement.
d. Successors/Amendments. This Agreement will be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns.. Except as otherwise expressly provided herein, the
provisions of this Agreement may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if it has obtained the written consent of Holders holding at least
sixty-six and two-thirds percent (66-2/3%) or more of the then outstanding
Registrable Securities; provided, however, that any amendment or action which
would adversely affect only one class of Holders shall also require the written
consent of the Holders holding at least sixty-six and two-thirds percent
(66-2/3%) or more of the then outstanding Registrable Securities of such class.
Notwithstanding the foregoing, this Section 4.d. shall not be amended without
the consent of all Holders.
e. Remedies. The failure of any party to enforce any right or
remedy under this agreement, or to enforce any such right or remedy promptly,
will not constitute a waiver thereof, nor give rise to any estoppel against such
party, nor excuse any other party from its obligations under this Agreement. Any
waiver of any such right or remedy by any party must be in writing and signed by
the party against which such waiver is sought to be enforced.
f. Fees. Any and all fees, costs, and expenses, of whatever
kind and nature, including attorneys' fees and expenses, incurred by the Holders
in connection with the defense or prosecution of any actions or proceedings
arising out of or in connection with this Agreement will, to the extent provided
in this Agreement, be borne and paid by the Company within ten (10) days of
demand by the Holders.
g. Counterparts. This Agreement may be executed in any number
of counterparts, which will individually and collectively constitute one
agreement.
h. Choice of Law. THIS AGREEMENT HAS BEEN EXECUTED, DELIVERED,
AND ACCEPTED BY THE PARTIES AND WILL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF
CALIFORNIA AND WILL BE INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE THERETO AND THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AN AGREEMENT EXECUTED,
DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES
THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE
SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
18
Signature Pages to ValueStar Corporation Investors Rights Agreement
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
COMPANY:
VALUESTAR CORPORATION
By: /s/ XXXXX XXXXX
Name: Xxxxx Xxxxx
Its: President and Chief Executive Officer
/s/ XXXXX X. XXXXXX
Xxxxx X. Xxxxxx, individually, as President
of Sunrise Capital, Inc. and General Partner
of Xxxxxxx Investments, and as General
Partner of Xxxxxxx Investments Limited
Partnership
/s/ XXXXX X. XXXXX
Xxxxx X. Xxxxx, individually, as President of
Davric Corporation and Trustee of the Xxxxx
X. Xxxxx Family Trust
S-1
19
Schedule 1
Signature Pages to ValueStar Corporation Investors Rights Agreement
eCOMPANIES VENTURE GROUP, L.P.
By /s/ XXXXXX XXXXXX
------------------
Its: Managing General Partner
SEACOAST CAPITAL PARTNERS LIMITED
PARTNERSHIP
By: Seacoast Capital Corporation,
its general partner
By: /s/ XXXXXXX X. XXXXXXX
----------------------
Name: Xxxxxxx X. Xxxxxxx
Its: Vice President
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital
its general partner
By: /s/ XXXXXX X. XXXXX
-------------------
` Name: Xxxxxx X. Xxxxx
Its: General Partner
TANGENT GROWTH FUND, L.P.
By: Tangent Fund Management, LLC
its general partner
By /s/ XXXX X. XXXXXX
------------------
Name: Xxxx X. Xxxxxx
Its: Vice President
S-2
20
Schedule 1
Signature Pages to ValueStar Corporation Investors Rights Agreement
(Each Page Differs as to Holder and Holder Information)
---------------------------------------
Name of Holder
---------------------------------------
Authorized Signature
---------------------------------------
Print Name and Title of Signatory
ADDRESS
------------------------------------
------------------------------------
------------------------------------
S-3
21
