PLACEMENT AGREEMENT
This PLACEMENT AGREEMENT (the "Agreement") dated as of the __ day of
May, 2006, by and between PARK CITY GROUP, INC., a Nevada corporation (the
"Company") and TAGLICH BROTHERS, INC. ("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, the Placement Agent will use its best efforts
to privately place a minimum principal amount of $750,000 (the "Minimum Amount")
and a maximum principal amount of $4,500,000 (the "Maximum Amount") of the
Company's common stock, $0.01 par value per share (the "Common Stock"), at a
purchase price (the "Purchase Price") equal to $0.055 per Share;
WHEREAS, the Shares are being issued pursuant to the Company's
Confidential Private Offering Summary and exhibits thereto dated May 30, 2006,
as the same may be amended and/or supplemented from time to time, (collectively,
the "Memorandum"); and
WHEREAS, the Shares are being issued 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. Agreement to Act as Placement Agent.
(a) The Placement Agent shall act on a best efforts basis and
does not guarantee that it will be able to raise new capital in any prospective
Offering. The Company acknowledges that any advice given by the Placement Agent
to the Company is solely for the benefit and use of the Board of Directors of
the Company and may not be used, reproduced, disseminated, quoted or referred to
without the Placement Agent's prior written consent.
(b) The term of The Placement Agent's non-exclusive engagement
will end at the end of the offering period as described in the Memorandum;
however, the Company may terminate the engagement at any time upon 30 days
written notice to the Placement Agent. Upon termination, the Placement Agent
will be entitled to collect all fees earned and expenses incurred through the
date of termination as set forth in Section 10.
2. 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, validly
existing and in good standing under the laws of the State of Nevada 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 as described in the
Memorandum, 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.
(b) The capital structure of the Company is as described in
the Memorandum.
(c) The Company has the full right, power and authority to
execute, deliver and perform under this Agreement. This Agreement has been duly
executed by the Company and, at each Closing, the Shares being issued will have
been duly executed by the Company, and this Agreement and the transactions
contemplated by this Agreement 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
have been duly and validly authorized and issued, are fully paid and
nonassessable (with no personal liability attaching to the holders thereof or to
the Company) and are free from preemptive rights or rights of first refusal held
by any person. All of the issued and outstanding shares of Common Stock have
been issued pursuant to either a current effective registration statement under
the 1933 Act or an exemption from the registration requirements thereof, and
were issued in accordance with all applicable Federal and state securities laws.
(e) The Shares to be issued at each Closing have been duly and
validly authorized for issuance and, when issued pursuant to this Agreement will
be duly and validly authorized and issued, fully paid and nonassessable 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 of June 30, 2005, and
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal year ended June 30, 2005, and the related notes thereto, which have
been audited by HJ & Associates, independent certified public accountants, (ii)
consolidated balance sheets as of June 30, 2004, and consolidated statements of
operations, shareholders' equity and cash flows for the fiscal year ended June
30, 2004, and the related notes thereto, which have been audited by HJ &
Associates, independent certified public accountants, and (iii) unaudited
balance sheet as of March 31, 2006, December 31, 2005, and September 30, 2005,
and unaudited statement of operations, stockholders' equity and cash flows for
the fiscal quarter ended March 31, 2006, December 31, 2005, and September 30,
2005, and the related notes thereto, which have been prepared by the Company.
The Financial Statements, which are included in the Company's Form 10KSB Annual
Report for the year ended June 30, 2005 (the "Form 10KSB"), the Company's Form
10QSB Quarterly Report for the fiscal quarter ended September 30, 2005, and the
Company's Form 10QSB Quarterly Report for the fiscal quarter ended December 31,
2005 (collectively the "Forms 10QSB"), and March 31, 2006, 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 and cash flows
for the periods then ended, provided, however, that the financial statements
included in the Forms 10QSB are subject to normal year-end adjustments and lack
footnotes and other presentation items. During the period of HJ & Associates'
engagement as the Company's independent certified public accountants, there has
been no 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 events required to be reported on a current
report on Form 8-K relating to the relationship between the Company and the
accounting firm. The Company has made and kept books and records and accounts
which are in reasonable detail and which fairly and accurately reflect the
activities of the Company, subject only to year-end adjustments.
(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 of the Company (the "Financial Statements"), none of such
property or assets of the Company are subject to any lien, mortgage, pledge,
encumbrance or other security interest.
(h) Except as may be disclosed in the Memorandum, since March
31, 2006, there has not been any material adverse change in the financial
condition or in the operations, business or prospects of the Company from that
shown in the Financial Statements or any damage or destruction, not covered by
insurance, which affects the business, property or assets of the Company.
(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 April 26,
2006.
(j) Neither the execution or delivery of this Agreement, the
Common Stock or the Placement Agent Warrants by the Company nor the performance
by the Company of the transactions contemplated by this Agreement or the
Placement Agent Warrants: (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,
which filings have been or will be made by the Company on a timely basis); (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 articles of incorporation (as amended) 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.
(k) Except as described in the Memorandum, The Company does
not have 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 is in compliance with all laws, rules and
regulations of all Federal, state, local and foreign government agencies having
jurisdiction over the Company or affecting the business, assets or properties of
the Company, except where the failure to comply has not and will not have a
material adverse effect on the business, financial condition or results of
operations of the Company, taken as a whole (a "Material Adverse Effect"). The
Company possesses all licenses, permits, consents, approvals and agreements
(collectively, "Licenses") which are required to be issued by any and all
applicable Federal, state, local or foreign authorities necessary for the
operation of its business and/or in connection with its assets or properties,
except where the failure to possess such Licenses has not and will not have a
Material Adverse Effect.
(m) The Company is not in default under any note, loan
agreement, security agreement, mortgage, contract, franchise agreement,
distribution agreement, lease, alliance agreement, joint venture agreement,
other 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 would cause acceleration of any obligation of the Company or would adversely
affect the business, operations, or financial condition of the Company, 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, no party to any note, loan agreement,
security agreement, mortgage, contract, franchise agreement, distribution
agreement, lease, alliance agreement, joint venture agreement, other agreement,
license, permit, consent, approval or instrument with or given to the Company 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, 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 similar
to that conducted by the Company (other than a passive immaterial interest in a
public company engaged in any such business) or (ii) engages in business with
the Company.
(o) There are no material (i.e., involving an asserted
liability in excess of twenty-five thousand dollars ($25,000)) claims, actions,
suits, proceedings or labor disputes, inquiries or investigations (whether or
not purportedly on behalf of the Company), pending or, to the best of the
Company's knowledge, threatened, against the Company, at law or in equity or by
or before any Federal, state, county, municipal or other governmental
department, the SEC, the National Association of Securities Dealers, Inc.,
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, nor any of its assets are
subject to, nor is the Company in default with respect to, any order, writ,
injunction, judgment or decree that could adversely affect the financial
condition, business, assets or prospects of the Company.
(p) The accounts receivable of the Company 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 not disclosed in the Memorandum.
(q) The accounts payable of the Company 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.
(r) Except as set forth in the Memorandum, the Company does
not have (i) any written employment contracts or oral employment contracts not
terminable at will by the Company with any 5% percent shareholder, officer or
director of the Company; (ii) any consulting agreement or other compensation
agreement with any 5% percent shareholder, officer or director of the Company;
or (iii) any agreement or contract with any 5% percent shareholder, officer or
director of the Company that will result in the payment by the Company or the
creation of any commitment or obligation (absolute or contingent), of the
Company to pay any severance, termination, "golden parachute," or similar
payment to any present or former personnel of the Company following termination
of employment. No director, executive officer or other key employee of the
Company has advised the Company that he or she intends to resign as director
and/or executive officer of the Company or to terminate his or her employment
with the Company.
(s) Except as set forth in the Memorandum, the Company is not
a party to a labor agreement with respect to any of its 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 knowledge of the Company, threatened
against the Company, nor has the Company 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 practice charges or complaints against the Company pending
before the National Labor Relations Board or any other governmental agency.
(t) Except as disclosed in the Memorandum, there is no
employee pension, retirement or other benefit plans, maintained, contributed to
or required to be contributed to by the Company covering any employee or former
employee of the Company. The Company has no 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 has timely filed or will timely file with the
appropriate taxing authorities all returns in respect of taxes required to be
filed through the date hereof and has timely paid or will timely pay all taxes
that it is required to pay or has established an adequate reserve therefore.
There are no pending or, to the knowledge of the Company, threatened audits,
investigations or claims for or relating to any liability of the Company in
respect of taxes.
(v) The Company has no liabilities of any kind or nature
whether accrued or contingent, matured or unmatured, known or unknown, except as
set forth in the Memorandum and those liabilities incurred by the Company in the
ordinary course of business since March 31, 2006.
(w) There are no finder's fees or brokerage commissions
payable with respect to the transactions contemplated by this Agreement due to
the actions of the Company, except as provided in Paragraph 9 of this Agreement.
(x) Except as set forth in the Memorandum, the Company is not
currently and has not during the past six (6) months been engaged in
negotiations 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 or any of its assets other than sales in the ordinary course of
business.
(y) The Company has the right to conduct its business in the
manner in which its business has been heretofore conducted. To the knowledge of
the Company, the conduct of such businesses by the Company does not violate or
infringe upon the patent, copyright, trade secret or other proprietary rights of
any third party, and the Company has not received any notice of any claim of any
such violation or infringement.
(z) The Company is 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 is currently in compliance with all such permits, licenses, consents and
other authorizations, except where the failure to comply does not and will not
have a Material Adverse Effect. The Company has not 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 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, as amended, the Resource Conservation and Recovery Act, as amended,
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 Wastes" shall mean any regulated quantity of
hazardous substances as listed by the Environmental Protection Agency (the
"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 standard of conduct concerning any hazardous, toxic
substance or material.
(aa) The information contained in the Memorandum, taken
together, describe in all material respects the business and financial condition
of the Company, and such material, 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. The Investors and the Placement Agent shall
be entitled to rely on such material notwithstanding any investigation they or
any of them may have made.
(bb) The Financial Statements included in the Memorandum
present fairly the financial position of the Company as of the dates indicated
and the results of its operations for the periods specified. The historical
financial information included in the Memorandum has been derived from the
accounting records of the Company and presents fairly the information shown
thereby. The assumptions underlying pro forma financial information included in
the Memorandum are reasonable and are set forth in the Memorandum.
(cc) The Placement Agent Warrants have been authorized for
issuance to the Placement Agent or its designees. The Warrant Shares, when
issued and delivered against payment therefor in accordance with the terms
thereof, will be duly and validly issued, fully paid, nonassessable and free of
preemptive rights or rights of first refusal held by any person, and all
corporate action required to be taken for the authorization and issuance of the
Placement Agent Warrants and the Warrant Shares has been validly and
sufficiently taken. The execution by the Company of the Placement Agent Warrants
has been duly authorized by all required action of the Company and, when so
executed and delivered, will constitute the valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
3. Representations, Warranties and Covenants of Placement Agent.
(a) Placement Agent hereby represents and warrants that it is
duly authorized to execute this Agreement and perform its duties hereunder, and
the execution and delivery by Placement Agent of this Agreement and the
consummation of the transactions contemplated by this Agreement have been
authorized by all necessary corporate action and will not result in any
violation of, or be in conflict with, or constitute a default under, Placement
Agent's Articles of Incorporation or By-Laws, any agreement or instrument to
which Placement Agent is a party or Placement Agent's property is bound, or any
judgment, decree, order or any statute, rule or regulation applicable to
Placement Agent.
(b) In offering the Shares for sale, Placement Agent will not
offer the Shares for sale, or solicit any offers to buy any Shares, or otherwise
negotiate with any person in respect of the Shares, on the basis of any
communications or documents relating to the Shares or any investment therein or
to the Company or investment therein, other than the Memorandum and any other
document satisfactory in form and substance to the Company. Placement Agent will
promptly deliver a copy of each amendment or supplement to the Memorandum (i) to
all offerees then being or thereafter solicited by Placement Agent, and (ii) to
each person who has subscribed for Shares prior to the receipt by such person of
such amendment or supplement.
(c) In offering the Shares for sale, Placement Agent shall
conduct such sales in the manner described in the Memorandum.
4. Covenants of the Company.
(a) In connection with the Proposed Offering, the Company will
at all times comply with all requirements imposed upon it by the Act, as now and
hereafter amended, and by all applicable state securities laws and regulations,
to permit the continuance of offers and sales of the Units in accordance with
the provisions hereof and the Memorandum. During such period, the Company will
amend and supplement the Memorandum in order to make the Memorandum comply with
the requirements of the Act.
(b) If at any time it is known or believed that any event
occurred as a result of which the Memorandum or any representation or warranty
contained in this section includes an untrue statement of a material fact or, in
view of the circumstances under which they were made, omits to state any
material fact necessary to make the statements therein not misleading, the
Company will notify The Placement Agent (unless the information shall have been
received in writing from the Company) and will prepare an amended or
supplemented Memorandum which will correct such statement or omission.
(c) The Company will not make any offers or sales of any
security (other than the Shares) under circumstances that would cause the
Proposed Offering to fail to qualify for an exemption from the registration
requirements of applicable federal and state securities laws .
(d) The Company agrees at all times as long as the Placement
Agent Warrants may be 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 exercise of the Placement Agent Warrants
5. Survival of Representations and Warranties and Indemnification. The
representations, warranties and covenants of the Company and Placement Agent set
forth in Sections 2, 3 and 4 of this Agreement shall survive the execution and
delivery of the Shares. The indemnification obligations of the Company as set
forth in the indemnification rider identified as Appendix II (as amended or
supplemented from time to time, the "Indemnification Rider") to that certain
engagement letter between the Company and the Placement Agent, dated April 24,
2006 (as amended or supplemented from time to time) is hereby incorporated by
reference in its entirety as if more fully set forth herein, and the provisions
of the Indemnification Rider shall apply and be applicable to, among other
things, all representations and warranties of the Company.
6. Use of Proceeds. The net proceeds to the Company from the sale of
the Minimum Amount of Common Stock and the Maximum Amount of Common Stock are
estimated to be approximately $640,000 and $4,090,000, respectively, after
deducting the fees and expenses associated with the Private Placement Offering.
The net proceeds from the sale of the Shares will be used by the Company as
disclosed in the Offering Materials.
7. Unregistered Securities. None of the Shares or the Warrant Shares
have been registered under the 1933 Act, in reliance upon the applicability of
Section 4(2), 4(6) and/or Rule 506 of Regulation D of the 1933 Act to the
transactions contemplated hereby. The certificates representing the Shares and
the Warrant Shares will bear an investment legend stating that they are
"restricted securities" (as defined in Rule 144 under the Securities Act) and
may only be publicly offered and sold pursuant to an effective registration
statement filed with the SEC or pursuant to an exemption from the registration
requirements.
8. Registration Rights and "Piggy-Back" Registration Rights.
(a) As soon as possible after the Final Closing Date, but in
no event later than thirty (30) days after the Final Closing Date (regardless of
whether the Maximum Amount of Common Stock shall have been sold), the Company
shall, at its sole cost and expense, file a registration statement (as amended
or supplemented from time to time, the "Registration Statement") on the
appropriate form under the 1933 Act with the SEC covering all of the Shares and
the Warrant Shares (collectively, the "Registrable Securities") for all holders
of the Shares and the Placement Agent Warrants (collectively, the "Registered
Holders"), time being of the essence. The Company will use best efforts to have
the Registration Statement declared effective, and to keep the Registration
Statement effective, until the earlier of (x) three years after the Final
Closing Date, (y) the date when all the Registrable Securities have been sold or
(z) the date on which the Registrable Securities may be sold without any
restriction pursuant to the Rule 144. If the Registration Statement is not filed
within forty-five (45) days after the Final Closing Date, the Company will pay
to each Investor a cash penalty of two percent (2%) of such Investor's Purchase
Price investment (to the extent accepted) until the Registration Statement is
filed. In addition, if the Registration Statement is not declared effective
within 180 days of the filing date, (i) the Company will pay to each Investor a
cash penalty of two percent (2%) of such Investor's Purchase Price (to the
extent accepted) for each thirty (30) day period, or any part thereof, beyond
such 180 day period, until the Registration Statement is declared effective. The
maximum cash payments to each Investor pursuant to these provisions is
twenty-four percent (24%) of such Investor's Purchase Price (to the extent
accepted), as the case may be. No penalties shall be payable in relation to the
Warrant Shares.
(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 each Registered Holder whose Registrable Securities are included
in the registration statement associated with such registration (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, 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
such registration statement or prospectus or any amendment or supplement thereto
or any document filed under a state securities or blue sky law (as amended or
supplemented from time to time, 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 or
disbursements 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.
(c) In connection with any registration statement in which a
Seller is participating, such 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 such 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 or disbursements 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 such 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 or disbursements subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; 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 in each jurisdiction, 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 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, or if the indemnified party failed to give the notice required by Paragraph
7(d) above, 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 or disbursements 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.
(g) The Registered Holders shall have certain "piggy-back"
registration rights with respect to the Registrable Securities as hereinafter
provided:
(1) If at any time or from time to time after a
three-year anniversary date of the Final Closing, the Company determines to
register Common Stock for its own account for a public offering or for the
account of any of its stockholders to publicly sell their shares of Common
Stock, other than a registration on Form S-1 or S-8 relating solely to employee
stock option or purchase plans, the Company will promptly notify each Registered
Holder of such registration.
(2) If within five (5) days after such notice from
the Company a Registered Holder gives notice to the Company of such Registered
Holder's desires to have all of the Registered Holder's Registrable Securities
included in a registration statement, then the Company shall include such
Registered Holder's Registrable Securities in such registration statement, at
the Company's sole cost and expense, subject to the remaining terms of this
Section 3.7. If a Registered Holder fails to give such notice within such
period, such Registered Holder shall not have the right to have such Registered
Holder's Registrable Securities registered pursuant to such registration
statement.
(3) The Company at its expense will keep such
registration effective for a period of 180 days or until all of the selling
securities holders named in such registration statement relating thereto have
completed the distribution described in such registration statement, whichever
first occurs, and will furnish such number of prospectuses and other documents
incident thereto as such selling securities holders from time to time may
reasonably request.
(4) If a registration statement relates to an
underwritten offering, and the underwriter 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 deems
to be appropriate for the offering, the number of shares of the Registrable
Securities shall be reduced in the same proportion as the remainder of the
shares in the offering and each Registered Holder's Registrable Securities
included in such registration statement will be reduced proportionately. For
this purpose, if other securities in such registration statement are derivative
securities, their underlying shares shall be included in the computation. The
Registered Holders shall enter into such agreements as may be reasonably
required by the underwriters and the Registered Holders shall pay to the
underwriters commissions relating to the sale of their respective Registrable
Securities.
(5) The Registered Holder shall furnish in writing to
the Company such information as the Company shall reasonably require in
connection with any registration statement.
(h) If and whenever the Company is required by the provisions
of this Paragraph 7 to use its best efforts to register any Registrable
Securities under the 1933 Act, the Company shall, as expeditiously as possible
under the circumstances:
(1) 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.
(2) Subject to Paragraph 7(a), 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 such 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 such registration statement.
(3) Furnish to the Sellers participating in the
offering, applicable 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 such registration statement current.
(4) 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.
(5) 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.
(6) As soon as practicable after the effective date
of such registration statement, and in any event within eighteen (18) months
thereafter, make generally available to the 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
such 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 the Sellers.
(7) 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 such 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 such 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 confidential.
(8) Provide a transfer agent and registrar 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.
(9) 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.
(10) 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 and accounting fees, if any, relating to the sale or
disposition of such Seller's Registrable Securities pursuant to such
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 or disbursements by 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 8 and that such failure would not be adequately compensable in
damages, and therefore agrees that its obligations and agreements contained in
this Paragraph 7 may be specifically enforced. In the event that the Company
shall fail to file such registration statement when required pursuant to
Paragraph 8(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 8, then, in addition to any other rights or
remedies the registered Holders may have at law or in equity, including, without
limitation, the right of rescission, the Company shall indemnify and hold
harmless the Registered Holders 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 the Registered Holders for any and all reasonable legal fees,
expenses and disbursements incurred by them in 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.
9. 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
certificate or telegram from the Secretary of State where the Company is
incorporated and each other jurisdiction in which the Company is qualified to do
business as a foreign corporation; (ii) the articles of incorporation (as
amended) of the Company, as currently in effect, certified by the Secretary of
State of the state where the Company is incorporated; (iii) by-laws of the
Company certified by the secretary of the Company; and (iv) certified
resolutions of the Board of Directors of the Company approving this Agreement,
the sale of the Common Stock and the Placement Agent Warrants, and the
registration of the Registrable Securities.
(b) There shall have occurred no event which has a Material
Adverse Effect on the Company or any of its businesses, assets, prospects or the
Company's securities since the date of this Agreement.
(c) No litigation or administrative proceeding shall have been
threatened or commenced against the Company 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 on the Company or 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) the Company is not 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, other
agreement 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 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 articles of incorporation 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 breach of
default thereof by the Company, or would cause acceleration of any obligation of
the Company, or could adversely affect the business, operations, financial
condition or prospects of the Company.
(e) The Placement Agent shall have received the opinion of Bud
Headman of Cohne, Rappaport & Segal, P.C, 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 Common Stock and such other documents and
certificates as are required.
(g) Subscriptions for at least the Minimum Amount of Common
Stock shall have been accepted by the Company.
(h) The Company will announce its intention to effect a
reverse stock split, in a ratio to be determined by mutual agreement with the
Placement Agent. The Company will use its best efforts and in a timely fashion
seek majority shareholder consent and file required shareholder notice with the
SEC in the form of a Schedule 14C in connection with the reverse split.
(i) 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
shall have sustained a loss that is material to the Company, 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 Common Stock; (vii) the Common Stock shall
have been delisted from the exchange on which it currently listed, or the
Company shall have received notice from such exchange advising the Company of
its intention to have the Common Stock delisted from such exchange, whether
conditional or otherwise, or the Company shall fail to meet the requirements for
continued listing on such exchange; or (viii) there shall have 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.
10. Indemnification.
(a) Indemnification by Company. The Company agrees to
indemnify and hold harmless Placement Agent, its officers, directors and agents
from and against any and all loss, liability, claim, damage and expense
whatsoever arising out of (1) a breach or alleged breach by the Company of any
warranty set forth in Section 2, (2) failure or alleged failure by the Company
to comply with the provisions of Section 2, or (3) any untrue statement or
alleged untrue statement of a material fact contained in the Memorandum or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission contained in the
material furnished to the Company by Placement Agent on Placement Agent's
behalf, specifically for inclusion therein, which relates to Placement Agent's
activities pursuant to this Agreement.
(b) Indemnification by Placement Agent. Placement Agent agrees
to indemnify and hold harmless the Company (its officers, directors and agents)
and each person, if any, who controls any of the foregoing within the meaning of
the 1933 Act to the same extent as the indemnity from the Company described
above against any and all loss, liability, claim, damage and expense whatsoever
(or actions in respect thereto) arising out of or based upon any
misrepresentation or alleged misrepresentation, failure or alleged failure by
Placement Agent to comply with the covenants and agreements set forth in Section
3.
11. Fees.
(a) As disclosed in the Memorandum, a fee ("Success Fee")
equal to eight percent (8%) of the gross proceeds through the sale of the Shares
shall be payable to the Placement Agent.
(b) In addition to the sums payable to the Placement Agent as
provided elsewhere herein, the Placement Agent shall be entitled to receive at
the Closing, as additional compensation for its services, warrants (the
"Placement Agent Warrants") with a five (5) year term for the purchase of an
amount of Common Stock equal to ten percent (10.0%) of the Shares sold in this
Offering. The exercise price of the Placement Agent Warrants will initially be
equal to one-hundred ten percent (110%) of the closing bid price of the Common
Stock on the Final Closing Date.
(c) The Company also agrees to pay to the Placement Agent, a
cash fee equal to eight (8.0%) percent of the gross proceeds, if any, received
subsequent to the termination of the Offering from any party introduced to the
Company by the Placement Agent during the Offering Period; provided that such
proceeds are received by the Company within one year of the date of such
introduction and that the Placement Agent has promptly notified the Company that
such introduction has been made
(d) Upon closing, the Company will reimburse the Placement
Agent for up to $50,000 of its actual and reasonable out-of-pocket expenses
incurred in connection with Offering, including fees and expenses of its
counsel.
(e) The Company shall pay any fees required in connection with
the qualification of the sale of the Shares under the state securities or "blue
sky" laws of any state which the Placement Agent reasonably deems necessary.
(f) All payments in connection with the sale of the Shares
shall be made pursuant to the terms and conditions of the escrow agreement
between Placement Agent and CSC Trust Company of Delaware, an executed copy of
which has been delivered to and acknowledged by the Company.
12. The Placement Agent and the Company mutually agree that they will
not disclose any confidential information received from the other party to
others, except with the written permission of the other party or as such
disclosure may be required by law.
13. 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 Section 12. 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:
PARK CITY GROUP, INC.
333 Main Street
Suite 300
Park City, UT 84060
Facsimile: (435) 645-2110
Attention: Randy Fields
To Placement Agent:
TAGLICH BROTHERS, INC.
405 Lexington Avenue, 51st Floor
New York, NY 10174
Facsimile: (212) 661-6824
Attention: Robert Schroeder
With a copy to:
EDWARDS ANGELL PALMER & DODGE LLP
90 State House Square
Hartford, CT 06103
Facsimile: (860) 527-4198
Attention: Mark Seiger, Esq.
or to such other address as any party shall designate in the manner provided in
this Section 12.
14. Miscellaneous.
(a) This Agreement constitutes the entire agreement between
the parties relating to the subject matter hereof and supercedes 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 transactions 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 any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
PARK CITY GROUP, INC. TAGLICH BROTHERS, INC.
By:_______________________________ By:___________________________
Name: Name:
Title: Title: