Document:

EXHIBIT 4.29.2

                              VALUESTAR CORPORATION
                                 SECOND AMENDED
                                  AND WAIVER OF
                           INVESTORS RIGHTS AGREEMENT

         THIS SECOND  AMENDED AND WAIVER OF  INVESTORS  RIGHTS  AGREEMENT  (this
"Agreement") is dated effective as of September 14, 2000 (the "Effective Date"),
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
("Companies"),  and TMCT VENTURES,  L.P.  ("TMCT")(Seacoast,  Pacific,  Tangent,
eCompanies  and TMCT a  "Holder"  and  collectively,  all such  individuals  and
entities, the "Holders").

                                     RECITAL

         In  consideration  of the  Company's  sale  of  certain  securities  in
accordance  with the terms and  provisions set forth under that certain Series C
Preferred Stock and Warrant Purchase  Agreement dated on even date herewith (the
"Purchase  Agreement"),  the  Holders  desire  to  amend  the  Investors  Rights
Agreement originally entered into by Seacoast,  Pacific,  Tangent and eCompanies
on December 8, 1999,  with TMCT becoming a party thereto on January 4, 2000, and
as subsequently amended on March 24, 2000 (the "Rights Agreement") in accordance
with the terms set forth in this Agreement.  All  capitalized  terms not defined
herein shall have the meanings established in the Rights Agreement.

                                    AGREEMENT

         NOW, THEREFORE,  in consideration of the mutual agreements,  covenants,
representations and warranties  contained in this Agreement,  the parties hereto
hereby agree as follows:

1.       Registration Rights.

         a.  Incidental  Registration.  In  accordance  with  Section 2.b of the
Rights Agreement,  the Holders hereby acknowledge notice from the Company of its
intention to register certain  securities as set forth in the Purchase Agreement
and corresponding  Registration Rights Agreement thereto and hereby request that
the Registrable Securities held by such Holders be included in such registration
in accordance with the terms thereof.

         b. Limitations on Subsequent Registration Rights. The Holders holding a
majority of the outstanding  Registrable Securities hereby consent in accordance
with  Section  2.k of the Rights  Agreement  to the  Company  entering  into the
Purchase Agreement and corresponding  Registration  Rights Agreement thereto and
undertaking its obligations thereunder,  whereby the Company has granted certain
investors under such agreements the right to a registration  that will result in
such registration  statement being declared effective prior to the effectiveness
of the first  registration  statement to be effected  under  Section 2.a. of the
Rights Agreement.

2.       Waiver of  Preemptive  Rights.  Each of the Holders  hereby  waives its
preemptive  rights set forth in Section 3 of the Rights Agreement  applicable to
any of the securities sold or to be sold under the Purchase Agreement.

                                      -1-
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                                Signature Page to
         ValueStar Corporation Second Amended Investors Rights Agreement

         IN WITNESS  WHEREOF,  the parties  have  executed  and  delivered  this
Agreement as of the date first above written.

                                             VALUESTAR CORPORATION

                                             By: /s/ James Stein
                                             Name:  James Stein
                                             Its:  Chief Executive Officer

                                             eCOMPANIES VENTURE GROUP, L.P.

                                             By: /s/ Steven Ledger
                                             Name:  Steven Ledger
                                             Its:   Managing General Partner

                                             SEACOAST CAPITAL PARTNERS LIMITED
                                             PARTNERSHIP
                                             By:    Seacoast I Advisors,
                                                    LLC, its general partner

                                                    By:/s/ Jeffrey J. Holland
                                                    Name:  Jeffrey J. Holland
                                                    Its:       Vice President

                                             PACIFIC MEZZANINE FUND, L.P.
                                             By:    Pacific Private Capital,
                                                    its general partner

                                             By: /s/ Nathan W. Bell
                                             Name:  Nathan W. Bell
                                             Its:   General Partner

                                             TANGENT GROWTH FUND, L.P.
                                             By:    Tangent Fund Management,
                                                    LLC, its general
                                                    partner

                                                    By: /s/ Mark P. Gilles
                                                    Name:  Mark P. Gilles
                                                    Its:  Vice President

                                             TMCT VENTURES, L.P.
                                             Under management by
                                             Rustic Canyon Partners, LLC

                                             By: /s/ Michael Song
                                             Printed Name:  Michael Song
                                             Title:         Partner

                                      -2-EXHIBIT 4.33

                              VALUESTAR CORPORATION

                      SERIES C PREFERRED STOCK AND WARRANT

                               PURCHASE AGREEMENT

                               September 14, 2000

<PAGE>

             SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

         THIS  SERIES C  PREFERRED  STOCK AND WARRANT  PURCHASE  AGREEMENT  (the
"Agreement")  is dated for reference  purposes only as of September 14, 2000, by
and between VALUESTAR  CORPORATION,  a Colorado corporation (the "Corporation"),
and those  investors set forth on Schedule 1 attached  hereto  (individually,  a
"Purchaser" and collectively, the "Purchasers").

                                R E C I T A L S:

         A.  The  Corporation,  through  its  subsidiary,   Valuestar,  Inc.,  a
California  corporation,  is in the business of rating and  certifying  customer
satisfaction of commercial businesses.

         B.  The  Purchasers   are  interested  in  investing   capital  in  the
Corporation and the Corporation desires to obtain capital from the Purchasers on
the terms and conditions hereinafter set forth.

                               A G R E E M E N T:

         NOW,  THEREFORE,  in consideration of the above recitals and the mutual
agreements,  covenants,  representations and warranties  contained below in this
Agreement, the parties agree as follows:

I. DEFINITIONS.

         "Agreement"  means, and the words "herein",  "hereof",  "hereunder" and
words of similar import refer to, this instrument and any amendments hereto.

         "Act" means the Small  Business  Investment Act of 1958, as amended and
in effect from time to time, and the regulations promulgated thereunder.

         "Affiliate"  means  any  Person  directly  or  indirectly  controlling,
controlled by, or under common  control with,  the Person in question.  A Person
shall be deemed to control a corporation if such Person  possesses,  directly or
indirectly,  the power to direct or cause the  direction of the  management  and
policies  of  such   corporation,   whether  through  the  ownership  of  voting
securities, by contract, or otherwise.

         "Certificate  of  Designation"  means the Certificate of Designation of
the  Corporation  attached  hereto as Exhibit  A,  which sets forth the  rights,
privileges and preferences of the Series C Convertible Preferred Stock.

         "Code"  means the  Internal  Revenue  Code of 1986,  as amended  and in
effect from time to time, and the regulations promulgated thereunder.

         "Exchange Act" means the  Securities  Exchange Act of 1934, as amended,
or any similar  Federal  statute which  replaces said Exchange Act and the rules
and regulations of the SEC thereunder, all as the same shall be in effect at the
time.

         "GAAP" means generally  accepted  accounting  principles,  applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American  Institute of Certified Public  Accountants and/or in statements of
the Financial Accounting Standards Board

                                       1

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and/or their respective successors and which are applicable in the circumstances
as of the date in question.

         "Intellectual  Property"  means  all  patents,  patent  rights,  patent
applications,   licenses,   inventions,  trade  secrets,  know-how,  proprietary
techniques  (including  processes and  substances),  trademarks,  service marks,
trade names and copyrights.

         "Lien" means any lien, mortgage,  security interest,  tax lien, pledge,
encumbrance,  financing  statement,  or  conditional  sale  or  title  retention
agreement, or any other interest in property designed to secure the repayment of
indebtedness or any other obligation, whether arising by agreement, operation of
law, or otherwise.

         "Material  Adverse Effect" means (a) a material adverse effect upon the
business,  operations,  properties, assets or condition (financial or otherwise)
of the Corporation or, as the case may be, Corporation and the Subsidiary, taken
as a whole or (b) the  impairment  of the  ability  of any party  other than any
Purchaser to perform its  obligations  under this  Agreement or any of the Other
Agreements to which it is a party.

         "Other  Agreements"  means the  Registration  Rights  Agreement and all
other  agreements,  instruments  and  documents  and all  renewals,  amendments,
modifications  and  extensions  thereof,  whether  heretofore,  now or hereafter
executed by or on behalf of the  Corporation  or Subsidiary and delivered to and
for the benefit of Purchaser under this Agreement.

         "Party" or "parties" means the Corporation and/or any Purchaser.

         "Person"  means  any  individual,  sole  proprietorship,   corporation,
business trust, unincorporated organization,  association, company, partnership,
joint  venture,  governmental  authority  (whether a national,  federal,  state,
county,  municipality  or otherwise,  and shall include  without  limitation any
instrumentality, division, agency, body or department thereof), or other entity.

         "Registration Rights Agreement" means the Registration Rights Agreement
attached hereto as Exhibit B.

         "Securities  Act" means the Securities Act of 1933, as amended,  or any
similar  Federal  statute which  replaces such  Securities Act and the rules and
regulations  of the SEC  thereunder,  all as the same  shall be in effect at the
time.

         "SEC" means the Securities and Exchange Commission.

         "Subsidiary" means Valuestar, Inc., a California corporation.

         "Series C Stock"  means the  shares of Series C  Convertible  Preferred
Stock of the Corporation issued to the Purchasers pursuant to this Agreement.

         "Warrant" or "Warrants"  means the form of Warrant  attached  hereto as
Exhibit C.

                                       2

<PAGE>

II. SALE AND ISSUANCE OF SERIES C STOCK.

         2.1 Purchase  and Sale of Series C Stock..  The  Corporation  agrees to
sell to each Purchaser  meeting the  suitability  standards set forth in Article
VI,  and,  subject  to the terms and  conditions  set  forth  herein,  each such
Purchaser agrees to purchase from the Corporation,  the Series C Stock set forth
opposite its name in Schedule 1 attached hereto at a per share purchase price of
$22.50 per share and  warrants to purchase  common  stock in an amount  equal to
fifty  percent  (50%) of the number of common  stock  shares  which  Pruchaser's
Series  C  Stock  is  convertible   to  at  the  Initial   Closing  (as  defined
hereinbelow).

         2.2 Issuance and  Payment.The  initial closing of the sale and purchase
of at least two hundred  twenty-two  thousand two hundred  twenty-two  (222,222)
shares of the  Series C Stock  will take  place at the  offices  of BAY  VENTURE
COUNSEL,  LLP, 1999 Harrison Street,  Suite 1300, Oakland,  California 94612, at
4:00 p.m. on September 14, 2000, or such other time and place as the parties may
mutually agree (the "Initial Closing").

         "At each  "Closing" (as defined in Section 2.3), the  Corporation  will
deliver to each Purchaser a duly issued and executed certificate of the Series C
Stock and Warrant to be purchased by it,  registered  in the  Purchaser's  name,
against  payment of the  purchase  price  thereof as set forth in Schedule 1, by
certified check, by wire transfer of immediately  available funds,  cancellation
of any  indebtedness  owed by the Corporation to Purchaser or by any combination
of the foregoing.

         2.3 Subsequent  Sale of Series C Preferred  Stock.  The Corporation may
sell up to an  additional  one million one hundred  eleven  thousand one hundred
eleven  (1,111,111)  shares of Series C Stock to such Persons as the Corporation
may determine at any time after the Initial Closing and on, or before,  December
31,  2000,  at no less  than  $22.50  per  share and  otherwise  upon  terms and
conditions no more favorable than those contained herein. Any such sale which is
upon the same terms and conditions as those contained  herein shall entitle such
persons or entities to become  parties to this  Agreement  and the  Registration
Rights  Agreement,  each  dated  as of even  date  herewith,  by and  among  the
Corporation and the  Purchasers,  and shall have the rights and obligations of a
Purchaser  hereunder and  thereunder.  The Initial  Closing and each  subsequent
closing shall be referred to herein as a "Closing."

III. CONDITIONS OF THE PURCHASERS' OBLIGATIONS.

         The  obligation  of  each  Purchaser  to  consummate  the  transactions
contemplated  herein at the Closing is subject to the  satisfaction on or before
the date of the Closing of the following conditions,  all or any of which may be
waived in writing by each  Purchaser  as to its  obligation  to  consummate  the
transaction so contemplated:

         3.1  Representations  and Warranties.  Each of the  representations and
warranties of the  Corporation  contained in this Agreement,  including  without
limitation  those in  Article  V, and in any other  documents  delivered  by the
Corporation  to the  Purchasers at or prior to the Initial  Closing will be true
and  correct at and as of the date of the  Initial  Closing as though then made,
except  to  the  extent  of  changes  caused  by  the   transactions   expressly
contemplated  herein; the Corporation's  business and assets shall not have been
adversely affected in any material way prior to the Closing; and the Corporation
shall have  performed  all  obligations  and  conditions  herein  required to be
performed or observed by the  Corporation  on or prior to the  Closing;  and the
Corporation  shall have  delivered a  certificate  executed by the  President or
Secretary of the Corporation to such effect.

                                       3

<PAGE>

         3.2 Closing  Documents.  The  Corporation  will have  delivered  to the
Purchasers copies of the following  specifically  named documents  referenced in
this  Agreement or the  Schedules  hereto,  including but not limited to a fully
executed Registration Rights Agreement, and all of the following documents:

                  (a) an Officer's  Certificate  from the Corporation  dated the
date of the Initial  Closing,  stating that all the  preconditions  specified in
this Article III have been satisfied;

                  (b) correct and complete copies of the resolutions  adopted by
the board of directors of the  Corporation  certified to such effect on the date
of the Initial  Closing by the  Secretary  of the  Corporation  authorizing  the
execution,  delivery and performance of this Agreement and any other  agreements
contemplated hereby, and authorizing all other transactions contemplated by this
Agreement;

                  (c) correct and complete copies of the  Corporation's  Bylaws,
as amended,  and  Certificate of Designation  and all currently  contemplated or
proposed  amendments  thereto,  as  approved  by  the  board  of  directors  and
shareholders of the Corporation, all certified to such effect on the date of the
Initial Closing by the Secretary of the Corporation;

                  (d) a good standing certificate dated within ten (10) business
days of the Initial Closing issued by the Colorado Secretary of State;

                  (e) an opinion of counsel from the Corporation's  counsel, Bay
Venture  Counsel,  LLP  dated  the  date  of  the  Initial  Closing,  reasonably
acceptable to Purchasers;

                  (f) such other  documents  referenced  within any  Schedule or
relating to the  transactions  contemplated  by this Agreement as the Purchasers
may reasonably request.

         3.3  Proceedings.  All corporate and other  proceedings  taken or to be
taken in connection with the transactions  contemplated hereby to be consummated
at or prior  to the  Initial  Closing  and all  documents  incident  thereto  or
required to be delivered prior to or at the Closing will be satisfactory in form
and substance to the Purchasers.

         3.4 Examination of Books and Records.  The Corporation  shall have made
available to the  Purchasers  (who may appoint  representatives  to perform such
inspection) during normal business hours, for inspection and copying, all of the
Corporation's  books,  records,  contracts  and  documents of or relating to the
Corporation.

         3.5 Suits/Proceedings.  No action, suit, proceeding or investigation by
or before any court, administrative agency or other governmental authority shall
have been  instituted  or threatened  to restrain,  prohibit or  invalidate  the
transactions contemplated by this Agreement.

         3.6  Authorization of Issuance.  The  Corporation's  board of directors
will have  authorized the issuance and sale by it to the Purchasers  pursuant to
this Agreement of the Series C Stock and Warrants.

         3.7  Reservation of Stock.  The  Corporation's  board of directors will
have reserved  sufficient shares of its authorized but unissued Common Stock for
the  exclusive  purpose of issuance  upon  conversion  of the Series C Stock and
exercise of the Warrants.

         3.8 Capital Outstanding.  As of the Initial Closing (but without giving
effect  thereto),  the Corporation will have a total of no more than that number
of shares of Preferred  Stock and

                                       4

<PAGE>

Common Stock issued and outstanding as listed and described in Schedule 5.14(a).
The  Corporation  will have  outstanding no options,  convertible  securities or
warrants  other  than as listed  and  described  on  Schedule  5.14(b) as of the
Initial Closing.

         3.9 Consent.  The Corporation  shall have obtained any and all consents
(including all governmental or regulatory consents,  approvals or authorizations
required in connection with the valid execution and delivery of this Agreement),
permits  and  waivers   necessary  or  appropriate   for   consummation  of  the
transactions contemplated by this Agreement.

         3.10 SBA Documents.  The Corporation shall have provided each Purchaser
that is a Small  Business  Investment  Company  (a)  with  all  information  and
documentation  that such Purchaser  shall have requested in connection  with the
preparation and completion of the Portfolio  Financing  Report on SBA Form 1031,
and (b) originals  executed by the  Corporation  of each of (i) an SBA Letter in
form and substance  previously  delivered to certain  purchasers of the Series A
Convertible  Preferred Stock, (ii) the Size Status  Declaration on SBA Form 480,
and (iii) the Assurance of Compliance on SBA Form 652.

IV. CONDITIONS OF THE CORPORATION'S OBLIGATIONS.

         The  obligation  of the  Corporation  to issue  the  Series C Stock and
Warrants with respect to any one Purchaser is subject to the  satisfaction on or
before the date of the Closing of the following  conditions with respect to such
Purchaser, all or any of which may be waived in writing by the Corporation:

         4.1  Performance.  Each such  Purchaser  shall have duly  performed and
complied  in all  material  respects  with  each of the  terms,  agreements  and
conditions  required by this  Agreement to be  performed or complied  with by it
prior to or at the Closing.

         4.2 Representations and Warranties.  The representations and warranties
of each Purchaser  contained in Article VI and in any other documents  delivered
at or prior to the Closing  shall be true and  accurate on and as of the Closing
with the same effect as though made on and as of the date of the Closing.

         4.3 Instruments and Documents.  All instruments and documents  required
to  carry  out  this  Agreement  or  incidental   thereto  shall  be  reasonably
satisfactory to the Corporation and its counsel.

         4.4 Suits/Proceedings.  No action, suit, proceeding or investigation by
or before any court, administrative agency or other governmental authority shall
have been  instituted  or threatened  to restrain,  prohibit or  invalidate  the
transactions contemplated by this Agreement.

         4.5 Covenants.  All covenants,  agreements and conditions  contained in
this  Agreement  to be performed  by the  Purchasers  on or prior to the Closing
shall have been performed or complied with in all material respects.

V. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.

         Except as set forth on any Schedules  attached hereto and  incorporated
herein by reference,  the  Corporation  hereby  represents  and warrants to each
Purchaser as of the date hereof and as of the Initial Closing as follows:

                                       5

<PAGE>

         5.1. Corporate Existence and Authority.

                  (a)  The  Corporation  (i) is a  corporation  duly  organized,
validly existing, and in good standing under the laws of Colorado;  (ii) has all
requisite  corporate  power and  authority  to own its  assets  and carry on its
business  as now  conducted;  and  (iii)  is  qualified  to do  business  in all
jurisdictions  in which the  nature of its  business  makes  such  qualification
necessary and where failure to so qualify would have a Material  Adverse Effect.
The Corporation has the corporate power and authority to execute,  deliver,  and
perform its obligations  under this Agreement and all Other  Agreements to which
it is, or in connection with the transactions contemplated hereby, may become, a
party.

                  (b)  The  Subsidiary  (i)  is a  corporation  duly  organized,
validly  existing,  and in good standing under the laws of California;  (ii) has
all requisite  corporate  power and authority to own its assets and carry on its
business  as now  conducted;  and  (iii)  is  qualified  to do  business  in all
jurisdictions  in which the  nature of its  business  makes  such  qualification
necessary and where failure to so qualify would have a Material Adverse Effect.

         5.2 Financial  Statements and Reports. The Corporation has timely filed
all required forms, reports, statements and documents with the SEC, all of which
have complied in all material  respects with all applicable  requirements of the
Exchange Act and the  Securities  Act, as the case may be. The  Corporation  has
delivered or made available to each  Purchaser  true and complete  copies of (i)
the  Corporation's  Annual  Report on Form 10-KSB for the fiscal year ended June
30,  1999,  (ii)  its  proxy  statement  relating  to the  Corporation's  annual
stockholders  meeting held  November 19, 1999,  (iii) all other forms,  reports,
statements and documents filed by the  Corporation  with the SEC pursuant to the
Exchange Act since June 30, 1999,  and (iv) all  reports,  statements  and other
information  provided by the  Corporation to its  stockholders  since January 1,
1999  (collectively,  the "SEC Reports").  As of their respective dates, the SEC
Reports did not contain any untrue statement of a material fact or omit to state
a  material  fact  required  to be  stated  therein  or  necessary  to make  the
statements  therein,  in the light of the  circumstances  under  which they were
made,  not  misleading.  Each of the  consolidated  financial  statements of the
Corporation  included or incorporated by reference in the SEC Reports (including
any such SEC Report  filed  after the date of this  Agreement  until the Initial
Closing)  were prepared in  accordance  with GAAP applied on a consistent  basis
(except as  otherwise  stated in such  financial  statements  or, in the case of
audited statements,  the related report thereon of independent  certified public
accounts),  and present fairly the financial position and results of operations,
cash flows and of changes in  stockholders'  equity of the  Corporation  and its
consolidated  subsidiaries  as of the  dates  and  for  the  periods  indicated,
subject,  in the case of  unaudited  interim  financial  statements,  to  normal
year-end  audit  adjustments,  and except that the unaudited  interim  financial
statements do not contain all of the  disclosures  required by GAAP.  Since June
30,  1999  there  has  been  no  change  in any of  the  significant  accounting
(including tax accounting) policies, practices, or procedures of the Corporation
or any of its consolidated subsidiaries. The Corporation is and has been subject
to the reporting  requirements of the Exchange Act and has timely filed with the
SEC all  periodic  reports  required to be filed by it pursuant  thereto and all
reports  required to be filed under Sections 13, 14 or 15(d) of the Exchange Act
since June 30, 1999.

         5.3  Default.   Except  as  disclosed  on  Schedule  5.3,  neither  the
Corporation  nor  the  Subsidiary  is  in  default  under  any  loan  agreement,
indenture,  mortgage, security agreement,  lease, franchise,  permit, license or
other  agreement  or  obligation  to which it is a party or by which  any of its
properties may be bound which default would cause a Material Adverse Effect. The
Corporation is paying its debts as they become due.

                                       6

<PAGE>

         5.4  Authorization  and Compliance  with Laws and Material  Agreements.
Except as set forth on Schedule 5.4, the execution,  delivery and performance by
the Corporation of this Agreement and the Other Agreements to which it is or may
in connection with the  transactions  contemplated  hereby become a party,  have
been or prior to the consummation of such  transactions  will be duly authorized
by all requisite  action on the part of the  Corporation and do not and will not
violate  the  Certificate  of  Designation,  or the  Corporation's  Articles  of
Incorporation  or  Bylaws  or any law or any  order of any  court,  governmental
authority or arbitrator,  and do not and will not upon the  consummation  of the
transactions  contemplated  hereby  conflict  with,  result  in a breach  of, or
constitute a default  under,  or result in the  imposition  of any Lien upon any
assets of the  Corporation  pursuant to the  provisions  of any loan  agreement,
indenture,  mortgage,  security agreement,  franchise,  permit, license or other
instrument  or agreement by which the  Corporation  or any of its  properties is
bound.  Except as set forth on  Schedule  5.4,  no  authorization,  approval  or
consent  of,  and no  filing  or  registration  with,  any  court,  governmental
authority or third Person is or will be necessary for the execution, delivery or
performance by the  Corporation  of this  Agreement and the Other  Agreements to
which  it is a  party  or the  validity  or  enforceability  thereof.  All  such
authorizations,  approvals,  consents,  filings and  registrations  described in
Schedule 5.4 have been obtained. The Corporation is not in violation of any term
of its Articles of Incorporation or Bylaws or any contract,  agreement, judgment
or decree and is in full  compliance with all applicable  laws,  regulations and
rules where such violation would cause a Material  Adverse Effect.  All officers
of the  Corporation  to the  best of  their  knowledge  have  complied  with all
material applicable laws, regulations and rules in the course and scope of their
employment with the Corporation.

         5.5  Environmental  Condition of the  Property.  Except as disclosed on
Schedule 5.5:

                  (a) The location,  construction,  occupancy, operation and use
of the  Corporation's  properties do not violate any  applicable  law,  statute,
ordinance,  rule,  regulation,   order  or  determination  of  any  governmental
authority  or  other  body  exercising  similar  functions,  or any  restrictive
covenant or deed restriction  (recorded or otherwise) affecting such properties,
including,  without  limitation,  all applicable  zoning ordinances and building
codes,  flood disaster,  occupational  health and safety laws and  Environmental
Laws  and  regulations  (as  referred  to in  this  Section  5.5,  collectively,
"applicable laws") where such violation would cause a Material Adverse Effect;

                  (b)  Without  limitation  of clause (a) of this  Section  5.5,
neither the  Corporation,  the Subsidiary nor such properties are subject to any
existing,  pending or threatened  investigation  or inquiry by any  governmental
authority or subject to any remedial obligations due to violations of applicable
laws;

                  (c) Neither the  Corporation  nor the Subsidiary is subject to
any liability or obligation  relating to (i) the  environmental  conditions  on,
under or about such  properties,  including,  without  limitation,  the soil and
ground  water  conditions  at such  properties,  or (ii)  the  use,  management,
handling,  transport,  treatment,  generation,  storage,  disposal,  release  or
discharge  of any  Polluting  Substance  which  would  cause a Material  Adverse
Effect;

                  (d) There is no Polluting  Substance or other  substance  that
may pose any risk to safety,  health or the  environment  on, under or about any
such properties which would cause a Material Adverse Effect;

                  (e)  The  Corporation  and/or  the  Subsidiary,  whichever  is
applicable,  have taken reasonable steps to determine and hereby  represents and
warrants  that no  Polluting

                                       7

<PAGE>

Substances have been disposed of or otherwise  released on, onto,  into, or from
their  properties by the  Corporation or the  Subsidiary,  and the use which the
Corporation  and/or the Subsidiary  makes and intends to make of such properties
does not and will not result in the disposal or other  release of any  Polluting
Substances on, onto, into or from such properties; and

                  (f)  The  Corporation  and/or  the  Subsidiary,  whichever  is
applicable,  have been issued all required  federal,  state and local  licenses,
certificates or permits relating to, and their properties, the Corporation,  the
Subsidiary and the  Corporation's  and the  Subsidiary's  facilities,  business,
assets,  leaseholds and equipment are all in compliance in all material respects
with all  applicable  federal,  state and  local  laws,  rules  and  regulations
relating to, air emissions,  water discharge,  noise emissions,  solid or liquid
waste disposal,  Polluting Substances, or other environmental,  health or safety
matters where non-compliance would have a Material Adverse Effect.

         5.6  Litigation  and  Judgments.  Except as disclosed on Schedule  5.6,
there is no suit,  action,  proceeding or investigation  pending or, to the best
knowledge of the Corporation, threatened against or affecting the Corporation or
the  Subsidiary,  the  outcome  of  which,  in the  reasonable  judgment  of the
Corporation,  is  likely to have a  Material  Adverse  Effect,  nor is there any
judgment,  decree,  injunction,  ruling  or  order of any  court,  governmental,
regulatory or administrative department,  commission, agency or instrumentality,
arbitrator  or any other  person  outstanding  against  the  Corporation  or the
Subsidiary  having,  or which is reasonably  likely to have, a Material  Adverse
Effect.

         Except for  litigation  disclosed in the as disclosed on Schedule  5.6,
there  is no  action,  suit,  proceeding  or  investigation  before  any  court,
governmental  authority  or  arbitrator  pending,  or to  the  knowledge  of the
Corporation  threatened,  against or affecting the Corporation,  the Subsidiary,
this Agreement and/or the Other Agreements. Except as disclosed on Schedule 5.6,
there are no outstanding  judgments  against the  Corporation or the Subsidiary.
None of the matters listed on Schedule 5.6 could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.

         5.7 Rights in Properties;  Liens.  Except as disclosed on Schedule 5.7,
the  Corporation  and the  Subsidiary  have  good  and  marketable  title to all
properties  and  assets  reflected  on their  balance  sheets,  and none of such
properties or assets is subject to any Liens. The Corporation and the Subsidiary
enjoy peaceful and  undisturbed  possession  under all leases  necessary for the
operation of their other properties,  assets, and businesses and all such leases
are valid and  subsisting  and are in full  force and  effect.  There  exists no
default  under  any  provision  of any  lease  which  would  permit  the  lessor
thereunder  to  terminate  any such lease or to exercise  any rights  under such
lease which, individually or together with all other such defaults, could have a
Material  Adverse Effect.  The Corporation and the Subsidiary have the exclusive
right to use all of the  Intellectual  Property  necessary to their  business as
presently  conducted,  and the  Corporation's  and the  Subsidiary's  use of the
Intellectual  Property does not infringe on the rights of any other Person where
such nonexclusively or infringement would not have a Material Adverse Effect. To
the best of the  Corporation's  knowledge,  no other  Person is  infringing  the
rights of the Corporation or the Subsidiary in any of the Intellectual Property.
Neither the Corporation nor the Subsidiary owes any royalties, honoraria or fees
to any Person by reason of its use of the Intellectual Property.

         5.8  Enforceability.  This Agreement and the Other  Agreements to which
the Corporation is a party,  when delivered,  shall constitute the legal,  valid
and binding obligations of the Corporation,  enforceable against the Corporation
in accordance with their respective terms.

                                       8

<PAGE>

         5.9  Indebtedness.  Except as  disclosed  on the  financial  statements
identified in Section 5.2 and on Schedule 5.9,  neither the  Corporation nor the
Subsidiary has any Indebtedness. All Indebtedness owed by the Corporation or the
Subsidiary to any Affiliate is set forth on Schedule 5.9.

         5.10 Taxes.  Except as set forth on Schedule 5.10, the  Corporation and
the Subsidiary  have timely filed all tax returns  (federal,  state,  and local)
required to be filed,  including,  without  limitation,  all income,  franchise,
employment,  property,  and sales  taxes,  and have timely paid all of their tax
liabilities, other than immaterial amounts and taxes that are being contested by
the  Corporation  or the  Subsidiary  in good  faith by  appropriate  actions or
proceedings  diligently  pursued,  and for which adequate reserves in conformity
with GAAP with respect  thereto have been  established.  Neither the Corporation
nor the Subsidiary know of any pending  investigation  of the Corporation or the
Subsidiary by any taxing  authority or pending but  unassessed  tax liability of
the  Corporation  or the  Subsidiary,  except as disclosed on Schedule 5.10. The
Corporation  and the Subsidiary have made no presently  effective  waiver of any
applicable  statute of limitations or request for an extension of time to file a
tax return,  and neither the  Corporation  nor the Subsidiary are a party to any
tax-sharing agreement.

         5.11 Use of Proceeds;  Margin  Securities.  Neither the Corporation nor
the Subsidiary are engaged principally,  or as one of its important  activities,
in the business of extending  credit for the purpose of  purchasing  or carrying
margin  stock  (within  the  meaning  of  Regulations  T, U or X of the Board of
Governors  of the Federal  Reserve  System),  and no part of the proceeds of any
extension of credit under this  Agreement  will be used to purchase or carry any
such margin stock or to extend credit to others for the purpose of purchasing or
carrying margin stock.  Neither the  Corporation,  the Subsidiary nor any Person
acting on their  behalf has taken any action that might  cause the  transactions
contemplated by this Agreement or any Other Agreements to violate Regulations T,
U or X or to violate the Securities Exchange Act of 1934, as amended.

         5.12 ERISA.  All members of any Controlled Group have complied with all
applicable  minimum funding  requirements  and all other applicable and material
requirements of ERISA and the Code,  applicable to the Employee Benefit Plans it
or they sponsor or  maintain,  and there are no existing  conditions  that would
give rise to material liability thereunder. With respect to any Employee Benefit
Plan,  all  members  of any  Controlled  Group  have made all  contributions  or
payments to or under each Employee Benefit Plan required by law, by the terms of
such  Employee  Benefit  Plan or the  terms of any  contract  or  agreement.  No
Termination  Event has occurred in connection  with any Pension Plan,  and there
are no unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA,
with  respect to any  Pension  Plan  which  poses a risk of causing a Lien to be
created on the assets of the  Corporation or which will result in the occurrence
of a Reportable  Event.  No member of any Controlled  Group has been required to
contribute to a multiemployer  plan, as defined in Section  4001(a)(3) of ERISA,
since September 2, 1974. No material  liability to the Pension Benefit  Guaranty
Corporation  has  been,  or is  expected  to be,  incurred  by any  member  of a
Controlled  Group.  The term  "liability,"  as referred to in this Section 5.12,
includes any joint and several liability.  No prohibited transaction under ERISA
or the Code has occurred  with respect to any Employee  Benefit Plan which could
have a Material  Adverse  Effect or a material  adverse effect on the condition,
financial or otherwise, of an Employee Benefit Plan.

         5.13 Disclosure.  No representation or warranty made by the Corporation
in this Agreement or in any of the documents,  instruments, or other information
furnished to the Purchaser by the Corporation,  contains any untrue statement of
a material fact or omits to

                                       9

<PAGE>

state any material fact necessary in order to make any  statements  made therein
not  misleading.   No  representation,   warranty,  or  statement  made  by  the
Corporation in this Agreement,  the  Registration  Rights  Agreement,  or in any
document,  certificate,  exhibit  or  schedule  attached  hereto or  thereto  or
delivered  in  connection  herewith or  therewith,  contains or will contain any
untrue  statement of a material  fact, or omits or will omit to state a material
fact  necessary to make any  statements  made herein or therein not  misleading.
There is no fact that materially and adversely affects the condition  (financial
or otherwise), results of operations,  business, properties, or prospects of the
Corporation  or any of its  Subsidiaries  that  has not  been  disclosed  in the
documents provided to Purchaser.

         5.14   Subsidiaries   and   Capitalization.   The  Corporation  has  no
Subsidiaries,  other than the Subsidiary.  All the issued and outstanding shares
of capital stock of the Corporation are duly authorized,  validly issued,  fully
paid and  nonassessable.  The  capitalization  of the Corporation on the Initial
Closing Date is set forth on Schedule  5.14 (a). No violation of any  preemptive
rights  of  shareholders  of the  Corporation  has  occurred  by  virtue  of the
transactions contemplated under this Agreement or any Other Agreement. There are
no  outstanding  contracts,   options,  warrants,   instruments,   documents  or
agreements  binding  upon the  Corporation  granting  to any  Person or group of
Persons  any right to purchase or acquire  shares of the  Corporation's  capital
stock other than as set forth on Schedule 5.14(b).

         5.15 Current Locations.  Schedule 5.15 identifies (a) the Corporation's
principal  place of business and chief executive  office,  (b) all the locations
where the  Corporation  maintains  any books or records  relating  to any of its
assets,  (c) all other  locations where the Corporation has a place of business,
and (d) each address where any of the Corporation's assets are located. Schedule
5.15 accurately indicates whether each such location is owned or leased, and, if
leased,  identifies  the  owner  of such  location.  No  Person  other  than the
Corporation  has  possession  of  any  material  amount  of  the  assets  of the
Corporation except as disclosed on Schedule 5.15.

         5.16  Investment   Corporation  Act.   Neither  the  Corporation,   the
Subsidiary  nor any company  controlling  the  Corporation  or the Subsidiary is
required to be registered as an "investment  company"  within the meaning of the
Investment Corporation Act of 1940, as amended.

         5.17 Public Utility Holding  Corporation  Act.  Neither the Corporation
nor the  Subsidiary  is a  "holding  company"  or a  "subsidiary  company"  of a
"holding company" or an "affiliate" of a "holding company" or a "public utility"
within the meaning of the Public  Utility  Holding  Corporation  Act of 1935, as
amended.

         5.18 Securities  Laws.  Assuming the  truthfulness and accuracy of each
Purchaser's  representations  and warranties in Article 6, the  Corporation  has
complied  with  or  is  exempt  from  the  registration   and/or   qualification
requirements of all federal and state  securities or blue sky laws applicable to
the issuance or sale of the Series C Stock and Warrants.

         5.19 No Labor  Disputes.  Neither the Corporation nor the Subsidiary is
involved in any labor dispute.  The Corporation is not a party to any collective
bargaining agreement, and there are no strikes or walkouts or union organization
of any of the  Corporation's  or the  Subsidiary's  employees  threatened  or in
existence  and no labor  contract is scheduled to expire during the term of this
Agreement.

         5.20  Brokers.  Except as  described  in  Schedule  5.20,  Neither  the
Corporation  nor any of its  shareholders  has dealt  with any  broker,  finder,
commission agent or other Person in

                                       10

<PAGE>

connection  with  the  transactions   referenced  in  or  contemplated  by  this
Agreement,  nor  is  the  Corporation  or any  of  its  shareholders  under  any
obligation  to pay any  broker's  fee or  commission  in  connection  with  such
transactions.

         5.21  Insurance.  The  amount  and types of  insurance  carried  by the
Corporation  and the  Subsidiary,  and the terms  and  conditions  thereof,  are
substantially  similar to the  coverage  maintained  by companies in the same or
similar business as the Corporation and the Subsidiary and similarly situated.

         5.22 Conduct of Business.  On the Initial Closing Date, the Corporation
and the  Subsidiary  are engaged  only in  businesses  of the type  described in
Schedule 5.22.

         5.23  Small  Business  Concern.  The  Subsidiary  is a "small  business
concern"  as defined in Section  103(5) of the Act,  which for  purposes of size
eligibility  meets the  applicable  criteria set forth in Section  121.301(c) of
Title 13 of the Code of Federal Regulations.

         5.24  Survival  of  Representations.  All  representations  made by the
Corporation  in or under this  Agreement  shall be true and  accurate  as of the
Initial  Closing and shall  survive the Initial  Closing for a period of two (2)
years thereafter  (except for those changes  contemplated in and provided for by
this Agreement).

VI. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.

         As of the  Closing,  each  Purchaser  represents  and  warrants  to the
Corporation as to itself that:

         6.1  Investment.  The  Purchaser  is  acquiring  the Series C Stock and
Warrants and any Common Stock issuable upon  conversion of the Series C Stock or
exercise of the Warrants for investment  purposes only for its own account,  and
not with a view to, or for resale in connection with, any distribution  thereof,
and it has no present  intention of selling or distributing any such securities.
Purchaser  understands  that the Series C Stock and Warrants  (and any shares of
Common  Stock  issued upon  conversion  of the Series C Stock or exercise of the
Warrants)  have not been  registered  under  the  Securities  Act by reason of a
specific exemption from the registration  provisions of the Securities Act which
depends  upon,  among other  things,  the bona fide nature of the  investment as
expressed herein. All such securities are hereinafter  collectively  referred to
as the "Securities".

         6.2 Rule 144. The Purchaser  acknowledges  that because the  Securities
have not been  registered  under the Securities Act, the Securities must be held
indefinitely  unless  subsequently  registered  under the  Securities  Act or an
exemption from such registration is available.  It is aware of the provisions of
Rule 144  promulgated  under the Securities Act which permits  limited resale of
shares purchased in a private placement under certain circumstances.

         6.3 Access to Data. The Purchaser has had an opportunity to discuss the
Corporation's business, management and financial affairs with its management and
to obtain any  additional  information  necessary  or  appropriate  for deciding
whether or not to purchase the Securities.

         6.4  Knowledge  And  Experience.   Purchaser  has  such  knowledge  and
experience in financial and business  matters,  including  investments  in other
companies  that  are  in a  financial  condition  substantially  similar  to the
Corporation's financial condition immediately prior to the

                                       11

<PAGE>

Initial  Closing,  that it is capable of evaluating  the merits and risks of the
investment in the  Securities,  and it is able to bear the economic risk of such
investment.  Further, the individual executing this Agreement has such knowledge
and  experience in financial  and business  matters that he or she is capable of
utilizing the  information  made available to him or her in connection  with the
offering of the Securities,  of evaluating the merits and risks of an investment
in the Securities and of making an informed  investment decision with respect to
the Securities.

         6.5 Requisite Power.The Purchaser has all requisite power and authority
necessary to enter into and to carry out the  provisions  of this  Agreement and
the transactions contemplated hereby.

         6.6 Duly Authorized.  All action on the part of the Purchaser necessary
for the purchase of its Series C Stock and Warrants and the  performance  of the
Purchaser's  obligations  hereunder has been taken or will be taken prior to the
Closing.  This  Agreement  is a  legal,  valid  and  binding  obligation  of the
Purchaser  enforceable in accordance with its terms,  except as such enforcement
may be limited by bankruptcy,  insolvency,  reorganization,  moratorium or other
laws and  equitable  principles  relating to or  affecting  the  enforcement  of
creditors' rights in general and by general principles of equity.

         6.7 Accredited Investor.  Purchaser is an "accredited investor" as that
term is defined in  Regulation  D  promulgated  by the  Securities  and Exchange
Commission. The term "Accredited Investor" under Regulation D refers to:

                  (i) A person or entity who is a director or executive  officer
of the Corporation;

                  (ii) Any bank as defined in Section  3(a)(2) of the Securities
Act, or any  savings and loan  association  or other  institution  as defined in
Section  3(a)(5)(A) of the  Securities  Act whether  acting in its individual or
fiduciary  capacity;  any broker or dealer registered  pursuant to Section 15 of
the  Exchange  Act;  insurance  Corporation  as defined in Section  2(13) of the
Securities  Act;   investment   Corporation   registered  under  the  Investment
Corporation  Act of 1940; or a business  development  Corporation  as defined in
Section 2(a)(48) of that Act; Small Business Investment  Corporation licensed by
the U.S. Small Business  Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a state,
its political  subdivisions,  or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees,  if such plan has total
assets in excess of $5,000,000;  employee benefit plan within the meaning of the
Employee  Retirement Income Security Act of 1974, if the investment  decision is
made by a plan  fiduciary,  as defined in  Section  3(21) of such Act,  which is
either  a  bank,  savings  and  loan  association,   insurance  Corporation,  or
registered  investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed  plan,  with investment  decision
made solely by persons that are accredited investors;

                  (iii) Any private business development  Corporation as defined
in Section 202(a)(22) of the Investment Advisers Act of 1940;

                  (iv) Any  organization  described in Section  501(c)(3) of the
Internal Revenue Code, corporation,  Massachusetts or similar business trust, or
partnership,  not formed for the specific  purpose of acquiring  the  Securities
offered, with total assets in excess of $5,000,000;

                                       12

<PAGE>

                  (v) Any natural person whose  individual  net worth,  or joint
net  worth  with  that  person's  spouse,  at the time of his  purchase  exceeds
$1,000,000;

                  (vi) Any natural person who had an individual income in excess
of $200,000  during  each of the  previous  two years or joint  income with that
person's  spouse  in  excess  of  $300,000  in each  of  those  years  and has a
reasonable expectation of reaching the same income level in the current year;

                  (vii) Any trust,  with total  assets in excess of  $5,000,000,
not formed for the specific purpose of acquiring the Securities  offered,  whose
purchase  is  directed  by a person who has such  knowledge  and  experience  in
financial and business  matters that he is capable of evaluating  the merits and
risks of the prospective investment; or

                  (viii)  Any  entity  in which  all of the  equity  owners  are
accredited investors.

                  As used in this  Section  6.8,  the term "net worth" means the
excess of total assets over total liabilities.  For the purpose of determining a
person's net worth,  the principal  residence  owned by an individual  should be
valued at fair market value, including the cost of improvements,  net of current
encumbrances.  As used in this  Section  6.8,  "income"  means  actual  economic
income,  which may differ from  adjusted  gross income for income tax  purposes.
Accordingly, the undersigned should consider whether it should add any or all of
the  following  items to its  adjusted  gross  income for income tax purposes in
order to  reflect  more  accurately  its actual  economic  income:  Any  amounts
attributable to tax-exempt income received,  losses claimed as a limited partner
in any limited partnership,  deductions claimed for depletion,  contributions to
an IRA or Keogh retirement plan, and alimony payments.

         6.9 Resident.  Purchaser has its, his or her principal residence in the
state indicated on Schedule 1.

         VII. RESTRICTIONS ON TRANSFER OF SECURITIES.

                  The Securities are not transferable except upon the conditions
specified  in  this  Article  VII,  which  conditions  are  intended  to  ensure
compliance  with the provisions of the Securities Act and state  securities laws
in  respect  of  the  transfer  of  any  of  such  securities.  Each  instrument
representing the Securities shall be stamped or otherwise imprinted with legends
substantially  in the following form until such time as the conditions set forth
in such legends have been met:

                  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
                  HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES
                  ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY
                  STATE  SECURITIES  LAW,  AND MAY  NOT BE  SOLD,
                  TRANSFERRED,  ASSIGNED OR  HYPOTHECATED  UNLESS
                  THERE IS AN  EFFECTIVE  REGISTRATION  STATEMENT
                  UNDER SUCH ACT COVERING SUCH SECURITIES, OR THE
                  HOLDER  RECEIVES  AN OPINION OF COUNSEL FOR THE
                  HOLDER  OF THE  SECURITIES  STATING  THAT  SUCH
                  SALE, TRANSFER,  ASSIGNMENT OR HYPOTHECATION IS
                  EXEMPT  FROM THE  REGISTRATION  AND  PROSPECTUS
                  DELIVERY  REQUIREMENTS  OF  SUCH  ACT  AND  THE
                  QUALIFICATION REQUIREMENTS UNDER STATE LAW."

                                13

<PAGE>

         The Corporation shall be entitled to enter stop transfer notices on its
stock books with respect to the Securities  until the conditions as set forth in
the legend above with respect to the transfer of such securities have been met.

         VIII. AFFIRMATIVE COVENANTS.

         The  Corporation  covenants and agrees that so long any Purchaser holds
twenty  percent  (20%) the Series C Stock issued and sold in the  Closings,  the
Corporation  shall furnish the following to such Purchaser  until the conversion
of such Series C Stock into common stock:

         8.1 Financial Statements.

                  (a) As soon as available,  and in any event within ninety (90)
days after the end of each fiscal year of the  Corporation,  beginning  with the
fiscal year ending June 30,  2000,  (i) a copy of the annual audit report of the
Corporation  for such fiscal  year  containing  a balance  sheet,  statement  of
income,  statement of stockholders' equity, and statement of cash flow as at the
end of such fiscal year and for the fiscal  year then ended,  all in  reasonable
detail and audited and certified by independent  certified public accountants of
recognized standing.

                  (b) As soon as available,  and in any event within  forty-five
(45) days after the end of each fiscal quarter, a copy of an unaudited financial
report  of the  Corporation  as of the end of such  fiscal  quarter  and for the
portion of the fiscal year then ended,  containing  consolidated balance sheets,
statements  of  income,  and  statements  of cash  flow,  (with  notes as to any
consolidating entries).

                  (c)  Promptly  upon  receipt   thereof,   any  written  report
submitted to the  Corporation  by independent  public  accountants in connection
with an annual or  interim  audit of the books of the  Corporation  made by such
accountants.

                  (d) Promptly  after the  commencement  thereof,  notice of all
actions,  suits and  proceedings  before any court or  governmental  department,
commission,  board,  bureau,  agency or  instrumentality,  domestic  or foreign,
affecting the  Corporation,  any technology or patent rights that it has, or any
other  material  assets of the  Corporation,  or any key employee or officer (in
their  capacities as such) the outcome of which could reasonably have a Material
Adverse Effect.

         8.2 Books and Records.  The  Corporation  will keep (a) proper books of
record and account in which full,  true and correct  entries will be made of all
dealings or transactions of or in relation to its business and affairs;  (b) set
up on its books accruals with respect to all taxes, assessments, charges, levies
and claims;  and (c) on a reasonably  current basis set up on its books from its
earnings allowances against doubtful  receivables,  advances and investments and
all  other  proper  accruals  (including,   without  limitation,  by  reason  of
enumeration,  accruals  for  premiums,  if any,  due on  required  payments  and
accruals for depreciation,  obsolescence, or amortization of properties),  which
should be set aside from such  earnings in  connection  with its  business.  All
determinations  pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied.

IX. NEGATIVE COVENANTS.

         Without  the  approval  of the  holders of at least a  majority  of the
shares  of  Series C Stock  voting  together  as a class,  except  as  otherwise
required by applicable law, the Corporation will not take any action that:

                               14

<PAGE>

         (i)  except for a  "Qualified  Liquidation  Event"  (as  defined in the
Certificate of Designation)  effects a sale of all or  substantially  all of the
Corporation's  assets  or which  results  in the  holders  of the  Corporation's
capital stock prior to the transaction  owning less than 50% of the voting power
of the Corporation's capital stock after the transaction,

         (ii) alters or changes the rights,  preferences  or  privileges  of the
Series C Stock so as to materially and adversely affect such shares,

         (iii) increases or decreases the number of authorized  shares of Series
C Stock,

         (iv) authorizes the issuance of securities  having a preference over or
on parity with the Series C Stock,

         (v) redeems shares (excluding Common Stock repurchased upon termination
of an officer,  employee,  director or consultant pursuant to a restricted stock
purchase agreement or other compensatory plan or agreement),

         (vi) amends or repeals any  provision of, or adds any provision to, the
Corporation's  Articles of Incorporation or Bylaws if such action would alter or
change the  rights,  preferences,  privileges  or  restrictions  of the Series C
Stock, so as to affect adversely such shares,

         (vii) authorizes the payment of dividends to Common Stock, or

         (viii)  except  for  a  Qualified  Liquidation  Event,   consummates  a
transaction subject to Section 305 of the Code.

X. REGISTRATION RIGHTS AGREEMENT.

         The   Corporation   shall  at  the  Initial   Closing  enter  into  the
Registration  Rights  Agreement in form and substance  substantially as attached
hereto as Exhibit B granting each  Purchaser the  registration  rights set forth
therein.

XI. MISCELLANEOUS.

         11.1 Remedies. Any Person having any rights under any provision of this
Agreement  will be entitled  to enforce  such  rights  specifically,  to recover
damages  by reason of any  breach of any  provision  of this  Agreement,  and to
exercise  all  other  rights  granted  by law,  which  rights  may be  exercised
cumulatively and not alternatively.

         11.2  Consent to  Amendments.  Except as otherwise  expressly  provided
herein,  the provisions of this Agreement and any exhibit attached hereto may be
amended and the  Corporation may take any action herein  prohibited,  or omit to
perform any act herein  required to be  performed by it, only if it has obtained
the written  consent of Purchasers  holding at least  sixty-six  and  two-thirds
percent (66-2/3%) or more of the outstanding shares of Series C Stock. No course
of dealing  between the Corporation and any Purchaser or any delay in exercising
any rights hereunder or under the Corporation's  Articles of Incorporation  will
operate as a waiver of any  rights of any such  Purchaser.  Notwithstanding  the
foregoing,  this  Section  11.2 shall not be amended  without the consent of all
Purchasers holding Series C Stock.

                                       15

<PAGE>

         11.3 Survival of Representations  and Warranties.  All  representations
and  warranties  contained  herein or made in writing by any party in connection
herewith will survive the execution and delivery of this  Agreement for a period
of two (2) years after the Initial Closing.

         11.4  Successors and Assigns.  Except as otherwise  expressly  provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the  parties  hereto  shall  bind  and  inure  to the  benefit  of the
respective  successors and assigns of the parties hereto whether so expressed or
not.

         11.5   Severability.   Each  provision  of  this  Agreement   shall  be
interpreted  in such manner as to be effective and valid under  applicable  law,
but if any  provision of this  Agreement is held to be  prohibited by or invalid
under  applicable law, such provision shall be ineffective only to the extent of
such  prohibition  or  invalidity,  without  invalidating  the remainder of this
Agreement.

         11.6  Counterparts.  This  Agreement  may be  executed  in two or  more
counterparts,  any one of which need not contain the signatures of more than one
party,  but all such  counterparts  when taken together shall constitute one and
the same Agreement.

         11.7 Descriptive  Headings.  The descriptive headings of this Agreement
are  inserted  for  convenience  only  and do not  constitute  a  part  of  this
Agreement.

         11.8  Notices.  Except as  otherwise  expressly  provided  herein,  all
communications  provided  for  hereunder  shall be in writing and  delivered  or
mailed by the United States mails, certified mail, return receipt requested, (a)
if to  Purchaser,  addressed  to each  Purchaser  at the  address  specified  on
Schedule I hereto or to such  other  address  as such  Purchaser  may in writing
designate,  or (b) if to the  Corporation,  addressed to the  Corporation at the
address  set forth  below or to such  other  address as the  Corporation  may in
writing designate. Notices shall be deemed to have been validly served, given or
delivered  (and "the date" of such notice or words of similar  effect shall mean
the date) five (5) days after  deposit in the  United  States  mails,  certified
mail,  return receipt  requested,  with proper postage  prepaid,  or upon actual
receipt thereof (whether by noncertified mail,  telecopy,  telegram,  facsimile,
express delivery or otherwise), whichever is earlier.

             If to Purchasers:          To the Addresses set forth on Schedule 1

             With a Copy to:
                                        -----------------------------------
                                        -----------------------------------
                                        -----------------------------------

             If to the Corporation:     Valuestar Corporation
                                        Attn: Jim Stein
                                        360 - 22nd Street, Suite 210
                                        Oakland, CA  94612
                                        FAX: (510) 808-1400

             With a Copy to:            Bay Venture Counsel, LLP
                                        Attn: Donald C. Reinke, Esq.
                                        1999 Harrison Street, Suite 1300
                                        Oakland, CA 94612
                                        FAX: (510) 834-7440

                                       16

<PAGE>

         11.9 Governing Law. The validity,  meaning and effect of this Agreement
shall be  determined in  accordance  with the laws of  California  applicable to
contracts  made and to be performed  entirely in California as if by and between
California residents.

         11.10  Schedules  and  Exhibits.  All  schedules  and  exhibits  are an
integral part of this Agreement.

         11.11  Litigation  Costs.  If any legal  action,  arbitration  or other
proceeding is brought for the  enforcement of this  Agreement,  or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement,  the successful or prevailing party or parties
therein shall be entitled to recover reasonable  attorneys' fees and other costs
incurred in that action or proceeding,  in addition to any other relief to which
it or they may be entitled.

         11.12 Final  Agreement.  This  Agreement and the exhibits and schedules
attached  hereto  constitute  the only  agreement of the parties  concerning the
matters herein, and supersedes,  merges and renders void all prior written/oral,
and/or contemporaneous agreements and understandings related thereto.

         11.13  Confidentiality.  Each Purchaser agrees to keep confidential any
information  delivered by the  Corporation or Subsidiary to such Purchaser under
this Agreement that the Corporation or Subsidiary  clearly  indicates in writing
to be confidential information;  provided, however, that nothing in this Section
11.13 will prevent such Purchaser from  disclosing  such  information (a) to any
Affiliate of such Purchaser or any actual or potential  purchaser,  participant,
assignee, or transferee of such Purchaser's rights or obligations hereunder that
agrees to be bound by the terms of this  Section  11.13,  (b) upon  order of any
court or administrative agency, (c) upon the request or demand of any regulatory
agency or authority having jurisdiction over such Purchaser,  (d) that is in the
public domain, (e) that has been obtained from any Person that is not a party to
this  Agreement or an Affiliate of any such party without  breach by such Person
of a  confidentiality  obligation known to such Purchaser,  (f) if necessary and
only  to the  extent  necessary  for  the  exercise  of any  remedy  under  this
Agreement,  or (g) to the certified public  accountants for such Purchaser.  The
Corporation  agrees  that  such  Purchaser  will be  presumed  to  have  met its
obligations  under this Section  11.13 to the extent that it exercises  the same
degree of care with  respect  to  information  provided  by the  Corporation  or
Subsidiary  as it  exercises  with  respect  to its own  information  of similar
character.

         11.14  Public  Disclosure.  Except as may be  required  to comply  with
applicable law, no Purchaser shall make or cause to be made any press release or
similar public announcement

                        (SIGNATURES FOLLOW ON NEXT PAGE)

                                       17

<PAGE>

         Signature  Pages to the Series C Preferred  Stock and Warrant  Purchase
Agreement

         IN WITNESS  WHEREOF,  the Corporation and each Purchaser  identified on
Schedule 1 have caused this  Agreement  to be executed  and  delivered  by their
respective officers thereunto duly authorized.

                                   CORPORATION:

                                   VALUESTAR CORPORATION

                                   By: /s/ James Stein
                                       ---------------
                                   Name:   James Stein
                                   Its:    Chief Executive Officer

                                       18

<PAGE>

         Signature  Pages to the Series C Preferred  Stock and Warrant  Purchase
Agreement

     (Individual Pages Differ as to Holder's Name and Personal Information)

                           PURCHASER:

                           -----------------------------------------------------

                           By:
                              --------------------------------------------------
                              (Signature)

                           -----------------------------------------------------
                           (Print Name and Title)

                            ADDRESS:

                           TELEPHONE AND FAX NUMBERS:

                           Tel:
                                ------------------------------------------------
                           Fax:
                               -------------------------------------------------
                           Email Contact:
                                         ---------------------------------------

                           AGGREGATE INVESTMENT AMOUNT

                           $
                            ----------------------------------------------------

                                       19

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