EXHIBIT 10.28
SERIES B PREFERRED STOCK PLACEMENT AGREEMENT
SERIES B PREFERRED STOCK PLACEMENT AGREEMENT ("Agreement") dated as of
the 27th day of October, 1998, by and between EFFECTIVE MANAGEMENT SYSTEMS,
INC., a Wisconsin corporation (the "Company") and TAGLICH BROTHERS, D=AMADEO,
WAGNER & COMPANY, INCORPORATED ("Placement Agent").
W I T N E S S E T H :
WHEREAS, in reliance upon the representations, warranties, terms and
conditions hereinafter set forth, Placement Agent will use its best efforts to
privately place a minimum of 700 and a maximum of 2,750 shares of Series B 8%
convertible redeemable preferred stock (the "Series B Preferred Stock") at
$1,000 per share of Series B Preferred Stock (the "Purchase Price") for an
amount of $700,000 in aggregate gross cash proceeds ("Minimum Amount") and a
maximum of $2,750,000 in the aggregate ("Maximum Amount"), with each share of
the Series B Preferred Stock being convertible into shares of common stock, $.01
par value per share (the "Common Stock"), of the Company at a price, subject to
adjustment, of $3.00 per share, and the persons and entities so purchasing the
Series B Preferred Stock from time to time and the number of shares of Series B
Preferred Stock being so purchased being as listed on Exhibit A to this
Agreement (such persons and entities being referred to individually as
"Purchaser" and collectively, as "Purchasers"); and
WHEREAS, the shares of Series B Preferred Stock are being issued
pursuant to the Company's Confidential Private Placement Memorandum and Exhibits
thereto dated October 22, 1998, as the same may be amended and/or supplemented
from time to time (collectively, the "Memorandum"); and
WHEREAS, on August 28, 1998, the Company sold 1,005 shares of Series A
8% Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") for
an aggregate gross sales price of $1,005,000; and
WHEREAS, pursuant to the Memorandum, the holders of the Series A
Preferred Stock may purchase the Series B Preferred Stock by tendering their
shares of Series A Preferred Stock to the Company, with each share of Series A
Preferred Stock being valued at $1,000 per share (the "Exchange Offer"); and
WHEREAS, the shares of Series B Preferred Stock are being issued and
the Exchange Offer is occurring pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "1933 Act").
NOW, THEREFORE, in consideration of the premises and the respective
promises hereinafter set forth, the Company and the Placement Agent hereby agree
as follows:
1. Sale and Purchase of Series B Preferred Stock and Exchange Offer.
(a) Subject to the terms and conditions of this Agreement, the Company
shall sell to the Purchasers a minimum of 700 and a maximum of 2,750 shares of
Series B Preferred Stock at the Purchase Price per share for an aggregate
purchase price of not less than the Minimum Amount nor greater than the Maximum
Amount, respectively. The form of the Series B Preferred Stock is included in
the Memorandum. The Company will execute each certificate of Series B Preferred
Stock.
(b) The initial sale and purchase described in Paragraph 1(a) of this
Agreement shall take place at a closing (the "Closing") at the offices of
ROBINSON SILVERMAN PEARCE ARONSOHN & BERMAN, LLP, 1290 Avenue of the Americas,
New York, New York 10104 or such other place as shall be acceptable to the
Company and Placement Agent on such date or dates as Placement Agent shall
advise the Company on two (2) business days notice or such shorter notice as
shall be reasonably acceptable to the Company. In no event shall the Initial
Closing (as defined below) occur unless the Minimum Amount is sold. Subsequent
sale and purchase of Series B Preferred Stock up to the Maximum Amount shall
take place at one or more Closings held on such dates as the Company and
Placement Agent shall mutually determine. All Closings pursuant to this
Agreement shall occur not later than October 30, 1998 unless, to the extent
permitted by the terms of the Series A Preferred Stock, such date is extended by
the Company and the Placement Agent to a date no later than November 29, 1998.
The initial Closing hereunder shall be referred to as "Initial Closing", the
final Closing hereunder shall be referred to as "Final Closing" and the date of
the Final Closing shall be referred to as the "Final Closing Date".
(c) As provided in the Memorandum, the Purchase Price for the Series B
Preferred Stock is $1,000 per share with a minimum purchase price of $20,000 per
subscriber. As provided in the Memorandum, any holder of Series A Preferred
Stock may subscribe to purchase Series B Preferred Stock by tendering to the
Company all or a portion of the holder=s Series A Preferred Stock.
(d) All defined terms used in this Agreement which are not otherwise
defined shall have the meanings ascribed to them in the Memorandum.
2. Payment and Exchange Offer. At each Closing, the Company shall deliver
to Placement Agent, on behalf of the Purchasers, the original executed Series B
Preferred Stock certificates being purchased by the Purchasers, against its
receipt of payment therefor by delivery to the Company of (i) the original
Series A Preferred Stock certificates, if any, duly endorsed for transfer and
subject to the Exchange Offer, and (ii) certified or bank checks drawn on a bank
located in the United States, or by Federal wire transfer, in the amount of the
aggregate cash purchase price for the Series B Preferred Stock being sold for
cash, less the amount of fees payable to Placement Agent pursuant to Paragraph
10(a) of this Agreement. All Series B Preferred Stock being purchased by the
Purchasers shall be issued in the respective names of the Purchasers in
accordance with instructions provided by Placement Agent not later than the day
of Closing.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to and covenants and agrees with the Placement Agent, as
of the date hereof and as of the date of each Closing, as follows:
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Wisconsin and is qualified and in good standing
as a foreign corporation in each jurisdiction in which the nature of the
business conducted by the Company or the property owned or leased by the Company
requires such qualification, except where the failure to be so qualified has not
had or will not have a material adverse effect on the business, financial
condition or results of operations of the Company or its subsidiaries, taken as
a whole ("Material Adverse Effect"). The Company has no subsidiaries and does
not own any equity interest and has not made any loans or advances to or
guarantees of indebtedness to any person, corporation, partnership or other
entity, except for EMS-East, Inc., Effective Management Systems of Illinois,
Inc. and EMS-China, Ltd, which are wholly-owned subsidiaries, Total Management
Systems, Inc., a 50% owned subsidiary (collectively, the "Subsidiaries") and
EMS-Asia Pacific, Ltd., a 20% owned corporation. Each Subsidiary is, to the
extent applicable, a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and, to the
extent applicable, each Subsidiary is qualified and in good standing as a
foreign corporation in each jurisdiction in which the nature of its business or
the property owned or leased by the Subsidiary requires such qualification,
except where the failure to be so qualified has not had or will not have a
Material Adverse Effect. Except as disclosed in the Memorandum, no Subsidiary
has any subsidiary and no Subsidiary owns any equity interest in any other
entity and no Subsidiary has made any loans or advances to or guarantees of
indebtedness to any person, corporation, partnership or other entity. Except as
indicated in this Section 3(b), the Company owns all of the issued and
outstanding shares of common stock of each of the Subsidiaries free and clear of
any lien, claim, encumbrance, pre-emptive rights or contractual rights of first
refusal.
(b) The authorized capital of the Company consists of 20,000,000
shares of Common Stock and 3,000,000 shares of preferred stock, of which 7,000
shares have been designated as Series A Preferred Stock and of which 5,000
shares have been designated as Series B Preferred Stock. As of the date of this
Agreement, (i) 4,105,986 shares of Common Stock are
-3-
issued and outstanding, (ii) 12,625 shares of Common Stock are held in treasury,
(iii) 1,005 shares of Series A Preferred Stock are issued and outstanding (no
other shares of preferred stock being issued and outstanding other than as may
be issued at any prior Closing pursuant to the Memorandum), and (iv) 1,530,192
shares of Common Stock have been reserved for issuance upon exercise of
outstanding debentures, options, warrants and other rights to acquire Common
Stock and upon the exercise of options granted pursuant to the Company's stock
option plans and pursuant to other agreements, excluding the shares of Common
Stock (the "Conversion Shares") issuable upon conversion of the Series B
Preferred Stock and the shares of Common Stock (the "PAW Exercise Shares")
issuable upon exercise of the Placement Agent Warrants (as defined below) and
excluding shares of Common Stock reserved for issuance upon the conversion of
the Series A Preferred Stock. Except as set forth in the Memorandum, the Company
is not a party to any agreement to issue, nor has it issued, any warrants,
options or rights or preferred stock, notes or other evidence of indebtedness or
other securities, instruments or agreements upon the exercise or conversion of
which or pursuant to the terms of which additional shares of capital stock of
the Company may become issuable. No holder of any of the Company's securities
has preemptive rights or contractual rights of first refusal.
(c) The Company has the full right, power and authority to execute,
deliver and perform under this Agreement, the Series B Preferred Stock, the
Exchange Offer and the Placement Agent Warrants. This Agreement has been duly
executed by the Company and, at each Closing, the Series B Preferred Stock and
the Placement Agent Warrants being issued will have been duly executed by the
Company, and this Agreement, the Series B Preferred Stock, the Exchange Offer
and the Placement Agent Warrants and the transactions contemplated by this
Agreement, the Series B Preferred Stock, the Exchange Offer and Placement Agent
Warrants have been duly authorized by all necessary corporate action and each
constitute, the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms.
(d) All of the issued and outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable (except as otherwise provided by Section 180.0622 (2)(b) of the
Wisconsin Business Corporation Law), with no personal liability attaching to the
holders thereof (except as otherwise provided in Section 180.0622 (2)(b) of the
Wisconsin Business Corporation Law), and such shares of Common Stock have not
been issued in violation of the preemptive rights or rights of first refusal of
any holder of securities of the Company. All of the issued and outstanding
shares of Common Stock of the Company have been issued pursuant to either a
current effective registration statement under the 1933 Act or an exemption from
the registration requirements of the 1933 Act and were issued in accordance with
all applicable Federal and state securities laws. All of the issued and
outstanding shares of common stock of each Subsidiary have been duly and validly
authorized and issued and are fully paid and nonassessable (except as otherwise
provided by Section 180.0622 (2)(b) of the Wisconsin Business Corporation Law),
with no personal liability attaching to the Company (except as otherwise
provided by Section 180.0622 (2)(b) of the Wisconsin Business Corporation Law).
-4-
(e) The shares of Common Stock included in the Conversion
Shares and the PAW Exercise Shares have been validly authorized for issuance
and, when issued pursuant to this Agreement and the terms of the Series B
Preferred Stock and the Placement Agent Warrants, as the case may be, will be
duly and validly authorized and issued, fully paid and nonassessable (except as
otherwise provided by Section 180.0622 (2)(b) of the Wisconsin Business
Corporation Law) and free from preemptive rights or rights of first refusal held
by any person.
(f) The following financial statements of the Company (hereinafter
collectively, the "Financial Statements") are included in the Memorandum (i)
consolidated balance sheets as at November 30, 1997 and 1996, and consolidated
statements of operations, shareholders' equity and cash flows for the fiscal
years ended November 30, 1997 and 1996, and the related notes thereto, which
have been audited by Ernst & Young LLP, independent certified public
accountants, (ii) unaudited balance sheets as at February 28, May 31 and August
31, 1998, and (iii) unaudited statements of operations and cash flows for the
fiscal quarters ended February 28, May 31 and August 31, 1998, and the related
notes thereto, which have been prepared by the Company. The Financial
Statements, which are included in the Company's Annual Report on Form 10-K for
the year ended November 30, 1997 ("Form 10-K"), were prepared in accordance with
generally accepted accounting principles consistently applied and present and
reflect fairly the financial position of the Company at the respective balance
sheet dates and the results of its operations, changes in stockholders' equity
and cash flows for the periods then ended. During the period of Ernst & Young
LLP=s engagement as the Company's independent certified public accountants,
there has been no material disagreements between the accounting firm and the
Company on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure and no reportable events
relating to the relationship between the Company and the accounting firm.
(g) The Company has good and marketable title to all of its material
property and assets and, except as set forth in the Memorandum or the Financial
Statements, none of such property or assets of the Company is subject to any
lien, mortgage, pledge, encumbrance or other security interest, other than such
liens, mortgages, pledges, encumbrances or other security interests which in the
aggregate would not have a Material Adverse Effect.
(h) Except as may be disclosed in the Memorandum, since November 30,
1997, there has not been any material adverse change in the financial condition
or in the operations, or business of the Company or any of the Subsidiaries from
that shown in the Financial Statements or any damage or destruction, not covered
by insurance, which materially affects the business, property or assets of the
Company or any of the Subsidiaries.
(i) Except as set forth in the Exhibits to the Memorandum, the Company
has not filed any Current Reports on Form 8-K or other reports filed with the
Securities and Exchange Commission (the "SEC") subsequent to November 30, 1997.
-5-
(j) Neither the execution or delivery of this Agreement, the Series B
Preferred Stock or the Placement Agent Warrants by the Company nor the
performance by the Company of the transactions contemplated by this Agreement,
the Series B Preferred Stock or the Placement Agent Warrants nor the
consummation of the Exchange Offer: (i) requires the consent, waiver, approval,
license or authorization of or filing with or notice to any person, entity or
public authority (except any filings required by Federal or state securities
laws); (ii) violates or constitutes a default under or breach of any law, rule
or regulation applicable to the Company; or (iii) conflicts with or results in a
breach or termination of any provision of, or constitutes a default under, or
will result in the creation of any lien, charge or encumbrance upon any of the
property or assets of the Company with or without the giving of notice, the
passage of time or both, pursuant to (A) the Company's restated articles of
incorporation or by-laws, (B) any mortgage, deed of trust, indenture, note, loan
agreement, security agreement, contract, lease, license, alliance agreement,
joint venture agreement, or other agreement or instrument, or (C) any order,
judgment, decree, statute, regulation or any other restriction of any kind or
character to which the Company is a party or by which any of the assets of the
Company may be bound, except in any case set forth above where the failure to
obtain such consent or the like, or such violation or breach would not have a
Material Adverse Effect.
(k) Except as set forth in the Memorandum, neither the Company nor any
of the Subsidiaries (other than for inter-company debt) has any indebtedness to
any officer, director, 5% stockholder or other Affiliate (as defined in the
Rules and Regulations of the SEC under the 1933 Act) of the Company.
(l) The Company and each of the Subsidiaries is in compliance with all
laws, rules and regulations of all Federal, state and local government agencies
having jurisdiction over the Company and each of the Subsidiaries or affecting
the business, assets or properties of the Company or any of the Subsidiaries,
except where the failure to comply has not and will not have a Material Adverse
Effect. The Company and each of the Subsidiaries possess all licenses, permits,
consents, approvals and agreements which are required to be issued by any and
all applicable Federal, state or local authorities necessary for the operation
of their respective business and/or in connection with their respective assets
or properties, except where the failure to possess such licenses, permits,
consents, approvals or agreements has not and will not have a Material Adverse
Effect.
(m) Neither the Company nor any of the Subsidiaries is in default
under any note, loan agreement, security agreement, mortgage, contract,
franchise agreement, distribution agreement, lease, alliance agreement, joint
venture agreement, agreement, license, permit, consent, approval or instrument
to which it is a party, and no event has occurred which, with or without the
lapse of time or giving of notice, or both, would constitute such default
thereof by the Company or any of the Subsidiaries or would cause acceleration of
any obligation of the Company or any of the Subsidiaries or would adversely
affect the business, operations or financial condition of the Company or any of
the Subsidiaries, except where such default or event, whether with or without
the lapse of time or giving of notice, or both, has not and will not have a
Material Adverse Effect. To the best of the knowledge of the Company and except
for the cases in which it would
-6-
not have a Material Adverse Effect, no party to any note, loan agreement,
security agreement, mortgage, contract, franchise agreement, distribution
agreement, lease, alliance agreement, joint venture agreement, agreement,
license, permit, consent, approval or instrument with or given to the Company or
any of the Subsidiaries is in default thereunder and no event has occurred with
respect to such party, which, with or without the lapse of time or giving of
notice, or both, would constitute a default by such party or would cause
acceleration of any obligations of such party.
(n) To the best of the Company's knowledge, except as set forth in the
Memorandum, no officer, director or 5% stockholder of the Company and no
Affiliate of any such person either (i) holds any interest in any corporation,
partnership, business, trust, sole proprietorship or any other entity which is
engaged in a business substantially similar to that conducted by the Company or
any of the Subsidiaries (other than a passive immaterial interest in a public
company engaged in any such business) or (ii) engages in business with the
Company or any of the Subsidiaries.
(o) Except as set forth in the Memorandum, there are no material
(i.e., involving an asserted liability that reasonably could be expected to
result in a judgement in excess of four hundred thousand dollars ($400,000))
claims, actions, suits, proceedings or labor disputes, inquiries or
investigations (whether or not purportedly on behalf of the Company or any of
the Subsidiaries), pending or, to the best of the Company's knowledge,
threatened, against the Company or any of the Subsidiaries, at law or in equity
or by or before any Federal, state, county, municipal or other governmental
department, SEC, National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), board, bureau, agency or instrumentality, domestic or
foreign, whether legal or administrative or in arbitration or mediation, nor is
there any basis for any such action or proceeding. Neither the Company, any of
the Subsidiaries nor any of their respective assets are subject to, nor is the
Company or any of the Subsidiaries in default with respect to, any order, writ,
injunction, judgment or decree that could have a Material Adverse Effect.
(p) The accounts receivable of the Company and the Subsidiaries
represent receivables generated from the sale of goods and services in the
ordinary course of business. The Company knows of no material disputes
concerning accounts receivable of the Company and the Subsidiaries not disclosed
in the Memorandum.
(q) Except as set forth in the Memorandum, neither the Company nor any
of the Subsidiaries has (i) any written employment contracts and no oral
employment contracts not terminable at will by the Company or any Subsidiary, as
applicable, with any 5% percent shareholder, officer or director of the Company
or any Subsidiary, as applicable, (ii) any consulting agreement or other
compensation agreement with any 5% percent shareholder, officer or director of
the Company or any Subsidiary, as applicable, or (iii) any agreement or contract
with any 5% percent shareholder, officer or director of the Company or any
Subsidiary, as applicable, that will result in the payment by the Company or any
Subsidiary, as applicable, or the creation of any commitment or obligation
(absolute or contingent), of the Company or any
-7-
Subsidiary, as applicable, to pay any severance, termination, "golden
parachute", or similar payment to any present or former personnel of the Company
or any Subsidiary, as applicable, following termination of employment. No
director or executive officer of the Company or any Subsidiary, as applicable,
has advised the Company that he or she intends to resign as director and/or
executive officer of the Company or any Subsidiary, as applicable, or to
terminate his or her employment with the Company or the Subsidiary, as
applicable.
(r) The accounts payable of the Company and the Subsidiaries represent
bona fide payables to third parties incurred in the ordinary course of business
and represent bona fide debts for services and/or goods provided to the Company
and the Subsidiaries.
(s) Except as set forth in the Memorandum, neither the Company nor any
of the Subsidiaries is a party to a labor agreement with respect to any of their
respective employees with any labor organization, union, group or association
and there are no employee unions (nor any similar labor or employee
organizations). There is no labor strike or labor stoppage or slowdown pending,
or, to the best knowledge of the Company, threatened against the Company or any
of the Subsidiaries nor has the Company or any of the Subsidiaries experienced
in the last five (5) years any work stoppage or other labor difficulty. The
Company is in compliance with all applicable laws, rules and regulations
regarding employment practices, employee documentation, terms or conditions of
employment and wage and hours and the Company is not engaged in any unfair labor
practices, except where the failure to comply has not and will not have a
Material Adverse Effect. There are no unfair labor practices charges or
complaints against the Company or any of the Subsidiaries pending before the
National Labor Relations Board or any other governmental agency.
(t) Except as disclosed in the Memorandum, there are no employee
pension, retirement or other benefit plans, maintained, contributed to or
required to be contributed to by the Company or any of the Subsidiaries covering
any employee or former employee of the Company or any of the Subsidiaries.
Neither the Company nor any of the Subsidiaries has any material liability or
obligation of any kind or nature, whether accrued or contingent, matured or
unmatured, known or unknown, under any provision of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or any provision of the
Internal Revenue Code of 1986, as amended, specifically relating to persons
subject to ERISA.
(u) The Company and each of the Subsidiaries has timely filed with the
appropriate taxing authorities all returns in respect of taxes required to be
filed through the date hereof and each has timely paid all taxes that each is
required to pay or has established an adequate reserve therefor, except where
the Company or the Subsidiary, as applicable, has timely filed for extensions.
There are no pending or, to the best knowledge of the Company, threatened
audits, investigations or claims for or relating to any liability of the Company
or any of the Subsidiaries in respect of taxes.
-8-
(v) There are no finder's fees or brokerage commissions payable with
respect to the transactions contemplated by this Agreement, except as provided
in Paragraph 10 of this Agreement, and the Company agrees to indemnify and hold
harmless the Placement Agent from and against any and all cost, damage,
liability, judgment and expense (including reasonable fees and expenses of
counsel) arising out of or relating to claims for such fees or commissions.
(w) Except as set forth in the Memorandum, the Company is not
currently and has not during the past four (4) months been engaged in
substantive negotiations (as compared with informal discussions) with respect
to: (i) any merger or consolidation of the Company where the Company would not
be the surviving entity; or (ii) the sale of the Company, any of its
Subsidiaries or any of their assets other than sales in the ordinary course of
business.
(x) The Company and each of the Subsidiaries has the right to conduct
their respective business in the manner in which their respective business has
been heretofore conducted. To the best knowledge of the Company, the conduct of
such businesses by the Company and each of the Subsidiaries does not violate or
infringe upon the patent, copyright, trade secret or other proprietary rights of
any third party, other than any such violation or infringement that would not
have a Material Adverse Effect, and neither the Company nor any of the
Subsidiaries has received any notice of any claim of any such violation or
infringement.
(y) The Company and each of the Subsidiaries are currently in
compliance in all respects with all applicable Environmental Laws (as defined
below), including, without limitation, obtaining and maintaining in effect all
permits, licenses, consents and other authorizations required by applicable
Environmental Laws and the Company and each Subsidiary are each currently in
compliance with all such permits, licenses, consents and other authorizations,
except where the failure to comply has not and will not have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries has received notice from
any property owner, landlord, tenant or Governmental Authority (as defined
below) that Hazardous Wastes (as defined below) are being improperly used,
stored or disposed of at any property currently or formerly owned or leased by
the Company or any of its Subsidiaries or that any soil or ground water
contamination has emanated from any such property. For purposes hereof, the term
"Environmental Laws" means, collectively, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Superfund
Amendments and Reauthorization Act of 1986, the Resource Conservation and
Recovery Act, the Toxic Substances Act, as amended, the Clean Air Act, as
amended, the Clean Water Act, as amended, any other "Superfund" or "Superlien"
law or any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect. For purposes
hereof, the term "Governmental Authority" shall mean the Federal Government of
the United States of America, any state or any political subdivision of the
Federal Government or any state, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities. For purposes hereof, the term "Hazardous Waste" shall mean
any regulated quantity of hazardous substances as listed by the United States
Environmental Protection
-9-
Agency ("EPA") and the list of toxic pollutants designated by the United States
Congress and/or the EPA or defined by any other Federal, state or local statute,
law, ordinance, code, rule, regulation, order, or decree regulating, relating to
or imposing liability for standards of conduct concerning any hazardous, toxic
substance or material.
(z) The information contained in the Financial Statements and the
Memorandum, taken together, does not contain any misstatement of a material fact
or omit to state a material fact necessary to make the information not
misleading.
(aa) Except as set forth in the Memorandum, the Common Stock is
currently traded on the NASDAQ National Market System. NASDAQ has advised that
as of May 31, 1998, the Company failed to satisfy the $4 million minimum net
tangible asset test imposed by NASDAQ for continued listing on the National
Market System and/or initial listing on the SmallCap Market. The Company also
currently fails to satisfy the $5 million market value of public float
requirement imposed by NASDAQ. A hearing was held by NASDAQ on September 25,
1998 regarding the continued listing of the Common Stock. As of the date of this
Agreement, the Company has not received either oral or written confirmation from
NASDAQ that the Common Stock has been delisted. In the even that the Common
Stock is delisted, the Company will use its best efforts to have the Common
Stock traded on the OTC Bulletin Board System.
4. Survival of Representations and Warranties and Indemnification. The
representations and warranties of the Company set forth in Section 3 of this
Agreement shall survive the execution and delivery of the Series B Preferred
Stock. The indemnification obligations of the Company as set forth in the
indemnification rider annexed hereto as Exhibit B shall apply and be applicable
to, among other things, all representations and warranties of the Company
contained herein.
5. Use of Proceeds. The net proceeds from the sale of the Series B
Preferred Stock will be used by the Company as disclosed in the Memorandum.
6. Unregistered Securities. Neither the Series B Preferred Stock,
Conversion Shares, Placement Agent Warrants nor PAW Exercise Shares have been
registered under the 1933 Act, in reliance upon the applicability of Section
3(b), 4(2), 4(6) and/or Regulation D of the 1933 Act to the transactions
contemplated hereby. The certificates representing the Series B Preferred Stock
and Placement Agent Warrants will bear an investment legend and the certificates
representing the Conversion Shares and PAW Exercise Shares issued prior to their
respective registration under Section 3 of the Series B Preferred Stock Purchase
Agreement (a copy of which is annexed as an exhibit to the Memorandum) and
Section 7 below will also bear investment legends.
7. Registration Rights and "Piggy-Back" Registration Rights.
(a) As soon as possible after the Final Closing Date, but in no event
later than forty-five (45) days after the Final Closing Date (regardless of
whether the maximum number of shares of Series B Preferred Stock shall have been
sold), the Company shall, at its sole cost and
-10-
expense, file a registration statement on the appropriate form with the SEC
covering all of the PAW Exercise Shares and such additional shares of Common
Stock that may be issued pursuant to the anti-dilution rights contained in the
Placement Agent Warrants and as set forth below in this Section 7(a)
(collectively, the "Registrable Securities"), time being of the essence. The
Company will use its best efforts to have such registration statement declared
effective as soon as possible after filing, and shall keep such registration
statement current and effective for at least three (3) years from the effective
date thereof or until such earlier date as all of the Registrable Securities
registered pursuant to such registration statement shall have been sold.
Notwithstanding anything to the contrary contained herein, if such registration
statement shall not be filed with the SEC within forty-five (45) days after the
Final Closing Date or the Registration Statement shall not be declared effective
within one hundred eighty (180) days after the Final Closing Date (regardless of
whether the maximum number of shares of Series B Preferred Stock shall have been
sold), then the exercise price for the Placement Agent Warrants shall be reduced
by the percentage resulting from multiplying 3% by the number of thirty (30) day
periods, or any part thereof, beyond said forty-five (45) day or one hundred
eighty (180) day period, as applicable, until the initial registration statement
described herein covering the Registrable Securities is filed or declared
effective, as applicable. The maximum reduction pursuant to this provision shall
be eighteen (18%) percent.
(b) In the event the Company effects any registration under the 1933
Act of any Registrable Securities pursuant to Paragraphs 7(a) above or 7(g)
below, the Company shall indemnify, to the extent permitted by law, and hold
harmless any registered holder whose Registrable Securities are included in such
registration statement (each, a "Seller"), any underwriter, any officer,
director, employee or agent of any Seller or underwriter, and each other person,
if any, who controls any Seller or underwriter within the meaning of Section 15
of the 1933 Act, against any losses, claims, damages or liabilities, judgment,
fines, penalties, costs and expenses, joint or several, or actions in respect
thereof (collectively, the "Claims"), to which each such indemnified party
becomes subject, under the 1933 Act or otherwise, insofar as such Claims arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or prospectus or any
amendment or supplement thereto or any document filed under a state securities
or blue sky law (collectively, the "Registration Documents") or insofar as such
Claims arise out of or are based upon the omission or alleged omission to state
in any Registration Document a material fact required to be stated therein or
necessary to make the statements made therein not misleading, and will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in investigating or defending any such Claim; provided
that the Company shall not be liable in any such case to a particular
indemnified party to the extent such Claim is based upon an untrue statement or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact made in any Registration Document in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such indemnified party specifically for use in the preparation of such
Registration Document.
-11-
(c) In connection with any registration statement in which any Seller
is participating, each Seller, severally and not jointly, shall indemnify, to
the extent permitted by law, and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
other person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act, each other Seller and each underwriter, any officer, director,
employee or agent of any such other Seller or underwriter and each other person,
if any, who controls such other Seller or underwriter within the meaning of
Section 15 of the 1933 Act against any Claims to which each such indemnified
party may become subject under the 1933 Act or otherwise, insofar as such Claims
(or actions in respect thereof) are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Document, or
insofar as any Claims are based upon the omission or alleged omission to state
in any Registration Document a material fact required to be stated therein or
necessary to make the statements made therein not misleading, and will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in investigating or defending any such claim;
provided, however, that such indemnification or reimbursement shall be payable
only if, and to the extent that, any such Claim arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any Registration Document in reliance upon and in conformity with
written information furnished to the Company by the Seller specifically for use
in the preparation thereof.
(d) Any person entitled to indemnification under Paragraphs 7(b) or
7(c) above shall notify promptly the indemnifying party in writing of the
commencement of any Claim if a claim for indemnification in respect thereof is
to be made against an indemnifying party under this Paragraph 7(d), but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
Paragraph 7(b) or 7(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the Claim within twenty
(20) days after receiving notice from the indemnified party that the indemnified
party believes it has failed to do so; (ii) if the indemnified party who is a
defendant in any action or proceeding which is also brought against the
indemnifying party reasonably shall have concluded that there are legal defenses
available to the indemnified party which are not available to the indemnifying
party; or (iii) if representation of both parties by the same counsel is
otherwise inappropriate under applicable standards of professional conduct, the
indemnified party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel for all indemnified
parties, except to the extent any indemnified party or parties reasonably shall
have concluded that there are legal defenses available to such party or parties
which are not available to the other
-12-
indemnified parties or to the extent representation of all indemnified parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct) and the indemnifying party shall be liable for any
reasonable expenses therefor; provided, that no indemnifying party shall be
subject to any liability for any settlement of a Claim made without its consent
(which may not be unreasonably withheld, delayed or conditioned). If the
indemnifying party assumes the defense of any Claim hereunder, such indemnifying
party shall not enter into any settlement without the consent of the indemnified
party if such settlement attributes liability to the indemnified party.
(e) If for any reason the indemnity provided in Paragraphs 7(b) or
7(c) above is unavailable, or is insufficient to hold harmless, an indemnified
party, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other from the
transactions contemplated by this Agreement. If, however, the allocation
provided in the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable in
respect of any Claim shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such Claim. Notwithstanding the foregoing, no underwriter or
controlling person thereof, if any, shall be required to contribute, in respect
of such underwriter's participation as an underwriter in the offering, any
amount in excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligation of any underwriters to contribute pursuant to
this paragraph (e) shall be several in proportion to their respective
underwriting commitments and not joint.
(f) The provisions of Paragraphs 7(b) through 7(e) of this Agreement
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract and shall
remain operative and in full force and effect regardless of any investigation
made or omitted by or on behalf of any indemnified party and shall survive the
transfer of the Registrable Securities by any such party.
-13-
(g) The Sellers shall have certain "piggy-back" registration rights
with respect to the Registrable Securities as hereinafter provided:
A. If at any time after the Final Closing Date and prior to the
date that the Registered Securities are registered under the 1933 Act pursuant
to Section 7(a) above, the Company shall file with the SEC a registration
statement under the 1933 Act (other than a registration statement on Form S-4 or
Form S-8 or any successor thereof, or filed in connection with an exchange offer
or an offer of securities solely to the Company=s existing shareholders or with
respect to securities issuable upon conversion of the Series A Preferred Stock)
registering any shares of Common Stock, the Company shall give written notice to
each Seller thereof prior to such filing.
B. Within fifteen (15) days after such notice from the Company,
each Seller shall give written notice to the Company whether or not the Seller
desires to have all of the Seller's Registrable Securities included in the
registration statement. If a Seller fails to give such notice within such
period, such Seller shall not have the right to have Seller's Registrable
Securities registered pursuant to such registration statement. If a Seller gives
such notice, then the Company shall include such Seller's Registrable Securities
in the registration statement, at the Company's sole cost and expense, subject
to the remaining terms of this Paragraph 7(g); provided, however, that each
Seller shall pay all underwriting discounts, commissions, and transfer taxes
relating to the sale of such Seller=s Registered Securities, as well as his, her
or its own counsel fees, if any, relating to the sale of the Seller=s Registered
Securities.
C. If the registration statement relates to an underwritten
offering, and the underwriter in its sole discretion shall determine in writing
that the total number of shares of Common Stock to be included in the offering,
including the Registrable Securities, shall exceed the amount which the
underwriter in its sole discretion deems to be appropriate for the offering, the
number of shares of the Registrable Securities shall be reduced pro rata (based
on the number of Registered Securities requested to be included). The Sellers
shall enter into such agreements as may be reasonably required by the
underwriters.
D. The holders of Placement Agent Warrants shall have two (2)
opportunities to have the Registrable Securities registered under this Paragraph
7(g).
E. Seller shall furnish in writing to the Company such
information as the Company shall reasonably require in connection with a
registration statement.
F. The Company may, at any time and in its sole discretion,
decide not to proceed with the filing of a registration statement which may have
given rise to "piggy-back" rights under this Section 7(g) or may at any time
terminate or suspend such registration, in which event each Seller=s rights
under this Section 7 as to the number of opportunities to "piggy-back" shall be
reset.
-14-
(h) If and whenever the Company is required by the provisions of
Paragraph 7(a) to use its best efforts to register any Registrable Securities
under the 1933 Act, the Company shall, as expeditiously as possible under the
circumstances and subject to the terms of this Section 7:
A. Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective as soon as possible after filing and
remain effective.
B. Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement current and effective
and to comply with the provisions of the 1933 Act, and any regulations
promulgated thereunder, with respect to the sale or disposition of all
Registrable Securities covered by the registration statement required to effect
the distribution of the securities, but in no event shall the Company be
required to do so for a period of more than three (3) years following the
effective date of the registration statement.
C. Furnish to the Sellers participating in the offering, copies
(in reasonable quantities) of summary, preliminary, final, amended or
supplemented prospectuses, in conformity with the requirements of the 1933 Act
and any regulations promulgated thereunder, and other documents as reasonably
may be required in order to facilitate the disposition of the securities, but
only while the Company is required under the provisions hereof to keep the
registration statement current.
D. 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 of the United States as the Sellers
participating in the offering shall reasonably request, and do any and all other
acts and things which may be reasonably necessary to enable each participating
Seller to consummate the disposition of the Registrable Securities in such
jurisdictions.
E. Notify each Seller selling Registrable Securities, at any time
when a prospectus relating to any such Registrable Securities covered by such
registration statement is required to be delivered under the 1933 Act, of the
Company's becoming aware that the prospectus included in such registration
statement, as then in effect, includes 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 in the light of the circumstances
then existing, and promptly prepare and furnish to each such Seller selling
Registrable Securities a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an 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 not misleading in the
light of the circumstances then existing.
-15-
F. As soon as practicable after the effective date of the
registration statement, and in any event within eighteen (18) months thereafter,
make generally available to Sellers participating in the offering an earnings
statement (which need not be audited) covering a period of at least twelve (12)
consecutive months beginning after the effective date of the registration
statement which earnings statement shall satisfy the provisions of Section 11(a)
of the 1933 Act, including, at the Company's option, Rule 158 thereunder. To the
extent that the Company files such information with the SEC in satisfaction of
the foregoing, the Company need not deliver the above referenced earnings
statement to Sellers.
G. Upon request, deliver promptly to counsel of each Seller
participating in the offering copies of all correspondence between the SEC and
the Company, its counsel or auditors and all memoranda relating to discussions
with the SEC or its staff with respect to the registration statement and permit
each such Seller to do such investigation at such Seller's sole cost and
expense, upon reasonable advance notice, with respect to information contained
in or omitted from the registration statement as it deems reasonably necessary.
Each Seller agrees that it will use its best efforts not to interfere
unreasonably with the Company's business when conducting any such investigation
and each Seller shall keep any such information received pursuant to this
Paragraph 7(h)G confidential.
H. Provide a transfer agent located in the United States for all
such Registrable Securities covered by such registration statement not later
than the effective date of such registration statement.
I. List the Registrable Securities covered by such registration
statement on such exchanges and/or on the NASDAQ as the Common Stock is then
currently listed upon.
J. Pay all Registration Expenses (as defined below) incurred in
connection with a registration of Registrable Securities, whether or not such
registration statement shall become effective; provided that each Seller shall
pay all underwriting discounts, commissions and transfer taxes, and their own
counsel fees, if any, relating to the sale or disposition of such Seller's
Registrable Securities pursuant to a registration statement. As used herein,
"Registration Expenses" means any and all reasonable and customary expenses
incident to performance of or compliance with the registration rights set forth
herein, including, without limitation, (i) all SEC and stock exchange or
National Association of Securities Dealers, Inc. registration and filing fees,
(ii) all fees and expenses of complying with state securities or blue sky laws
(including reasonable fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities but no
other expenses of the underwriters or their counsel), (iii) all printing,
messenger and delivery expenses, and (iv) the reasonable fees and disbursements
of counsel for the Company and the Company's independent public accountants.
(i) The Company acknowledges that there is no adequate remedy at law
for failure by it to comply with the provisions of this Paragraph 7 and that
such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Paragraph 7 may be specifically
enforced. In the event that the Company shall fail to file
-16-
such registration statement when required pursuant to Paragraph 7(a) above or to
keep any registration statement effective as provided in this Paragraph or
otherwise fails to comply with its obligations and agreements in this Paragraph
7, then, in addition to any other rights or remedies Sellers may have at law or
in equity, including without limitation, the right of rescission, the Company
shall indemnify and hold harmless each holder of Placement Agent Warrants from
and against any and all manner or loss which they may incur as a result of such
failure. In addition, the Company shall also reimburse such holders for any and
all reasonable legal fees and expenses incurred by them in successfully
enforcing their rights pursuant to this Paragraph 7, regardless of whether any
litigation was commenced; provided, however, that the Company shall not be
liable for the fees and expenses of more than one law firm, which firm shall be
designated by the Placement Agent.
8. Conditions. The following obligations of the Company shall be satisfied
or fulfilled on or prior to the date of each Closing, unless otherwise agreed to
in writing by the Placement Agent:
(a) The Company shall have delivered to the Placement Agent, at the
Initial Closing, (i) a currently-dated long-form good standing or comparable
certificate or telegram from the Secretary of State or other appropriate
authority where the Company and each U.S.- based Subsidiary is incorporated and
each other jurisdiction in which the Company and any of the Subsidiaries is
qualified to do business as a foreign corporation; (ii) the certificate of
incorporation of the Company and each Subsidiary, as currently in effect,
certified by the Secretary of State or other appropriate authority of the state
where the Company and each Subsidiary is incorporated; (iii) a certified copy of
the filed Articles of Amendment setting forth the designation, preference
rights, qualifications, limitations or restrictions of the Series B Preferred
Stock; (iv) by-laws of the Company certified by the secretary of the Company;
and (v) certified resolutions of the Board of Directors of the Company approving
this Agreement, the execution of the Series B Preferred Stock, the Exchange
Offer and the Placement Agent Warrants, the registration of the Registerable
Securities and the other transactions contemplated by the Series B Preferred
Stock.
(b) There shall have occurred no material adverse event affecting the
Company or the Subsidiaries or any of their respective businesses or assets or
the Company's securities since the date of this Agreement which has had or will
have a Material Adverse Effect.
(c) No litigation or administrative proceeding shall have been
threatened or commenced against the Company or any of the Subsidiaries which (i)
seeks to enjoin or otherwise prohibit or restrict the consummation of the
transactions contemplated by this Agreement or (ii) if adversely determined,
would have a Material Adverse Effect or have a material adverse effect on the
Company's securities.
(d) The Company shall have delivered to the Placement Agent a
certificate of its principal executive and financial officers as to the matters
set forth in Paragraphs 8(a), (b) and (c) of this Agreement and to the further
effect that (i) neither the Company nor any Subsidiary is in default, in any
respect, under any note, loan agreement, security agreement, mortgage, deed of
trust, indenture, contract, alliance agreement, lease, license, joint venture
agreement, agreement
-17-
or other instrument to which it is a party, except as disclosed in the Financial
Statements or the Memorandum and except where such default has not and will not
have a Material Adverse Effect; (ii) the Company's representations and
warranties contained in this Agreement are true and correct in all material
respects on such date with the same force and effect as if made on such date;
(iii) there has been no amendment or changes to the Company's or Subsidiaries=
charter or by-laws or authorizing resolutions from those delivered pursuant to
Paragraph 8(a) of this Agreement; and (iv) no event has occurred which, with or
without the lapse of time or giving of notice, or both, would constitute a
material breach or default thereof by the Company or any Subsidiary or would
cause acceleration of any material obligation of the Company or any Subsidiary,
or could materially and adversely affect the business, operations or financial
condition of the Company.
(e) The Placement Agent shall have received the opinion of Foley &
Lardner, counsel for the Company, dated as of the closing date in form and
substance reasonably satisfactory to the Placement Agent and its counsel.
(f) The Company shall have prepared and filed or delivered to counsel
for filing with the SEC and any states in which such filing is required, a Form
D relating to the sale of the Series B Preferred Stock and such other documents
and certificates as are required.
(g) Subscriptions for at least the Minimum Amount of Series B
Preferred Stock shall have been accepted by the Company.
(h) In addition to the right of the Placement Agent to terminate this
Agreement and not consummate the transactions contemplated by this Agreement as
a result of the failure of the Company to comply with any of its obligations set
forth in this Agreement, this Agreement may be terminated by the Placement Agent
by written notice to the Company at any time prior to the Initial Closing if, in
the Placement Agent's sole judgment, (i) the Company and/or Subsidiaries shall
have sustained a loss that is material to the Company or its Subsidiaries, taken
as a whole, whether or not insured, by reason of fire, earthquake, flood,
accident or other calamity, or from any labor dispute or court or government
action, order or decree; (ii) trading in securities on any exchange or system
shall have been suspended or limited either generally or specifically with
respect to the Common Stock; (iii) material governmental restrictions have been
imposed on trading in securities generally or specifically with respect to the
Common Stock (not in force and effect on the date of this Agreement); (iv) a
banking moratorium shall have been declared by Federal or New York State
authorities; (v) an outbreak of major international hostilities or other
national or international calamity shall have occurred; (vi) the Congress of the
United States or any state legislative body shall have passed or taken any
action or measure, or such bodies or any governmental body or any authoritative
accounting institute, or board, or any governmental executive shall have adopted
any orders, rules or regulations, which the Placement Agent reasonably believes
is likely to have a material adverse effect on the business, financial condition
or financial statements of the Company or the market for the Series B Preferred
Stock; (vii) the Common Stock shall have been delisted from NASDAQ and the
Company has failed to use its best efforts to cause the Common Stock to be
traded over the bulletin board; or (viii) there shall have
-18-
been, in the Placement Agent's judgment, a material decline in the Dow Jones
Industrial Index or the market price of the Common Stock at any time subsequent
to the date of this Agreement.
9. Covenants of the Company. The Company agrees at all times as long as the
Series B Preferred Stock and the Placement Agent Warrants may be converted or
exercised, to keep reserved from the authorized and unissued Common Stock, such
number of shares of Common Stock as may be, from time to time, issuable upon
conversion of the Series B Preferred Stock and exercise of the Placement Agent
Warrants.
10. Fees.
(a) Upon the receipt by the Company of the payments from the
Purchasers, the Company shall pay to the Placement Agent a fee equal to 8% of
the aggregate gross cash proceeds from the Series B Preferred Stock sold
pursuant to this Agreement, a portion of which may be paid by the Placement
Agent to other registered broker-dealers; provided, however, that the Company
shall have no obligation with respect to payments that may be due such
broker-dealers. Such amount may be deducted by the Placement Agent from the
payment being made to the Company pursuant to Paragraph 2 of this Agreement.
Notwithstanding the foregoing, no fee or commission shall be payable to the
Placement Agent as a result of the sale of shares of Series B Preferred Stock in
the Exchange Offer. In addition, the Company shall issue at the Final Closing,
five (5) year warrants to purchase an amount of Common Stock at $3.60 per share
equal to 10% times the gross cash proceeds received by the Company divided by
the Conversion Price, subject to adjustment (the "Placement Agent Warrants"), a
portion of which may be allotted by the Placement Agent to other registered
broker-dealers; provided, however, that the Company shall have no obligation
with respect to the allocation of the Placement Agents Warrants to such
broker-dealers. The exercise price of the Placement Agent Warrants will be equal
to 120% of the Conversion Price. The persons in whose name the Placement Agent
Warrants are issued shall all be "accredited investors" as defined in the
regulations promulgated under the 1933 Act and such persons shall acquire such
warrants for investment purposes only and not with a view towards the
redistribution thereof. The Company shall reimburse the Placement Agent for up
to $5,000 of its reasonable costs and expenses, including the reasonable fees
and expenses of counsel to the Placement Agent, if and when a closing occurs.
(b) The Company shall pay any fees required in connection with the
qualification of the sale of the Series B Preferred Stock under the state
securities or blue sky laws of any state which the Placement Agent reasonably
deems necessary and any other out-of-pocket expenses incurred by the Company in
connection with the transaction contemplated by this Agreement.
(c) All payments in connection with the sale of the Series B Preferred
Stock shall be made pursuant to the terms and conditions of the escrow agreement
dated as of August 17, 1998 between Placement Agent and American Stock Transfer
& Trust Company, an executed copy of which has been delivered to and
acknowledged by the Company.
-19-
11. Notices. All notices provided for in this Agreement shall be in writing
signed by the party giving such notice, and delivered personally or sent by
overnight courier or messenger against receipt thereof or sent by registered or
certified mail, return receipt requested, or by facsimile transmission, if
confirmed by mail as provided in this Paragraph 11. Notices shall be deemed to
have been received on the date of personal delivery or facsimile or, if sent by
certified or registered mail, return receipt requested, shall be deemed to be
delivered on the third business day after the date of mailing. Notices shall be
sent to the following addresses:
To the Company:
EFFECTIVE MANAGEMENT SYSTEMS, INC.
12000 West Park Place
Milwaukee, WI 53224
Telecopier: (414) 359-9011
Attention: Michael D. Dunham
Jeffrey J. Fossum
With a copy to:
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
Telecopier: (414) 297-4900
Attention: Jay O. Rothman, Esq.
To Placement Agent:
TAGLICH BROTHERS, D'AMADEO, WAGNER
& COMPANY, INCORPORATED
100 Wall Street
New York, NY 10005
Telecopier: (212) 509-6587
Attention: Mr. Michael N. Taglich
With a copy to:
ROBINSON SILVERMAN PEARCE ARONSOHN
& BERMAN LLP
1290 Avenue of the Americas
New York, New York 10104
Telecopier: (212) 541-4630
Attention: Robert G. Leonard, Esq.
-20-
or to such other address as any party shall designate in the manner provided in
this Paragraph 11.
12. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof, superseding any and all prior or
contemporaneous oral and prior written agreements and understandings. This
Agreement may not be modified or amended nor may any right be waived except by a
writing which expressly refers to this Agreement, states that it is a
modification, amendment or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver with respect to a
waiver. No course of conduct or dealing and no trade custom or usage shall
modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such state. Each party hereby consents to the
exclusive jurisdiction of the Federal and State Courts situated in New York
County, New York in connection with any action arising out of or based upon this
Agreement and the transaction contemplated by this Agreement.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective personal representatives, successors
and permitted assigns.
(d) In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
(e) Each party shall, without payment of any additional consideration
by any other party, at any time on or after the date of any Closings take such
further action and execute such other and further documents and instruments as
the other party may request in order to provide the other party with the
benefits of this Agreement.
(f) The captions and headings contained herein are solely for
convenience and reference and do not constitute a part of this Agreement.
(g) All references to any gender shall be deemed to include the
masculine, feminine or neuter gender, the singular shall include the plural and
the plural shall include the singular.
(h) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same document.
-21-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first aforesaid.
EFFECTIVE MANAGEMENT TAGLICH BROTHERS, D'AMADEO, WAGNER
SYSTEMS, INC. & COMPANY, INCORPORATED
By:_______________________________ By:_______________________________________
Name: Name: Richard Oh
Title: Title: Vice President
EXHIBIT A
Names, Addresses and
Social Security or Number of
Employer Identification Shares of
Numbers of Purchasers Series B Preferred Stock
EXHIBIT B
Indemnification Rider
(a) Effective Management Systems, Inc. (the "Company") shall indemnify and
hold harmless: (I) TAGLICH BROTHERS, D=AMADEO, WAGNER & COMPANY, INCORPORATED
(the "Placement Agent"), (II) each person and entity that directly, or
indirectly though one or more intermediaries, controls or is controlled by, or
is under common control with, the Placement Agent (each, an "Affiliate"), and
(III) the Placement Agent's and each Affiliate's respective officers, directors,
affiliates, shareholders, agents and employees (collectively, the "Other
Parties" and individually "Other Party") from and against any loss, claim,
penalty, fine, judgment, damage or liability, joint or several of any sort of
kind, and any action in respect thereof, to which the Placement Agent, any
Affiliate or any Other Party may become subject, under the Securities Act of
1933, as amended ("1933 Act"), the Securities Exchange Act of 1934, as amended
("1934 Act"), any state law or otherwise, insofar as such loss, claim, penalty,
fine, judgment, damage, liability or action relates to or arises out of (i) any
alleged untrue statement of a material fact contained in any information or
documents issued or supplied by the Company regarding the sale of its securities
as contemplated by the Series B Preferred Stock Placement Agreement between the
Company and the Placement Agent (the PSP Agreement) to which this Exhibit B is
annexed, including the Company's Confidential Private Placement Memorandum and
all exhibits thereto (collectively, the "Offering Information"), or the alleged
omission to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, (ii)
any transaction contemplated by the PSP Agreement or the engagement of the
Placement Agent pursuant to, and the performance by the Placement Agent of the
services contemplated by, the PSP Agreement, (iii) any breach by the Company of
the representations, warranties or covenants contained in the: (1) PSP
Agreement; (2) certificate of designation or other document filed by the Company
with the appropriate authorities in the state of its incorporation which sets
forth the rights, qualifications, preferences, designations, powers and
restrictions of the securities to be sold as contemplated by the PSP Agreement;
and/or (3) preferred stock purchase agreement to be entered into between the
Company and each investor acquiring the securities being offered; and shall
reimburse the Placement Agent, any Affiliate and each Other Party for any legal
or other expenses reasonably incurred by the Placement Agent, any Affiliate
and/or such Other Party in connection with investigating or defending any such
loss, claim, penalty, fine, judgment, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, penalty, fine, judgment, damage, liability or action
relates to or arises out of any alleged untrue statement or alleged omission
contained therein relating to the Placement Agent, any Affiliate or such Other
Party or that was made in reliance upon and in conformity with information
furnished to the Company in writing by the Placement Agent, any Affiliate or
such Other Party, in any such case expressly for use in the Offering Information
or, provided, further, that the Company will not be liable under clause (ii)
above for any loss, claim, penalty, fine, judgment, damage, liability or action
(or expenses relating thereto) that are finally judicially determined by a court
of competent jurisdiction to have resulted from: (A) the bad faith, negligence,
or willful misconduct of the Placement Agent; or (B) the breach by the Placement
Agent of any agreement contained in the PSP Agreement that results from the
negligence or willful misconduct of the
Placement Agent. The foregoing indemnity is in addition to any liability, which
the Company may otherwise have to the Placement Agent, any Affiliate and/or any
Other Party. In the event the Placement Agent, any Affiliate or any Other Party
is requested or required to appear as a witness in any action brought by or on
behalf of or against the Company or any participant in a transaction covered
hereby in which the Placement Agent, any Affiliate or such Other Party is not
named as a defendant, the Company agrees to reimburse the Placement Agent,
Affiliate and/or such Other Party for all out of pocket expenses reasonably
incurred by it in connection with such party's appearing and preparing to appear
as a witness, including, without limitation the reasonable fees and
disbursements of its legal counsel.
(b) The Placement Agent shall indemnify and hold harmless the Company and
its officers, directors, affiliates, agents and employees and any person who
controls the Company within the meaning of the 1933 Act or the 1934 Act from and
against any loss, claim, penalty, fine, judgment, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any officer,
director, affiliates, agents, employee or person who controls the Company or any
of them may become subject under the 1933 Act, the 1934 Act, any state law or
otherwise, insofar as such loss, claim, penalty, fine, judgment, damage,
liability or action relates to or arises out of (i) the bad faith, negligence or
willful misconduct of the Placement Agent, any Affiliate or Other Party or the
breach by the Placement Agent of any agreement contained in the PSP Agreement
that results from the negligence or willful misconduct of the Placement Agent;
or (ii) any alleged untrue statement of a material fact that relates to the
Placement Agent, any Affiliate or Other Party contained in the Offering
Information or that was made in reliance upon and in conformity with the
information furnished to the Company in writing by the Placement Agent, any
Affiliate or Other Party, in any such case expressly for use therein or the
omission or alleged omission to state therein a material fact that relates to
the Placement Agent, any Affiliates or Other Party or that was made in reliance
upon and in conformity with information furnished to the Company in writing by
the Placement Agent, any Affiliate or Other Party, in any such case expressly
for use in the written Offering Information necessary to make the statements
therein, in the light of the circumstances under which they were made not
misleading, and the Placement Agent shall reimburse the Company and each such
party for any legal or other expenses reasonably incurred by the Company, or
such indemnified party in connection with investigating or defending any such
loss, claim, penalty, fine, judgment, damage, liability or action. The only
information provided to the Company by the Placement Agent, any Affiliate or
Other Party is the Placement Agent=s name. The foregoing indemnity is in
addition to any liability, which the Placement Agent may otherwise have to the
Company, or such indemnified party.
(c) Promptly after receipt by an indemnified party under this Exhibit B of
notice of any claim or the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Exhibit B, notify such indemnifying party in writing of the
claim or the commencement of that action provided that the failure to notify the
indemnifying party will not relieve it from any liability which it may have to
an indemnified party otherwise than under this Exhibit B. If any such claim or
action is brought against any indemnified party, and it shall notify an
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified party,
to assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party (which shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party, which consent may not be
unreasonably withheld). After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or action,
the indemnifying party shall not be liable to the indemnified party under this
Exhibit B for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
out-of-pocket costs of investigation incurred prior to the indemnifying party
assuming the defense thereof. With respect to any such claim or action for which
the indemnifying party does not assume the defense thereof, the indemnifying
party shall not be obligated to pay the reasonable fees and expenses of more
than one counsel for the indemnified party or parties.
(d) If the indemnification provided for in this Exhibit B shall for any
reason be unavailable to an indemnified party under subsections (a) or (b)
herein in respect of any loss, claim, penalty, fine, judgment, damage or
liability, or any action in respect thereof, referred to therein, then the
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, penalty, fine, judgment, damage or liability, or action in
respect thereof, (i) in such proportion as shall be appropriate to reflect the
relative benefits received by the Company on the one hand and the Placement
Agent on the other from the private placement of the securities by the Company
pursuant to the Offering Information, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Placement Agent on the other with respect to the statements or omissions which
resulted in such loss, claim, penalty, fine, judgment, damage, or liability, or
action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Placement Agent on the other with respect to the private placement of
the securities shall be deemed to be in the same proportion as the total net
proceeds received by the Company from the private placement (before deducting
expenses) bears to the total compensation received by the Placement Agent with
respect to the private placement, provided, that in no event shall liability of
the Placement Agent or any Affiliate exceed the aggregate placement fees paid to
the Placement Agent. The relative fault shall be determined be reference to: (i)
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company, on the one hand, or the Placement Agent, on the other, (ii) whether
there was a breach of a representation, warranty or covenant by the Company, or
(iii) the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement, omission or
breach. The parties agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, penalty, fine, judgment,
damage, or liability, or action in respect thereof, referred to above in this
subsection (d) shall be deemed to include, for purposes of this subsection (d),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.