<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ________________
COMMISSION FILE NUMBER: 1-11883
EMB CORPORATION
---------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS
SPECIFIED IN ITS CHARTER)
HAWAII 95-3811580
------ ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3200 BRISTOL STREET, EIGHTH FLOOR, COSTA MESA, CALIFORNIA 92626
----------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(714) 437-0738
--------------------------
(ISSUER'S TELEPHONE NUMBER)
NOT APPLICABLE
--------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS),
AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
CHECK WHETHER THE REGISTRANT FILED ALL DOCUMENTS AND REPORTS REQUIRED
TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE EXCHANGE ACT AFTER THE
DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY COURT.
YES NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON EQUITY, AS OF THE LAST PRACTICABLE DATE: 8,691,142
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMB Corporation and Subsidiaries -- Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of
December 31, As of
1997 December 31,
CURRENT ASSETS (Unaudited) 1996
------------- ---------------
<S> <C> <C>
Cash $ 496,485 $ 836,035
Accounts receivable (no allowance deemed necessary) 126,391 30,407
Inventory, net -- 31,880
Notes receivable 372,274 --
Mortgage loans receivable 16,117,406 1,825,650
----------- -----------
TOTAL CURRENT ASSETS 17,112,556 2,723,972
PROPERTY AND EQUIPMENT, net 690,832 150,193
RELATED PARTY RECEIVABLE 703,590 140,446
NOTE RECEIVABLE, less current portion 3,161,133 3,200,000
LAND HELD FOR SALE 43,000 43,000
OTHER ASSETS 5,924,748 9,129
----------- -----------
TOTAL ASSETS $27,635,859 $ 6,266,740
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 978,759 $ 274,304
Accrued Expenses 243,979 88,288
Line of Credit 16,078,269 1,825,650
Notes Payable - current portion 219,606 343,526
Capital lease obligations - current portion -- 28,828
Other current liabilities 3,213,756 --
----------- -----------
TOTAL CURRENT LIABILITIES 20,734,369 2,560,599
NOTES PAYABLE, net of current portion 443,867 84,997
CAPITAL LEASE OBLIGATIONS, net of current portion -- 23,123
DEFERRED GAIN 3,161,133 3,200,000
----------- -----------
TOTAL LIABILITIES $24,339,370 $ 5,868,719
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized,
837,162 issued or outstanding $ 1,359,000 $ --
Common stock, no par value, 30,000,000 shares
authorized; 8,640,942 and 5,775,442 shares issued
and outstanding, respectively 8,846,357 4,712,641
Common stock to be issued -- 585,000
Common stock subscribed (100,000) (187,875)
Retained deficit (6,808,867) (4,711,745)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 3,296,490 398,021
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $27,635,859 $ 6,266,740
=========== ===========
</TABLE>
2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months
ended December 31,
----------------------------------
(Unaudited)
1997 1996
----------------- ---------------
<S> <C> <C>
REVENUES
Mortgage loan revenues $1,180,443 $ 349,367
Product sales -- --
---------- ----------
TOTAL REVENUES 1,180,443 349,367
COST OF SALES 476,682 --
---------- ----------
Gross Profit 703,761 349,367
OPERATING EXPENSES
General and administrative 1,571,112 1,246,095
Depreciation 19,625 6,853
---------- ----------
TOTAL OPERATING EXPENSES 1,590,737 1,252,948
---------- ----------
INCOME (LOSS) FROM OPERATIONS (886,976) (903,581)
OTHER INCOME (EXPENSES) -- (12,773)
Interest expense 384,858
Interest income
Gain on sale of land 38,867 --
---------- ----------
TOTAL OTHER INCOME (EXPENSE) 423,725 (12,773)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (463,251) (916,354)
Income taxes -- 1,600
---------- ----------
NET INCOME (LOSS) $ (463,251) $ (917,954)
========== ==========
NET INCOME (LOSS) PER COMMON SHARE $ (.06) $ (.17)
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,781,819 5,406,549
========== ==========
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THREE MONTHS ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Common Common Total
------------ -------------- Stock Stock to Retained Shareholders
Shares Amounts Shares Amounts Subscribed be Issued Deficit Equity
------ ------- ------ ------- ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 5,311,817 $3,910,391 -- -- $ (200,000) $ 585,000 $(3,793,791) $ 501,600
- -----------------------------------------------------------------------------------------------------------------------------
Proceeds from sale of 50,000 137,500 -- -- -- -- -- 137,500
shares
- -----------------------------------------------------------------------------------------------------------------------------
Shares issued for services 991,750 1,456,903 -- -- -- (585,000) -- 871,903
- -----------------------------------------------------------------------------------------------------------------------------
Shares issued for exercise
of 96,250 140,938 -- -- -- -- -- 140,938
warrants
- -----------------------------------------------------------------------------------------------------------------------------
Warrants exercised for
subscrip- 86,125 172,250 -- -- (212,875) -- -- (40,625)
tion receivable
- -----------------------------------------------------------------------------------------------------------------------------
Shares issued for
investment in 1,000,000 1,137,500 -- -- -- -- -- 1,137,500
joint venture
- -----------------------------------------------------------------------------------------------------------------------------
Proceeds from private
placement of
Series A preferred -- -- 648,648 1,009,000 -- -- -- 1,009,000
stock, net of
issuance costs
- -----------------------------------------------------------------------------------------------------------------------------
Shares to be issued for -- -- -- -- -- 160,875 -- 160,875
services
- -----------------------------------------------------------------------------------------------------------------------------
Payment of stock
subscription -- -- -- -- 125,000 -- -- 125,000
receivable
- -----------------------------------------------------------------------------------------------------------------------------
Set up bad debt reserve -- -- -- -- 187,875 -- -- 187,875
- -----------------------------------------------------------------------------------------------------------------------------
Net Loss -- -- -- -- -- -- (2,551,825) (2,551,825)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 7,535,942 $6,955,482 648,648 $1,009,000 ($100,000) $ 160,875 $(6,345,616) $ 1,679,741
- -----------------------------------------------------------------------------------------------------------------------------
Shares issued for services 105,000 160,875 -- -- -- (160,875) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Shares issued for
acquisition of 100,000 191,000 -- -- -- -- -- 191,000
Preferred Financial
Services, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Shares issued for
acquisition of
American 500,000 855,000 -- -- -- -- -- 855,000
Teleconferencing
Services, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Shares issued for
acquisition of
Investment 400,000 684,000 -- -- -- -- -- 684,000
Consultants, Inc.
(Equityline)
- -----------------------------------------------------------------------------------------------------------------------------
Proceeds from sale of
Series B -- -- 675,000 350,000 -- -- -- 350,000
preferred stock
- -----------------------------------------------------------------------------------------------------------------------------
Cancellation of Series A -- -- (486,486) -- -- -- -- --
preferred
stock
- -----------------------------------------------------------------------------------------------------------------------------
Net Loss -- -- -- -- -- -- (463,251) (502,118)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 8,640,942 $8,846,357 837,162 $1,359,000 $ (100,000) -0- $(6,808,867) $ 3,296,490
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
December 31,
---------------------------
(Unaudited)
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ ( 463,251) $ (917,954)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services -- 537,500
Gain on sale of land 38,866 --
Depreciation 19,625 6,853
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (95,984) (15,825)
Mortgage loans receivable (14,291,756) (1,825,650)
Inventory -- 3,444
Notes receivable (319,407) 14,000
Prepaid expenses and other assets 323,473 (5,001)
Increase (decrease) in:
Accounts payable 704,455 51,756
Accrued expenses 155,691 39,402
Other liabilities (2,422,652) --
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (16,350,940) (2,111,475)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (389,957) (7,683)
Proceeds from sale of land 422,867 800,000
Proceeds from sale of rights -- --
Loans made on related party receivable -- (10,759)
------------ -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 32,910 (781,558)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from warehouse line of credit 16,078,269 1,825,650
Proceeds from issuance of notes payable 418,832 54,000
Payments under capital lease obligations -- (6,698)
Payments on borrowings -- (24,895)
Payments on common stock subscribed -- 125,000
Sale of common stock -- 192,500
Sale of preferred stock 350,000 --
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,847,101 2,165,557
------------ -----------
NET INCREASE (DECREASE) IN CASH 463,251 835,640
CASH, BEGINNING OF PERIOD 61,409 395
------------ -----------
CASH, END OF PERIOD $ 524,660 $ 836,035
============ ===========
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying financial statements
contain all adjustments (which include only normal recurring
adjustments) necessary to present fairly the balance sheet of EMB
Corporation and subsidiaries as of December 31, 1997, and the results
of their operations and their cash flows for the three months ended
December 31, 1997 and 1996, respectively. The financial statements are
consolidated to include the accounts of EMB Corporation and its
subsidiary companies (together "the Company").
Certain 1996 amounts have been reclassified to conform to current
period presentation. These reclassifications have no effect on
previously reported net income.
The accounting policies followed by the Company are set forth in Note A
to the Company's financial statements as stated in its report on Form
10-KSB for the fiscal year ended September 30, 1997.
NOTE 2. INCOME (LOSS) PER COMMON SHARE:
Income (loss) per common share is based on the weighted average number
of common shares outstanding during the period.
NOTE 3. MATERIAL EVENT:
Not applicable.
NOTE 4. SIGNIFICANT AGREEMENT:
In 1996, the Company entered into an agreement with a national lender
whereby the lender extended a $3,000,000 warehouse line of credit to
the Company solely for the purpose of funding residential mortgage
loans. This agreement is being revised to provide for a $10,000,000
warehouse line of credit. In September and October, 1997, the lender
executed three (3) master commitments to purchase a total of
$150,000,000 of jumbo and conforming residential first and second
mortgages from the Company. As of December 31, 1997, the Company had
funded in excess of $100,000,000 against its master commitment and was
negotiating for a new, larger master commitment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
GENERAL
The Company, formerly called "Pacific International, Inc.", a Hawaii
corporation, was incorporated in 1960, and was originally organized to acquire
and manage developed and undeveloped real estate. However, the Company had not
conducted significant operations for a number of years until it agreed to
acquire substantially all of the assets and assume certain liabilities of
Sterling Alliance Group, Ltd. in December, 1995. Subsequently, the Company
changed its name to EMB Corporation to reflect the change in the purpose and
nature of its business. For accounting purposes, this was treated as a
recapitalization of the Selling Stockholder, with the historical financial
information prior to merger being that of the Selling Stockholder.
The principal business of the Company is the origination and processing
of residential mortgage loans using a service which the Company calls Video
Interactive Mortgage Process ("VIP"). Mortgages originated and/or purchased by
the Company have been resold primarily to Impac Funding Corporation, formerly
ICI Funding Corporation; although mortgages in the future may be held for
investment, sold to other third parties, or securitized and issued as mortgage
backed securities. See "Capital Resources" and "Liquidity", below.
6
<PAGE>
LOAN ORIGINATIONS AND PURCHASES
The Company increased its funded mortgage loan volume to $82,198,522
during the three month period ended December 31, 1997, as compared to
$11,589,100 for the three month period ended December 31, 1996, representing an
increase of 609%. This increase in mortgage loan volume appears to be continuing
primarily due to the expansion of the Company's marketing activities. The
acquisition of Investments Consultants, Inc., d/b/a Equityline, Inc., on
December 23, 1997, did not appreciably affect the operations of the Company for
the period ended December 31, 1997, as there was only a short period of
consolidated operations to report.
RESULTS OF OPERATIONS
The following table sets forth certain operating information regarding
the Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
1997 1996
------------ -----------
(unaudited)
<S> <C> <C>
Mortgage loan revenues............... $1,180,443 $ 349,367
General and administrative expenses.. 1,571,112 1,246,095
Depreciation......................... 19,625 6,853
Interest expense..................... -- (12,773)
Gain on sale of land................. 38,866 --
Net income (loss).................... (463,251) (917,954)
Net income (loss) per share.......... (.06) (.17)
</TABLE>
Three months ended December 31,1997 compared with three months ended December
- -----------------------------------------------------------------------------
31,1996
- -------
REVENUES. Mortgage loan revenues, net of commitment fees, increased
101% to $703,761 in the three month period ended December 31, 1997, from
$349,367 in 1996. Revenues were generated primarily from loan processing and
resale of mortgage loans. The increase in revenues was attributable to the
expansion of the Company's marketing activities outside the State of California.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 23% to $1,536,037 in the three month period ended December
31,1997 from $1,252,948 in 1996. This increase is principally attributable to
increased activity in its mortgage loan processing business, an increase in
employees, and the costs of establishing six (6) additional mortgage loan
offices.
DEPRECIATION. Depreciation increased 186% to $19,625 in the three month
period ended December 31,1997, from $6,853 in the three months ended December
31, 1996.
RESULTS OF OPERATIONS. The net loss was $496,251 during the three month
period ended December 31, 1997, as compared with a loss of $917,954 during the
same period of 1996, due primarily to the increase in mortgage loan revenues.
CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
The following summary table (unaudited) presents comparative cash flows
of the Company for the periods indicated.
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31
----------------------------------
1997 1996
------------------- -------------
<S> <C> <C>
Net cash used in operating activities...... $(16,350,940) $(2,111,475)
Net cash used in investing activities...... $ 32,910 $ (781,558)
Net cash provided by financing activities.. $ 16,847,101 $ 2,165,557
</TABLE>
CAPITAL EXPENDITURES. The Company has incurred capital expenditures for
office equipment, office furniture and other fixed assets used primarily in its
mortgage loan business. Capital expenditures during the three month periods
ended December 31,1997 and 1996 totaled $389,957 and $830, respectively.
LIQUIDITY AND CAPITAL RESOURCES. The Company's capital resources have
historically been provided by cash from operations, by the sale of its Common
Stock, Preferred Stock and warrants and by short term loans.
The Company intends to raise additional capital through an offering of
its Common Stock, Preferred Stock and warrants to fund mortgage loans and to
provide additional working capital to fund future operations, although no
specific plans or commitments presently exist to pursue an offering of its
securities.
At December 31, 1997, the Company had current assets of $17,135,891 and
current liabilities of $17,894,217, resulting in a working capital deficit of
$758,326, as compared to a working capital deficit of $921,699 at December 31,
1996. Working capital decreased by $921,699.
Net cash used in operating activities decreased to $(16,350,940) for
the three months ended December 31, 1997, from $(2,111,475) for the three months
ended December 31, 1996, or a difference of $14,239,465. The decrease in net
cash used in operating activities was primarily attributable to the increase of
other assets.
On December 23, 1997, the Company acquired all of the outstanding stock
Investment Consultants, Inc., d/b/a Equityline, Inc, ("Equityline"). Equityline
operates as a mortgage banking firm, specializing in home equity and second
mortgage loans. It operates out of an office located in Denver, Colorado.
The warehouse line of credit is available for the funding of loans
which will be sold not only to Impac Funding Corporation, formerly ICI Funding
Corporation, but also to other investors, including: Resource Bancshares
Mortgage Group, The Mortgage Authority and others. During the time period
following funding of a loan, but prior to resale of the loan, the Company
realizes either interest income or expense depending upon the note rate for the
underlying mortgage vis a vis the interest rate on the warehouse line of credit,
i.e., presently, prime + 1/2%.
The Company has increased the amount of its outstanding indebtedness to
$23,978,580 from $ l 1,342,843 during the three month period ended December 31,
1997, an increase of $ 12,635,737. An undeveloped property continues to be
subject to a deed of trust in the amount of $65,000. Notes to related parties
payable of $130,405 at September 30, 1997, remain the same at December 31, 1997.
Other notes have been reduced by cash payments of $91,405.
As of December 31, 1997, the Company has notes payable to unrelated
parties in the total amount of approximately $266,407, including a $65,000 deed
of trust amount on its undeveloped land. The Company believes that this
remaining indebtedness will be paid primarily from its cash flow from
operations.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM L. LEGAL PROCEEDINGS
No additional legal proceedings occurred during the fiscal quarter ended
December 31,1997. The civil action filed against the Company by Greenhouse
Group, Inc. (Superior Court of the State of California, Orange County Case No.
786468) was dismissed by the Court. No other material developments occurred
during the period regarding pending litigation.
ITEM 2. CHANGES IN SECURITIES
Effective November 1,1997, the Company entered into a Stock Purchase
Agreement with the sole stockholder of Preferred Holding Group, Incorporated
("PHG"), Colorado corporation, to purchase all of the issued and outstanding
capital stock of PHG in exchange for 100,000 shares of the Common Stock of the
Company in reliance upon Section 4(2) of the Securities Act of 1933. In
November 1997, the name of Preferred Holding Group, Incorporated, was changed to
EMB Financial Services, Inc.
Effective December 23, 1997, the Company entered into a Stock Purchase
Agreement with the two stockholders of Investment Consultants, Inc. ("ICI"), a
Colorado corporation (d/b/a Equityline Financial Services, to purchase all of
the issued and outstanding capital stock of ICI in exchange for 400,000 shares
of the Common Stock of the Company in reliance upon Section 4(2) of the
Securities Act of 1933.
Effective December 23, 1997, the Company entered into a Stock Purchase
Agreement with the sole stockholder of American Teleconferencing Services, Inc.
("ATS"), a Nevada corporation, to purchase all of the issued and outstanding
capital stock of ATS in exchange for 500,000 shares of the Common Stock of the
Company in reliance upon Section 4(2) of the Securities Act of 1933.
Effective December 31, 1997, the Company entered into a 10% Convertible
Preferred Purchase Agreement by which the Company issued 675,000 shares of its
new 10% Convertible Preferred Stock, Series B for $350,000 and in exchange for
486,486 shares of its previously outstanding shares of its 8% Convertible
Preferred Stock, Series A, and issued additional warrants to purchase 400,000
shares of the Common Stock of the Company exercisable at $2.375 per share. As a
result, the Company had 162,162 of its Series A Preferred Stock and 675,000
shares of its Series B Preferred Stock issued and outstanding as of December 31,
1997.
Effective January 30, 1998, the Company offered and sold convertible notes
with warrants in the principal amount of $500,000 to non-U.S. persons in
reliance upon Regulation S under the Securities Act of 1933. Interest is
payable on the note at eight percent (8%) per annum and is due and payable on
January 30, 2000. The principal amount of the note is convertible into shares
of the Common Stock of the Company at a conversion rate of $2.375 per share,
subject to adjustment. In addition, the holders of the note acquired warrants
to purchase 100,000 shares of Common Stock at am exercise price of $2.375 per
share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders of the Company
during its fiscal quarter ended December 31, 1997.
The Company has scheduled an annual meeting of shareholders to be held on
March 20, l 998, at 3:30 p.m. (local time) at the Wyndham Garden Hotel, 3350
Avenue of the Arts, Costa Mesa, California.
9
<PAGE>
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
Exhibit No. 10(a) 10% Convertible Preferred Purchase Agreement
Exhibit No. 10(b) Offshore Securities Purchase Agreement
Exhibit No. 10(c) Offshore Note
Exhibit No. 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the fiscal quarter
ended December 31, 1997.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMB CORPORATION
Date: February 19, 1998 By: /s/ James E. Shipley
-------------------------------------
James E. Shipley, President
Date: February 19, 1998 By: /s/ B. Joe Wimer
-------------------------------------
B. Joe Wimer, Secretary, Treasurer and
Principal Accounting Officer
11
<PAGE>
EXHIBIT 10(a)
DECEMBER EXECUTION COPY
THE SECURITIES REFERENCED IN THIS AGREEMENT HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"). THIS AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION
OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM.
10% CONVERTIBLE PREFERRED PURCHASE AGREEMENT
EMB CORPORATION
THIS AGREEMENT is made as of this day of December 1997, between EMB
Corporation, a Hawaii corporation (the "Company"), with its principal offices at
3200 Bristol, 8th Floor, Costa Mesa, California, 92626 and the Purchasers of the
securities referenced in this Agreement (each, individually, a "Purchaser" and
collectively the "Purchasers"), identified on Schedule I hereto.
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchasers hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement:
-------------------
"Agreement" means this 10% Convertible Preferred Purchase Agreement
including all Exhibits and Attachment hereto.
"Closing" means the completion of the transactions required on the Closing
Date.
"Closing Date" means the date of the delivery of the original Preferred
Stock and original Warrants to the Purchasers against the Purchasers' payment,
by wire transfer, of the purchase price to the Company.
<PAGE>
"Closing Price" shall mean the last transaction bid price as reported on
NASD, Electronic Bulletin Board or on any NASDAQ or other national or regional
securities exchange on which the Common Stock may subsequently be listed. In
the event no transaction is reported on any day during such period, Closing
Price shall be the closing bid price for the Common Stock on such day.
"Common Stock" means the Common Stock of the Company, no par value.
"Conversion Date" means the date on which the Purchaser has telecopied the
Notice of Conversion to the Company.
"Conversion Price" means an amount equal to the lesser of (a) One Hundred
(100%) percent of the average Closing Price for five (5) trading days ending on
the day before the Closing Date (the "Closing Date Price); or (b) Seventy-Five
(75%) Percent of the average Closing Price for the Common Stock during the five
(5) trading days ending on the day before the Conversion Date (the "Conversion
Date Price); provided, however, that not more than that number of shares
determined by dividing the principal amount by a conversion price of One Dollar
and Fifty Cents ($1.50) per share shall be required to be issued by the Company
upon conversion of the Preferred Stock. For example, with respect to Preferred
Stock in the principal amount of $100,000, not more than 66,666 Common Shares
shall be required to be issued. In the event that, upon conversion, the holders
of Preferred Stock will receive more than a maximum number of shares permitted
to be issued upon conversion of such Preferred Stock, then Section 2.3(b) of
this Agreement shall apply.
"Conversion Shares" means the Underlying Common Stock issued upon the
conversion of the Preferred Stock.
"Preferred Stock" means the 10% Convertible Preferred Stock, Series B, of
the Company, each Share convertible into Common Stock of the Company as herein
provided.
"Warrant" or "Warrants" means the Warrant from the Company to be purchased
on the Closing Date.
Section 2. Authorization and Sale of Preferred Stock.
------------------------------------------
-2-
<PAGE>
2.1 Agreement to Execute and Deliver the Preferred Stock. On the Closing
----------------------------------------------------
Date, subject to the terms and conditions hereof, the Company will sell to each
Purchaser, and each Purchaser will purchase from the Company, that number of
shares of its Preferred Stock, no par value, set forth opposite the Purchaser's
name and signature on Schedule I hereto for the purchase price set forth
opposite such Purchaser's name and signature, having the privileges,
qualifications and designations set forth in Exhibit A hereto.
2.2 Authorization. Subject to the terms and conditions of this
--------------
Agreement, the Company has authorized the execution and delivery of the
Preferred Stock.
2.3 Permissive/Mandatory Redemption.
-------------------------------
(a) In the event of any noticed conversion of the Preferred Stock at a
Conversion Price of less than One Dollar and Fifty Cents ($1.50) per common
share, the Company has the right to redeem the Preferred Stock within six (6)
business days of receipt of a Notice of Conversion from Purchaser, in whole or
in part, in cash at One Hundred Eighteen (118%) percent of the outstanding
purchase price of the Preferred Stock plus accrued unpaid dividends. Upon
notice of its right to redeem the Preferred Stock the Company shall immediately
wire transfer the appropriate amount of funds to the Purchaser. If after six
(6) business days from the date the notice of redemption is received by the
Purchaser the funds have not been received by the Purchaser, then the Purchaser
shall again have the right to convert the Preferred Stock and the Company shall
have the right to redeem the Preferred Stock but only upon simultaneously
sending a notice of redemption to the Purchaser and wire transferring the
appropriate amount of funds.
(b) In the event that, upon conversion, the holders of any Preferred Stock
would be entitled to more than the maximum number of shares required to be
issued upon conversion thereof and redemption under subsection (a) of this
Section 2.3. is not invoked, then the Company shall issue the maximum number of
Conversion Shares and shall redeem at One Hundred and Eighteen (118%) percent of
the amount thereof the remaining outstanding purchase price of such Preferred
Stock plus accrued unpaid dividends, within six (6) business days thereafter, or
shall, in the alternative, issue Conversion Shares in excess of the maximum
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<PAGE>
number, provided, however, that in no event shall the Company issue Conversion
Shares in excess of the number thereof registered pursuant to the Convertible
Shares Registration Rights Agreement.
2.4 Warrants Issuable Upon Closing. As additional consideration
------------------------------
hereunder, the Company will sell, issue and deliver to Purchaser, Warrants to
purchase a total of Twelve Thousand Five Hundred (12,500) Shares of the
Company's Common Stock for each $100,000 of Preferred Stock being issued to the
Purchaser. The initial exercise price of the Warrants shall be the Closing
Price. The exercise price of the Warrants shall be subject to adjustment as
provided in the Warrants.
2.5 Time and Place of Closings. The Closings shall be held at the law
--------------------------
offices of D. David Cohen.
2.6 Payment and Delivery. At or prior to the Closing, the following shall
--------------------
occur:
(a) The Company shall deliver or cause to be delivered to Purchaser the
Preferred Stock and Warrants, substantially in the form set forth in Exhibits A
and B hereto, respectively, bearing the original signatures of authorized
signatures. At such time Purchaser shall remit, by wire transfer, the Purchase
Price to the Company, or to the Company's Escrowee.
(b) Wire instructions are:
For the Company For the Escrowee
--------------- ----------------
Bank Name: Comercia Chase
Account Name: EMB Corporation, D. David Cohen,
General Account Special Escrow
Account #: 8681009497 876-500786765
Transit #: 121137522 021000021
Section 3. General Representations and Warranties of the Company. The
-----------------------------------------------------
Company hereby represents and warrants to, and covenants with, the Purchasers,
and each of them severally, that the following are true and correct as of the
date hereof.
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<PAGE>
3.1 Organization; Qualification. The Company is a corporation duly
---------------------------
organized and validly existing under the laws of Hawaii and is in good standing
under such laws. The Company has all requisite corporate power and authority to
own, lease and operate its properties and assets, and to carry on its business
as presently conducted. The Company is qualified to do business as a foreign
corporation in each jurisdiction in which the ownership of its property or the
nature of its business requires such qualification, except where failure to so
qualify would not have a material adverse effect on the Company.
3.2 Capitalization and Conversion. The authorized capital stock of the
-----------------------------
Company consists of: Shares of Common Stock, no par value, of which 8,191,176
shares of Common Stock have been duly authorized and validly issued as of
November 20, 1997, and are fully paid and nonassessable and 648,648 shares of
its 8% Preferred Stock, no par value, Series A. As of the Closing Date, the
Company had reserved from its authorized but unissued shares of Common Stock a
sufficient number of shares of Common Stock for issuance upon conversion of the
aggregate principal of the Preferred Stock and exercise of the Warrants.
3.3 Authorization. The Company has all requisite corporate right, power
-------------
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company,
the authorization, sale, issuance and delivery of the Conversion Shares and the
performance of the Company's obligations hereunder has been or will be taken
before the Closing Date. This Agreement has been duly executed and delivered by
the Company and constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy as they may apply to the indemnification
provisions set forth in Section 7.3 of this Agreement. Upon their issuance and
delivery pursuant to this Agreement, the Conversion Shares will be validly
issued, fully paid and nonassessable and will be free of any liens or
encumbrances except for those imposed by or on behalf of the Purchaser, its
creditors or agents.
-5-
<PAGE>
3.4 No Conflict. The execution and delivery of this Agreement do not, and
-----------
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order decrees statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets.
3.5 Accuracy of Reports and Information. The Company is in compliance, to
-----------------------------------
the extent applicable, with all reporting obligations under either Section
12(b), 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company has registered its Common Stock pursuant to Section
12 of the Exchange Act and the Common Stock is listed and trades on the NASD,
Electronic Bulletin Board Market.
The Company has filed all material required to be filed pursuant to all
reporting obligations, under either Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve (12) months immediately preceding the Closing
Date (or for such shorter period that the Company has been required to file such
material).
3.6 SEC Filings/Full Disclosure. None of the Company's filings with the
---------------------------
Securities and Exchange Commission (the "Reports") contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, and (ii) the Company
has timely filed all requisite forms, reports and exhibits thereto with the
Securities and Exchange Commission.
There is no fact known to the Company (other then general economic
conditions known to the public generally) that has not been publicly disclosed
by the Company or disclosed in writing to the Purchaser which (i) could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or on earnings, business affairs, properties or assets
of the Company, or (ii) could reasonably be expected to materially and
-6-
<PAGE>
adversely affect the ability of the Company to perform its obligations pursuant
to this Agreement.
3.7 Absence of Undisclosed Liabilities. The Company has no material
----------------------------------
liabilities or obligations, absolute or contingent (individually or in the
aggregate), except as set forth in the Reports (as hereinafter defined) or as
incurred in the ordinary course of business after the date of the Reports.
3.8 Governmental Consent, etc. No consent, approval or authorization of or
-------------------------
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement, or the offer, sale or issuance of the Preferred Stock, or the
consummation of any other transaction contemplated hereby, except the filing
with the SEC of a REGISTRATION statement for the purpose of registering the
Common Stock underlying the Preferred Stock.
3.9 Intellectual Property Rights. Except as disclosed in the Reports, the
----------------------------
Company has sufficient trademarks, trade names, patent rights, copyrights and
licenses to conduct its business as presently conducted. To the Company's
knowledge, neither the Company nor its products is infringing or will infringe
any trademark, trade name, patent right, copyright, license, trade secret or
other similar right of others currently in existence; and there is no claim
being made against the Company regarding any trademark, trade name, patent,
copyright, license, trade secret or other intellectual property right which
could have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company.
3.10 Material Contracts. Except as set forth in the Reports, the material
------------------
agreements to which the Company is a party described in the Reports are valid
agreements, in full force and effect, the Company is not in material breach or
material default (with or without notice of lapse of time, or both) under any of
such agreements, and, to the Company's knowledge, the other contracting party or
parties thereto are not in material breach or material default (with or without
notice of lapse of time, or both) under any of such agreements.
3.11 Litigation. Except as disclosed in the Reports, there is no action,
----------
proceedings or investigation pending, or to the
-7-
<PAGE>
Company's knowledge threatened, against the Company which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, conditions, affairs or operations of the Company. The
Company is not a party to or subject to the provisions of any order, writ
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate
which will materially effect the Company.
3.12 Title to Assets. Except as disclosed in the Reports, the Company has
---------------
good and marketable title to all properties and material assets described in the
Reports as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than such as are not material to
the business of the Company.
3.13 Subsidiaries. Except as disclosed in the Reports and the financial
------------
statements, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.
3.14 Required Governmental Permits. The Company is in possession of, and
-----------------------------
operating in material compliance with, all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
3.15 Listing of the Common Stock. The Company will maintain the listing of
---------------------------
its Common Stock on the NASD, Electronic Bulletin Board, and intends to promptly
seek listing of the Common Stock on the American Stock Exchange or NASDAQ.
3.16 Other Outstanding Securities. Except as disclosed in the Reports,
----------------------------
there are no other material outstanding debt or equity securities presently
Convertible into Common Stock.
-8-
<PAGE>
3.17 Legal Opinion. Purchaser shall, upon the purchase of the Preferred
-------------
Stock and Warrants, receive an opinion letter from Stephen A. Zrenda, Jr., P.C.,
as special counsel to the Company to the effect that:
(i) The Company is duly authorized and validly existing under the laws and
jurisdiction of its incorporation. The Company and/or its subsidiaries are duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where the Company and/or its subsidiaries owns or leases
properties, maintains employees or conducts business, except for jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the Company, and has all requisite corporate power and authority to own its
properties and conducts its business.
(ii) There is no action, proceeding or investigation pending, or, to such
counsel's knowledge, threatened, against the Company which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, conditions, affairs or operations of the Company.
(iii) The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality.
(iv) There is no action, suit, proceeding or investigation by the Company
currently pending or which the Company currently intends to initiate.
(v) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable.
(vi) The Preferred Stock to be issued at the closing has been properly
issued under the Company's Certificate of Incorporation.
(vii) The Purchase Agreement, the issuance of the Preferred Stock and the
Warrants and the issuance of Common Stock upon conversion of the Preferred Stock
and exercise of the Warrants, have been duly approved by all required corporate
action and that all such securities, upon delivery, shall be validly issued and
outstanding, fully paid and nonassessable.
-9-
<PAGE>
(viii) The issuance of the Preferred Stock will not violate the applicable
listing agreement between the Company and any securities exchange or market on
which the Company's securities are listed.
(ix) Assuming the accuracy of the representations and warranties of the
Company and the Purchaser set forth in the Agreement, the offer, issuance and
sale of the Preferred Stock, Warrants, Conversion Shares and the Warrant Shares
to be issued upon exercise to the Purchaser pursuant to the Convertible
Preferred Purchase Agreement are or will be exempt from the REGISTRATION
requirements of the Securities Act, upon compliance with Rule 506 of Regulation
D promulgated under the Act.
3.18 Dilution. The Company is aware and acknowledges that conversion of the
--------
Preferred Stock could cause dilution to existing shareholders and could
significantly increase the outstanding number of shares of Common Stock.
Section 4. Representations, Warranties and Covenants of the Purchasers.
-----------------------------------------------------------
Each Purchaser, severally as to itself, and not as to any other Purchaser,
represents and warrants to, and covenants with the Company that the following
are true and correct as of the date hereof and will be true and correct as of
the Closing Date.
4.1 Authority. The Purchaser has all requisite right, power and authority
---------
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. All action on the party of the Purchaser, members or
partners necessary for the authorization, execution, delivery and performance of
this Agreement, and the purchase of the Preferred Stock and Warrants as well as
its respective conversion and exercise, and the performance of the Purchaser's
obligations hereunder, has been taken. The Purchaser's signatory has all
right, power, authority and capacity to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Purchaser and will constitute the legal,
valid and binding obligations of the Purchaser, enforceable in accordance with
its terms subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as
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<PAGE>
they may apply to the indemnification provisions set forth in Section 7.3 of
this Agreement.
4.2 Investment Experience. Purchaser is an "accredited investor" as
---------------------
defined in Rule 501(a) of Regulation D under the Securities Act. Purchaser is
aware of the Company's business affairs and financial condition and has had
access to and has acquired sufficient information about the Company, including
but not limited to the Reports, to reach an informed and knowledgeable decision
to acquire the Preferred Stock and Warrants. Purchaser has such business and
financial experience as is required to give it the capacity to protect its own
interests in connection with the purchase of the Preferred Stock and Warrants.
4.3 Investment Intent. Without limiting its ability to resell the
-----------------
underlying Common Stock pursuant to an effective REGISTRATION statement,
Purchaser represents that it is purchasing the Preferred Stock and Warrants for
its own account as principal for investment purposes only, and not with a view
to a re-distribution. thereof. Purchaser understands that its acquisition of
the Preferred Stock and Warrants have not been registered under the Securities
Act or registered or qualified under any state securities law in reliance on
specific exemptions therefrom, which exemptions may depend upon, among other
things, the bona fide nature of Purchaser's investment intent as expressed
herein. Purchaser will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchaser or
otherwise acquire or take a pledge of) any of the Preferred Stock, Warrants or
the underlying Common Stock, except in compliance with the Securities Act and
any applicable state securities laws, and the rules and regulations promulgated
thereunder.
4.4 Registration or Exemption Requirements. Purchaser further
--------------------------------------
acknowledges and understands that the Preferred Stock, Warrants or the
Conversion Shares may not be resold or otherwise transferred except in a
transaction registered under the Securities Act and any applicable state
securities laws or unless an exemption from such registration is available.
Purchaser understands that the Preferred Stock, Warrants and, if converted or
exercised as the case may be, the Conversion Shares and Shares underlying the
Warrants will be imprinted with a legend that prohibits the transfer of such
securities unless (i) registered or such
-11-
<PAGE>
registrations is not required pursuant to an exemption therefrom, and (ii) if
the transfer is pursuant to an exemption from registration other than Rule 144
under the Securities Act and an opinion of counsel reasonably satisfactory to
the Company is obtained to the effect that the transaction is so exempt.
4.5 No Legal, Tax or Investment Advice. Purchaser understands that
----------------------------------
nothing in this Agreement or any other materials presented to Purchaser in
connection with the purchase and sale of the Preferred Stock and Warrants
constitutes legal, tax or investment advice. Purchaser has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Preferred Stock
and the Warrants.
4.6 Purchaser Review. Purchaser hereby represents and warrants that the
----------------
Purchaser has carefully examined the Reports, and the financial statements
contained therein. The Purchaser acknowledges that the Company has made
available to the Purchaser all documents and information that it has requested
relating to the Company and has provided answers to all of its questions
concerning the Company, the Preferred Stock and the Warrants.
4.7 Certain Risks. The Purchaser recognizes that the purchase of the
-------------
Preferred Stock, Warrants and the Conversion Shares and shares underlying the
Warrants involves a high degree of risk in that:
(i) an investment in the Company is highly speculative and only investors
who afford the loss of their entire investment should consider investing in the
Company and the Preferred Stock, Warrants and the respective underlying
securities;
(ii) the Purchaser may not be able to liquidate its investment;
(iii) transferability of the Preferred Stock, Warrants and Conversion
Shares and shares underlying the Warrants is extremely limited;
(iv) in the event of any disposition, Purchaser could sustain substantial
losses on its investment;
-12-
<PAGE>
(v) the holders of the Preferred Stock are not entitled to a controlling
vote in the business and affairs of the Company;
(vi) no return on investment, whether through distributions, appreciation,
transferability or otherwise, and no performance by, through or of the Company,
has been promised, assured, represented or warranted by the Company, or by any
director, officer, employee, agent or representative thereof;
(vii) while the Common stock is presently quoted and traded on the NASD,
Electronic Bulletin Board Market, and while this Agreement provides for certain
registration rights, the Preferred Stock, Warrants and the Conversion Shares and
the shares underlying the Warrants:
(a) are not registered under applicable federal or state securities laws,
and thus may not be sold, conveyed, assigned or transferred unless registered
under such laws or unless an exemption from registration is available under such
laws, as more fully described below; and
(b) are not quoted, traded or listed for trading or quotation on any
organized market or quotation system, and there is therefore no present public
or other market for such Preferred Stock or Warrants, nor can there by any
assurance that the Common Stock will continued to be quoted, traded or listed
for trading or quotation on the NASD, Electronic Bulletin Board Market or on any
other organized market or quotation system.
4.8 No Registration, Review or Approval. The Purchaser acknowledges and
------------------------------------
understands that the private offering and sale of the Preferred Stock, Warrants
and the Conversion Shares pursuant to this Agreement has not been reviewed or
approved by the SEC or by any state securities commission, authority or agency,
and is not registered under the Act or under the securities or "blue sky" laws,
rules or regulations of any state. The Purchaser acknowledges, understands and
agrees that the Preferred Stock, Warrants and the Conversion Shares are being
offered and sold hereunder pursuant to (i) a private placement exemption to the
registration provisions of the Act pursuant to Section 4(2) of such Act and
Regulation D promulgated thereunder and (ii) a similar exemption to the
registration provisions of applicable state securities laws.
-13-
<PAGE>
Section 5. Conditions to the Purchaser's Obligation to Purchase. The
----------------------------------------------------
Company understands that the Purchaser's obligation to purchase the Preferred
Stock and Warrants is conditioned upon:
(a) Acceptance by Purchaser of this Convertible Preferred Purchase
Agreement, as evidenced by the execution of this Agreement by its authorized
officers;
(b) Delivery of the Original Preferred Stock and Warrants to Purchaser;
(c) Delivery of legal opinion as required by this Agreement; and
(d) Execution and delivery by the Company of the Registration Rights
Agreement in the form of Attachment I;
Section 6. Conditions to Company's Obligation to Sell. Purchaser
------------------------------------------
understands that the Company's obligation to sell the Preferred Stock and
Warrants is conditioned upon:
(a) The receipt and acceptance by the Company of this Convertible
Preferred Purchase Agreement, as evidence by execution of this Agreement by any
duly authorized signatory for the Purchaser; and
(b) Delivery to the Company of good funds as payment in full for the
purchase of the Preferred Stock and Warrants.
(c) Execution and delivery by the Purchaser of the Registration Rights
Agreement in the form Attachment I.
Section 7. Compliance with the Securities Act.
----------------------------------
7.1 Registration Rights Agreement. The parties will enter into a
-----------------------------
Registration Rights Agreement, annexed hereto as Attachment I.
7.2 Underwriter. The Company understands that the Purchaser disclaims
-----------
being an "underwriter" (as such term is defined under the Securities Act and the
rules and regulations promulgated thereunder (an "Underwriter"), but Purchaser
being deemed an Underwriter shall
-14-
<PAGE>
not relieve the Company of any obligation it has hereunder, except as may be
required by law.
7.3 Indemnification. Each of the Company and the Purchaser agrees to
---------------
indemnify the other and to hold the other harmless from and against any and all
losses, damages, liabilities, costs and expenses (including reasonable
attorneys' fees) which the other may sustain or incur in connection with the
breach by the indemnifying party of any representation, warranty or covenant
made by it in this Agreement.
7.4 Information Available. So long as any Preferred Stock is outstanding,
---------------------
the Company will furnish to Purchaser:
(a) as soon as possible after available (but in the case of the Company's
Annual Report to Stockholders, within 150 days after the end of each fiscal year
of the Company), one copy of (i) its Annual Report to Stockholders (which Annual
report shall contain financial statements audited in accordance with generally
accepted accounting principles by certified public accountants); (ii) each of
its Quarterly Reports to Stockholders, and its Quarterly Reports on Form 10-QSB;
and (iii) a full copy of the registration statement covering the Conversion
Shares (the foregoing, in each case, including exhibits); and
(b) upon the reasonable request of Purchaser, such other information that
is generally available to the public.
7.5 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the SEC which may at any time permit the sale
of the Conversion Shares to the public without registration, the Company agrees
to use its best efforts to:
(a) make adequate public information available on a timely basis, as such
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date on which the Company becomes subject to the
reporting requirements of the Exchange Act;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Exchange Act;
-15-
<PAGE>
(c) to furnish to Purchaser forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144, and of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as Purchaser may reasonably request in availing itself
of any rule or regulation of the SEC allowing Purchaser to sell any of the
Conversion Shares without registration.
7.6 Temporary Cessation of Offers and Sales by Purchaser. The Purchaser
----------------------------------------------------
acknowledges that there may occasionally be times when the Company may be
required to suspend the use of the prospectus forming part of the Registration
Statement for sale of the Conversion Shares until such time as an amendment to
the Registration Statement has been filed by the Company and declared effective
by the Commission and until the prospectus is supplemented or amended to comply
with the Securities Act, or until such time as the Company has filed an
appropriate report with the Commission pursuant to the Exchange Act. The
Company agrees to file any necessary amendments, supplements and reports as soon
as practicable under the circumstances. Purchaser hereby covenants that it will
not sell any Common Stock pursuant to said prospectus commencing at the time at
which the Company gives the Purchaser notice of the suspension of the use of
said prospectus and ending at the time the Company gives the Purchaser notice
that the Purchaser may thereafter effect sales pursuant to sales prospectus, as
the same may have been supplemented or amended.
7.7 Transfer of Common Stock After Registration. Purchaser hereby
-------------------------------------------
covenants with the Company not to make any sale of the Common Stock except
either (i) in accordance with the Registration Statement, in which case
Purchaser covenants to comply with the requirement of delivering a current
prospectus or (ii) in accordance with Rule 144, in which case Purchaser
covenants to comply with Rule 144.
7.8 Termination of Obligations. The obligations of the Company pursuant
--------------------------
to the Registration Rights Agreement shall cease and terminate upon the earlier
to occur of (i) such time as all of the Common Stock have been re-sold, or (ii)
such time as all of the Common Stock remaining to be sold may be re-sold in any
three-month period pursuant to Rule 144 under the Securities Act.
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<PAGE>
7.9 Legend. The certificate or certificates representing the Preferred
------
Stock, Warrants and, upon conversion, the Conversion Shares shall be subject to
a legend restricting transfer under the Securities Act of 1933, such legend to
be substantially as follows:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION UNDER SAID ACT IS CONFIRMED IN A LEGAL OPINION SATISFACTORY TO
THE COMPANY."
Such securities shall also include any legends required by any applicable
state securities laws.
With respect to the Conversion Shares and the shares underlying the
Warrants, the legend(s) shall be removed and the Company shall issue a
replacement certificate without such legend to the holder of such certificate if
the shares are then registered and are being sold or transferred in accordance
with the Registration Statement or if such holder provides to the Company an
opinion of counsel reasonably acceptable to the Company, to the effect that a
public sale, transfer or assignment of such stock may be made without
registration.
Section 8. Legal Fees and Expenses. Each party shall pay the reasonable
-----------------------
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby.
Section 9. Notice of Conversion. Conversion of the Preferred Stock to
--------------------
Common Stock may be exercised in whole or in part by Holder telecopying an
executed and completed Notice of Conversion (in the form annexed hereto as
Exhibit C) to the Company and delivering by express courier within three (3)
business days of exercise. Each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall be
deemed a Conversion Date. The Company shall notify the transfer agent to
transmit the certificates representing the Common Stock issuable upon conversion
of all or any part of the Preferred Stock (together with the certificates
representing any portion of the Preferred Stock not so converted) to the
Purchaser via express
-17-
<PAGE>
courier within five (5) business days after the Company has received the
original Notice of Conversion and Preferred Stock certificate being so
converted. In addition to any other remedies which may be available to the
Purchaser, in the event that the Company fails for any reason to effect delivery
of such shares of Common Stock within such five (5) business day period, the
Purchaser will be entitled to revoke the relevant Notice of Conversion by
delivering by telecopier with an original by overnight courier a notice to such
effect to the positions immediately prior to the delivery of the Notice of
Conversion. Upon receipt of such Notice the Company shall return by overnight
courier the original certificate representing the Preferred Stock. The Notice of
Conversion and certificates representing the portion of the Preferred Stock
converted shall be delivered as follows:
To the Company:
c/o: Joe Wimer
EMB Corporation
3200 Bristol, 8th Floor
Costa Mesa, California 92626
Telecopy: (714)825-0291
or to such other person at such other place as the Company shall designate
to the Purchaser in writing.
In the event that the Common Stock issuable upon conversion of the
Preferred Stock is not delivered within six (6) business days of receipt by the
Company of a valid Conversion Notice and the Preferred Stock to be converted
(such date of receipt referred to as the "Conversion Date"), the Company shall
pay to the Purchaser, by wire transfer, as non-cumulative additional interest
for such failure and not as a penalty, for each Preferred Stock conversion, the
greater of $300 per day or .30 of one percent (.30%) of the face amount proposed
to be converted, for each day thereafter that the Conversion Shares are not
delivered, which non-cumulative additional interest shall run from the seventh
business day after the Conversion Date.
Notwithstanding any other provision herein contained or in any Warrant now
held by the Purchaser or hereunder being acquired by the Purchaser, the
Preferred Stock may not be converted, and the Warrants may not be exercised in
whole or in part at any time if,
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<PAGE>
at the time of such conversion or exercise, such conversion or exercise would
cause the Purchaser to be the owner of five (5%) percent or more of any class of
the Company's registered securities.
Section 10. Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, and shall be deemed given when
so mailed:
(a) if to the Company, to:
c/o: Joe Wimer
EMB Corporation
3200 Bristol, 8th Floor
Costa Mesa, California 92626
Telecopy: (714)825-0291
or to such other person at such other place as the Company shall designate
to the Purchaser in writing:
(b) if to the Purchaser, to it at the address set forth opposite such
Purchaser's name on Schedule I hereto.
or at such other address or addresses as may have been furnished to the
Company in writing; or
(c) if to any transferee or transferees of a Purchaser, at such address or
addresses as shall have been furnished to the Company at the time of the
transfer or transfers, or at such other address or addresses as may have been
furnished by such transferee or transferees to the Company in writing.
Section 11. Miscellaneous.
-------------
11.1 Entire Agreement. This Agreement, including all Exhibits and
----------------
Attachments embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings relating to the subject matter hereof.
No statement, representation, warranty, covenant or agreement or any kind not
expressly set forth in this Agreement shall affect, or be
-19-
<PAGE>
used to interpret, change or restrict, the express terms and provisions of this
Agreement.
11.2 Amendments. This Agreement may not be modified or amended except
----------
pursuant to an instrument in writing signed by Purchaser.
11.3 Headings. The headings of the various sections of this Agreement
--------
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.
11.4 Severability. In case any provision contained in this Agreement
------------
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
11.5 Governing Law/Jurisdiction. This Agreement will be construed and
--------------------------
enforced in accordance with and governed by the laws of the State of New York,
United States of America, without reference to principles of conflicts of laws,
except for matters arising under the 1933 Act. Each of the parties consents to
the jurisdiction of the federal district court of the Southern District of New
York in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
----- --- ----------
in such jurisdictions. Each party hereby agrees that if either party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to its under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceedings
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law.
11.6 Recovery of Attorney's Fees. Should any party bring an action to
---------------------------
enforce the terms of this Agreement then, if Purchaser prevails in such action
it should be entitled to recovery of its
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<PAGE>
attorney's fees from the Company, and if the Company prevails in such action it
shall be entitled to recovery of its attorney's fees from the Purchaser.
11.7 Fees. The Company acknowledges that Purchaser shall have no
----
responsibility for the payment of any of the Company's fees in connection with
this Agreement. The Company shall pay finders fees or placement costs incurred
in connection herewith.
11.8 Counterparts/Facsimile. This Agreement may be executed in two or
----------------------
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
11.9 Publicity. The Purchaser shall not issue any press release or
---------
otherwise make any public statement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Company,
except as may be required by applicable law or regulation.
11.10 Survival. The representations and warranties in this Agreement
--------
shall survive Closing.
11.11 Separate Agreement. Each Purchaser shall sign a separate Schedule
------------------
I. The Company's obligations to the Purchasers hereunder shall be identical and
uniform. The Purchasers may enforce their rights separately or jointly and
severally, at their election.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized representatives the day and year first above
written.
EMB CORPORATION
By
---------------------
James E. Shipley, President
PURCHASERS
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<PAGE>
(Signature on Schedule I)
-22-
<PAGE>
EXHIBIT 10(b)
-------------
OFFSHORE SECURITIES PURCHASE AGREEMENT
This Offshore Securities Purchase Agreement (this "Agreement"), dated as of
the 30th day of January, 1998, is entered into by and between EMB Corporation, a
corporation organized under the laws of the state of Hawaii (the "Issuer"), and
the purchaser or purchasers identified in Schedule I hereto, each a separate
purchaser (the "Purchaser").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Issuer shall issue and sell to the Investor and
the Purchaser shall purchase from the Issuer one or more offshore convertible
notes (the "Notes") convertible from time to time, in accordance with the terms
thereof, into shares of the Common Stock, no par value (the "Common Stock"), of
the Issuer (the "Conversion Shares") together with a warrant to purchase one
share of Common Stock for each Ten Dollars ($10.00) of Notes purchased (the
"Warrant") (collectively the "Securities"); and
WHEREAS, such investment will be made outside the United States in reliance
upon the provisions of Regulation S ("Regulation S") of the United States
Securities Act of 1933, as amended and the regulations promulgated thereunder
(the "Securities Act"), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to the
investment in the Note and Warrant and the issuance and/or resale of the
Conversion Shares to be made hereunder or under the Note, or the issuance and
resale of the Shares, purchasable upon exercise of any Warrant (the "Warrant
Shares").
NOW, THEREFORE, the parties hereto agree as follows (except as otherwise
provided, capitalized terms used but not otherwise defined herein shall have
their respective meanings set forth in the Note):
1. PURCHASE AND SALE OF THE SECURITIES. On the basis of the
representations and warranties, and subject to the terms and conditions, all as
set forth in this Agreement, the Issuer hereby covenants and agrees to sell to
the Purchaser on the Closing Date (as defined below), at the purchase price set
forth herein (the "Purchase Price"), one or more Notes in registered form and
substantially in the form of Exhibit A hereto (the "Note") together with the
associated Warrants and Purchaser agrees to purchase, pay for and accept the
Note and Warrants from Issuer. Each such Note shall be convertible at the sole
option of the holder thereof into
<PAGE>
a number of Conversion Shares determined pursuant to Article 3 of the Note.
2. CLOSING. The closing of the purchase and sale of the Securities
pursuant to Section 1 hereof shall take place on the 30th day of January, 1998,
at the law offices of D. David Cohen, Esq. located at Suite 133, 500 N.
Broadway, Jericho, New York 11753, or on such other date and at such other time
and place as the Purchaser and the Issuer may agree upon in writing prior
thereto (such time and date, the "Closing Date").
The duly executed Note and Warrants to be purchased by the Purchaser shall
be delivered by, or on behalf of, the Issuer at the offices of Barry B.
Globerman, Esq., as Escrow Agent against payment of the Purchase Price therefor
in immediately available funds by, or on behalf of, the Purchaser. Delivery of
such Securities shall be in accordance with the instructions of the Purchaser,
and in the Purchaser's name.
The Purchase Price for the Securities shall be One Hundred Percent (100%)
of the face amount of each Note issued hereunder.
3. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer represents
and warrants to, and agrees with, the Purchaser that:
(a) The Issuer has been duly incorporated and is validly existing as a
corporation under the laws of the state of Hawaii.
(b) This Agreement has been duly authorized, executed and delivered by the
Issuer and constitute a valid and binding agreement, enforceable in accordance
with its terms, and the Issuer has full corporate power and authority necessary
to enter into such agreements and to perform its obligations thereunder.
2
<PAGE>
(c) No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Issuer or
any of its affiliates is required for execution of this Agreement and the
performance of Issuer's obligations under such agreements, including, without
limitation, the issuance and sale of the Note and the Conversion Shares, the
Warrant and the Warrant Shares.
(d) Neither the sale of the Securities pursuant to this Agreement, nor
the performance of its obligations under this Agreement, by the Issuer will (i)
violate, conflict with, result in a breach of, or constitute a default (or an
event which with the giving of notice or the lapse of time or both would be
reasonably likely to constitute a default) under (A) the articles of
incorporation or by-laws of the Issuer, (B) any decree, judgment, order, law
treaty, rule, regulation or determination applicable to the Issuer of any court,
governmental agency or body, or arbitrator having jurisdiction over the Issuer
or over the properties or assets of the Issuer, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Issuer is subject, or (D) the terms of any "lock-up" or
similar provision of any underwriting or similar agreement to which the Issuer
is a party; or (ii) result in the creation or imposition of any lien, claim or
other encumbrance upon the Note, the Conversion Shares, the Warrant, the Warrant
Shares or any of the assets of the Issuer.
(e) The Note and Warrant, when issued and delivered pursuant to this
Agreement, will have been duly authorized, executed, issued and delivered and
will constitute a legal, valid, binding and enforceable obligation of the
Issuer, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and the Issuer
has full corporate power and authority necessary to issue and execute the Note
and to perform its obligations thereunder.
(f) The Conversion Shares, when issued, and Warrant Shares, if issued,
upon exercise of any Warrant (i) will be free and clear of any security
interests, liens, claims or other encumbrances; (ii) will be duly and validly
authorized and issued; (iii) will be fully paid and nonassessable; (iv) will not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Issuer; (v) will not subject the holders
thereof to personal liability by reason of being such holders.
3
<PAGE>
(g) The Issuer is a Reporting Company within the meaning of the Securities
and Exchange Act of 1934 as among ("Exchange Act") and has filed all reports
required to be filed by in accordance with the Exchange Act during the preceding
12 months, and has been subject to such filing requirements for the past 90
days.
(h) No offer of the Note or Conversion Shares either alone or together
with the Warrant and Warrant Shares was made by the Issuer to a person in the
United States.
(i) The Issuer, any affiliate of the Issuer, and any person acting on
behalf of the Issuer or any such affiliate (i) have not engaged in any Directed
Selling Efforts (as defined in Regulation S, "Directed Selling Efforts") with
respect to the Securities, (ii) have complied with the Offering Restrictions
requirements of Regulation S and (iii) have complied with all other applicable
requirements of Regulation S and state securities laws.
(j) The transactions contemplated by this Agreement (i) have not been pre-
arranged with a purchaser who is in the United States or is a U.S. Person and
(ii) are not part of a plan or scheme to evade the registration provisions of
the Securities Act.
(k) Other than the Securities being sold in this transaction, the Issuer
has not offered to sell, sold or issued any common stock or warrants or other
securities convertible into its common stock in a transaction involving
Regulation S during the twelve months preceding the data hereof, and there are
no outstanding warrants or other securities convertible into its common stock
which have been sold in a transaction involving Regulation S.
(l) There is no pending or, to the best knowledge of the Issuer,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Issuer
or any of its affiliates that would materially affect the performance of its
obligations under, this Agreement or the Note.
(m) The Issuer, any person representing the Issuer, and, to the best
knowledge of the Issuer, any other person selling or offering to sell the
Securities in connection with the transaction contemplated by this Agreement,
have not made, at any time, any oral communication in connection with the offer
or sale of the Securities which contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading.
4
<PAGE>
(n) Except as disclosed to the Purchaser or any of its affiliates, the
Issuer is not in possession of any material non-public information that, if
publicly disclosed, would, or could reasonably be expected to, have a material
adverse effect on the price of the Issuer's Securities.
(o) Assuming the accuracy of, and compliance with, the representations,
warranties and covenants of the Purchaser in this Agreement, the sale of the
Note pursuant to this Agreement will have been made in accordance with the
provisions and requirements of Regulation S and any applicable state law and the
conversion of the Note and the issuance of the Conversion Shares, and the
exercise of the Warrant and issuance of the Warrant Shares shall comply with the
provisions and requirements of Regulation S and any applicable state law.
(p) The Issuer has furnished or made available to the Purchaser a full and
complete set of its most recent definitive proxy statement in connection with
its annual meeting of stockholders, its Annual Report on Form 10-K for its most
recently completed fiscal year and any Form 10-Q's and/or 8-K's filed since the
date of its most recent 10-K (collectively, the "SEC Documents").
(q) Except as set forth on Schedule of Exemptions, the Issuer has good
title to all of its assets or property of any kind, real or personal and is the
sole legal owner thereof, free and clear of all security interests, mortgages,
pledges, hypothecations, assignments, deposit arrangements, encumbrances, liens
(statutory or other), or preferences, priority or other security agreements or
preferential arrangements of any kind or nature whatsoever.
(r) Except as set forth on Schedule of Exceptions, the Issuer has filed
all tax returns required to be filed by it. The Issuer has paid all taxes and
other governmental charges due pursuant to such returns or pursuant to any
assessment received by the Issuer. The charges, accruals and reserves on the
books of the Issuer in respect of any taxes or other governmental charges are
adequate in the aggregate to provide for the liabilities in respect thereof.
(s) Except as set forth on Schedule of Exceptions, the Issuer has not
established and does not maintain or contribute to any employee benefit plan
that is covered by Title IV of the Employee Retirement Income Security Act of
1974, as amended.
4. REPRESENTATION, WARRANTIES AND COVENANTS OF THE PURCHASER. The
Purchaser understands, and represents and warrants to, and agrees with, the
Issuer, that:
5
<PAGE>
(a) The Purchaser is not a U.S. Person and is not an affiliate of the
Issuer.
(b) No offer of the Securities was made to the Purchaser in the United
States; and at the time the buy order for the Securities was originated the
Purchaser was located outside the United States.
(c) The Purchaser, its affiliates and any persons acting on behalf of the
Purchaser or any such affiliates (i) have not engaged in any Directed Selling
Efforts with respect to the Securities, (ii) have complied with the Offering
Restrictions requirements of Regulation S and (iii) have complied with all other
applicable requirements of Regulation S and state law.
(d) The transactions contemplated by this Agreement (i) have not been pre-
arranged with a purchaser who is located in the United States or is a U.S.
Person and (ii) are not part of a plan or scheme to evade the registration
provisions of the Securities Act.
(e) The Purchaser is purchasing the Securities for its own account for the
purpose of investment and not (i) with a view to, or for sale in connection
with, any distribution thereof or (ii) for the account or on behalf of any U.S.
Person.
6
<PAGE>
(f) The Purchaser is aware that the Securities have not been and will not
be registered under the Securities Act and may only be offered or resold
pursuant to registration under the Securities Act or an available exemption
therefrom.
(g) The Purchaser understands that no federal or state agency has passed
on or made any recommendation or endorsement of the Securities.
(h) The Purchaser understands that the Securities are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of federal and state securities laws and that the Issuer is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of the
Purchaser to acquire the Securities.
(i) The Purchaser has all requisite right, power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. All action on the party of the Purchaser, members or partners necessary
for the authorization, execution, delivery and performance of this Agreement,
and the purchase of the Securities. The Purchaser's signatory has all right,
power, authority and capacity to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Purchaser and will constitute the legal, valid and
binding obligations of the Purchaser, enforceable in accordance with its terms
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy as they may apply to the indemnification provisions set forth
hereinafter.
(j) Purchaser is an "accredited investor" as defined in Rule 501(a) of
Regulation D under the Securities Act. Purchaser is aware of the Company's
business affairs and financial condition and has had access to and has acquired
sufficient information about the Company, including but not limited to the
Reports, to reach an informed and knowledgeable decision to acquire the
Securities.
7
<PAGE>
Purchaser has such business and financial experience as is required to give it
the capacity to protect its own interests in connection with the purchase of the
Note and Conversion Shares.
(k) Without otherwise limiting its ability to resell the Securities,
Purchaser represents that it is purchasing the Securities and for its own
account as principal for investment purposes only, and not with a view to a re-
distribution thereof. Purchaser understands that its acquisition of the
Securities have not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, Purchaser's
representations. Purchaser will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchaser or otherwise acquire or take a pledge of) any of the Note or
Conversion Shares, Warrants or Warrant Shares except in compliance with the
Securities Act and any applicable state securities laws, and the rules and
regulations promulgated thereunder, including the exemption provided by
Regulation S.
(l) Purchaser understands that nothing in this Agreement or any other
materials presented to Purchaser in connection with the purchase and sale of the
Securities constitutes legal, tax or investment advice. Purchaser has consulted
such legal, tax and investment advisors as it, in its sole discretion, has
deemed necessary or appropriate in connection with its purchase of the Preferred
Stock and the Warrants.
(m) Purchaser hereby represents and warrants that the Purchaser has
carefully examined SEC Documents, and the financial statements contained
therein. The Purchaser acknowledges that the Company has made available to the
Purchaser all documents and information that it has requested relating to the
Issuer and has provided answers to all of its questions concerning the Issuer,
the Securities.
(N) THE PURCHASER RECOGNIZES THAT THE PURCHASE OF THE SECURITIES INVOLVES A
HIGH DEGREE OF RISK IN THAT:
(I) AN INVESTMENT IN THE ISSUER IS SPECULATIVE AND ONLY INVESTORS WHO CAN
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT SHOULD CONSIDER INVESTING IN THE
ISSUER;
(II) THE PURCHASER WILL NOT BE ABLE TO IMMEDIATELY LIQUIDATE ITS
INVESTMENT;
8
<PAGE>
(III) TRANSFERABILITY OF THE NOTE IS EXTREMELY LIMITED;
(IV) IN THE EVENT OF ANY DISPOSITION OF THE NOTE PURCHASER COULD SUSTAIN
SUBSTANTIAL LOSSES ON ITS INVESTMENT;
(V) THE HOLDERS OF THE NOTE ARE NOT ENTITLED TO A VOTE IN THE BUSINESS AND
AFFAIRS OF THE COMPANY;
(VI) WHILE THE COMMON STOCK IS PRESENTLY QUOTED AND TRADED ON THE
ELECTRONIC BULLETIN BOARD MARKET, THERE IS NO ASSURANCE THAT THERE WILL BE
A MARKET FOR THE CONVERSION SHARES ON THE BULLETIN BOARD OR ANY ORGANIZED
MARKET OR QUOTATION SYSTEM; AND
(VII) THERE IS NO MARKET FOR THE WARRANTS AND WARRANT SHARES AND EXERCISE
OF THE WARRANTS WILL REQUIRE ADDITIONAL CASH PAYMENT TO THE ISSUER BY THE
HOLDER OF THE WARRANTS.
5. COVENANTS OF THE ISSUER. The Issuer covenants and agrees with the
Purchaser to:
(a) continue to comply with all applicable reporting requirements of the
Exchange Act;
(b) refrain from engaging, and insure that none of its affiliates will
engage, in any Directed Selling Efforts with respect to the Securities;
(c) ensure that all Offering Restrictions applicable to the sale of
Securities, including the issuance of the Conversion Shares, pursuant to this
Agreement are thoroughly complied with and satisfied;
(d) continue to comply, and to cause its affiliates and any person acting
on behalf of the Issuer or any affiliate to comply, with all other applicable
requirements of Regulation S and state law with respect to the offer and sale of
the Securities;
(e) to reserve for issuance, free from preemptive rights, a sufficient
number of shares of Common Stock to satisfy the conversion rights of the
Purchaser pursuant to the terms and conditions of the Note, including issuance
to the holder of any Note, upon conversion to Conversion Shares and written
request of such holder, of additional shares in lieu of interest ("Interest
9
<PAGE>
Shares") accrued to the date of any such conversion (the term "Conversion
Shares" as used herein includes "Interest Shares");
(f) Upon the conversion of any Debenture up to the total of the
"Conversion Amount" (as defined in the Note) and 40 days after the issuance of
any Interest Shares (as defined in the Note) and/or "Warrant Shares" by a person
who is a non-U.S. Person, Issuer shall instruct Issuer's transfer agent to issue
Stock Certificates up to the total of the "Conversion Amount" (as defined in the
Note) and 40 days after the "Interest Shares" and/or Warrant Shares without
restrictive legend in the name of Purchaser (or its nominee (being a non-U.S.
Person) or such non-U.S. Persons as may be designated by Buyer prior to the
closing) and in such denominations to be specified at conversion representing
the number of shares of Common Stock issuable upon such conversion and/or
exercise, as applicable, provided, however, that Purchaser acknowledges that no
transfers in the United States or to United States persons may be made during
the Restricted Period. Issuer warrants that no instructions other than these
instructions and instructions to impose a "stop transfer" instruction with
respect to the certificates until the end of the respective Restricted Period of
the Conversion Shares and Interest Shares and/or Warrant Shares, if any, have
been given or will be given to the transfer agent and that the Common Stock
shall otherwise be freely transferable on the books and records of Issuer.
Nothing in this Section 5, however, shall affect in any way Purchaser's or such
nominee's obligations and agreements to comply with all applicable securities
laws upon resale of the Securities and the restrictions on resale set forth in
Section 12;
(g) It shall be the Issuer's responsibility to take all necessary actions
and to bear all such costs to issue the Certificate of Common Stock as provided
herein, including the responsibility and cost for delivery of an opinion letter
to the transfer agent, if so required, provided Purchaser provides such
certificates and information as may be reasonably required to support that
opinion. The person in whose name the certificate of Common Stock is to be
registered shall be treated as a shareholder of record on and after the
conversion date. The Issuer shall only be required to convert the debenture in
minimum amounts of $10,000. Upon surrender of any Note that are to be converted
in part, the Company shall issue to the Purchaser a new Note equal to the
unconverted amount, if so requested by Purchaser;
(h) to notify the Purchaser promptly if at any time during the period
beginning on the date of this Agreement and ending on the Closing Date (i) any
event shall occur as a result of which any oral communication made by the
Issuer, any person representing the Issuer, or, to the best knowledge of the
Issuer, by any other
10
<PAGE>
person in connection with the transactions contemplated by this Agreement would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (ii) there is any
public disclosure of material information regarding the Issuer or its finan cial
condition or results of operation; and
(i) to register, if so requested by the Purchaser or any permitted
Noteholder, the Conversion Shares and/or any Warrant Shares issuable hereunder
for sale, or resale, by the holders thereof, in the United States in accordance
with the Securities Act, including the preparation and filing, at the sole
expense of the Issuer, of a Registration Statement with respect thereto, with
any cost or expense to the Purchaser or any such holders, except for
underwriting costs or discounts with respect to any resale arrangements made by
the Purchaser or any subsequent holder. Any such Registration Statement shall
be processed to effectivity as promptly as practicable.
6. COVENANTS OF THE PURCHASER. The Purchaser covenant sand agrees with
the Issuer to:
(a) refrain from engaging, and cause its affiliates and any person acting
on behalf of the Purchaser or any such affiliate to refrain from engaging, in
any Directed Selling Efforts with respect to the Securities;
(b) comply, and to cause its affiliates or any other person acting on
behalf of the Purchaser or any affiliate to comply, with the Offering
Restrictions, and any other applicable requirements, of Regulation S;
(c) refrain, during the period commencing on the Closing Date and ending
on the fortieth day thereafter (the "Restricted Period"), from offering or
selling the Note in the United States, to a U.S. Person or for the account or
benefit of a U.S. Person other than in accordance with Rule 903 or Rule 904 of
Regulation S; and
(d) not to offer, sell, pledge or otherwise transfer the Securities, or
any part thereof, until after the expiration of the Restricted Period, and
thereafter only in accordance with any available exemption from the Securities
Act, and in accordance with applicable state securities laws, or any effective
registration under the Securities Act in accordance with 5(i) hereof.
11
<PAGE>
7. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS. The obligations
of the Purchaser hereunder are subject to the performance by the Issuer of its
obligations hereunder and to the satisfaction of the following additional
conditions precedent:
(a) The representations and warranties made by the Issuer in this
Agreement shall, unless waived by the Purchaser, be true and correct in all
material respects as of the date hereof and at the Closing Date, with the same
force and effect as if they had been mad eon and as of the Closing Date.
(b) The Issuer will provide an opinion or opinions of counsel confirming
in substance the representations and warranties set out in paragraphs (a)
through (g) of Section 3 above.
(c) None of the following shall have occurred: (i) any general suspension
of trading in, or limitation on prices listed for the Common Stock on the
NASDAQ, (ii) a declaration of a banking moratorium or any suspension of payments
in respect to banks in the United States, (iii) a commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States, (iv) in the case of the foregoing existing at the
date of this Agreement, a material acceleration or worsening thereof.
8. CONDITIONS PRECEDENT TO THE ISSUER'S OBLIGATIONS. The obligations of
the Issuer hereunder are subject to the performance by the Purchaser of its
obligations hereunder and to the satisfaction of the condition that the
representations and warranties made by the Purchaser in this Agreement shall,
unless waived by the Issuer, be true and correct in all material respects as of
the date hereof and at the Closing Date, with the same force and effect as if
they had been made on and as of the Closing Date.
9. FEES AND EXPENSES. Each of the Purchaser and the Issuer agrees to pay
its own expenses incident to the performance of its obligations hereunder,
except that the fees, expenses and disbursements of the Purchaser's counsel, up
to Five Thousand Dollars ($5,000) shall be paid by the Issuer. In addition, the
Issuer shall be solely responsible for any commission and brokerage fees due to:
Vengua Capital Markets, Ltd., who the parties agree arranged this transaction.
Purchaser shall pay for any other representative employed by it with respect
hereto.
10. SURVIVAL OF THE REPRESENTATIONS, WARRANTIES, ETC. The respective
agreements, representations, warranties, indemnities and other statements made
by or on behalf of the Issuer and the Purchaser, respectively, pursuant to this
Agreement, shall remain
12
<PAGE>
in full force and effect, regardless of any investigation made by or on behalf
of the other party to this Agreement or any officer, director or employee of, or
person controlling or under common control with, such party and will survive
delivery of any payment for the Securities.
11. INDEMNIFICATION. The Issuer agrees to indemnify the Purchaser and its
officers, directors employees, agents and affiliates in respect of, and hold
each of them harmless from and against, any and all damages, fines, fees,
penalties, deficiencies, losses and expenses (including without limitations
interest, court costs, reasonable attorneys fees, accountants and other experts
or other expenses of litigation or other proceedings or of any claim, default or
assessment) ("Losses") suffered, incurred or sustained by any of them or to
which any of them becomes subject, resulting from, arising out of or relating to
any misrepresentations, breach of warranty or nonfulfillment of or failure to
perform any covenant or agreement on the part of Issuer contained in this
Agreement, as such expenses are incurred, unless such Loss results primarily
from the Purchaser's gross negligence, recklessness or bad faith with respect to
the matters which are the subject of this Agreement.
13
<PAGE>
12. NOTICES. Any notice or other communication in connection with this
Agreement shall be in writing and shall be deemed to be delivered if(i) actually
delivered to the following address, (ii) sent by facsimile to the following
facsimile number and a transaction confirmation is received or (iii) sent by
certified or registered mail, postage prepaid, return receipt requested to the
following address and 6 business days lapse after deposit in the mail:
If to the Purchaser, to:
At the address for such Purchaser as set forth in Schedule I hereto,
with a copy to (which communication shall not constitute notice):
Barry B. Globerman, Esq.
110 East 59th Street
New York, NY 10022
If to the Issuer, to:
EMB Corporation
3200 Bristol, 8th Floor
Costa Mesa, California 92626
Telephone: (714)437-0738
Facsimile: (714)825-0493
Attention: Mr. Joseph Wimer
with copy to (which communication shall not constitute notice):
D. David Cohen, Esq.
Jericho Atrium
Suite 1300
500 No. Broadway
Jericho, New York 11753
Telephone: (516)933-1700
Facsimile: (516)933-8454
or to such other name(s) or to such other address(es) or telecopier number(s) as
a party may designate from time to time to the other party by written notice.
13. THIRD PARTY BENEFICIARY. Any permitted transferee of any part of the
principal amount of the Note or the Conversion Shares shall be a third party
beneficiary of the Issuer's obligations under this Agreement, and the Note. Such
person shall have all the rights of a third party beneficiary with respect to
the enforcement
14
<PAGE>
against the Issuer of any provision of this Agreement, and the Note.
14. DELIVERY OF STOCK. At any time on or after the forty-first (41st) day
following the Closing Date, the Issuer will permit the Purchaser including any
permitted transferee to exercise its right to convert the Note by telecopying an
executed and completed Notice of Conversion to the Issuer and delivering within
six (6) business days thereafter, the original Notice of Conversion and Note by
express courier. Each date on which a Notice of Conversion is telecopied to and
received by the Issuer in accordance with the provisions hereof shall be deemed
a Conversion Date. The Issuer will transmit the certificates representing the
shares of Common Stock of the Issuer Issued at Conversion and the newly issued
Note representing the amount of the Note which remains unconverted to the
Purchaser via express courier within six (6) business days after receipt by the
Issuer of the original Notice of Conversion and the Note, or provide written
instructions to its transfer agent within such time period to so deliver the
shares of Common Stock, with a copy to Purchaser.
15. LIQUIDATED DAMAGES FOR FAILURE TO DELIVER. The Issuer understands and
agrees that a delay beyond the deadline for delivery, specified this Agreement
could result in economic loss to the Purchaser. As compensation to the
Purchaser for such loss, the Issuer agrees to liquidated damages in the form of
late payments to the Purchaser for the late issuance of shares issuable at
conversion where delivery is more than six (6) business days after the
Conversion Date:
Five Hundred ($500.00) Dollars for each such day for each Note (of $10,000 or
more of Principal Amount) being converted.
The Issuer shall pay any payments incurred under this Section 15 in immediately
available funds upon demand. Nothing herein shall limit a Purchaser's right to
pursue actual damages for the Issuer's failure to issue and deliver Common Stock
to the Purchaser.
In addition, Issuer shall
(a) hold the Purchaser harmless against any loss, claim or damage arising
from or as a result of such failure by the Issuer (including, without
limitation, any such loss, claim or damage resulting from an obligation to
resell the Common Stock of the Issuer Issued at Conversion); and
15
<PAGE>
(b) reimburse the Purchaser for all of its out-of-pocket expenses,
including reasonable fees and disbursements of its counsel, incurred by the
Purchaser.
16. TIME OF ESSENCE. TIME SHALL BE OF THE ESSENCE IN THIS AGREEMENT.
17. RESPONSIBILITY OF ESCROW AGENT.
The Escrow Agent shall not have any responsibility to either party
hereunder, except to transmit funds actually received from Purchaser to Issuer
or to Issuer's attorney, at Issuer's written instruction, in exchange for
physical delivery of the Securities, and to remit the Securities to Purchaser,
at Purchaser's written instruction, and otherwise only for Escrow Agent's
intentional acts of wrongdoing or gross negligence. The parties agree that
Escrow Agent is Broker's counsel and serving as Escrow Agent solely as an
accommodation to the parties.
18. MISCELLANEOUS.
(a) This Agreement may be executed in one or more counterparts and it is
not necessary that signatures of all parties appear on the same counterpart, but
such counterparts together shall constitute but one and the same agreement.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors and permitted assigns.
(c) This agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
(d) Any claim arising hereunder against the Issuer will be litigated
solely in the courts of the United States of America.
(e) The headings of the sections of this document are solely for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
(f) The provisions of this Agreement are severable, and if any clause or
provision shall be held invalid, illegal or unenforceable in whole or in part in
any jurisdiction, then such invalidity or unenforceability shall affect in that
jurisdiction only such clause or provision, or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Agreement in any jurisdiction.
16
<PAGE>
(f) This Agreement, including the schedules and exhibits hereto,
constitutes the sole and entire agreement of the parties with respect to the
subject matter hereof, and the same may not be modified or amended otherwise
than by a writing signed by the party to be changed.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer(s) of each party hereto as of the date first above
written.
EMB CORPORATION
-------------------------
Name: James E. Shipley
Title: President
PURCHASER
Signature on Schedule I
-------------------------
ESCROW AGENT
-------------------------
Barry B. Globerman, Esq.
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<PAGE>
SCHEDULE I
EMB CORPORATION
OFFSHORE SECURITIES PURCHASE AGREEMENT
JANUARY 30, 1998
SUBSCRIPTION
The undersigned Purchaser hereby subscribes to Securities of EMB
Corporation in the principal amount of U.S.$________________
__________________________________________(fill out in numbers and words).
This schedule is annexed to an Offshore Purchase Agreement dated as of the
30th day of January, 1998 (the "Agreement').
The Purchaser is acquiring one or more offshore convertible notes ("Notes")
in the principal amount set forth above, together with Warrants to purchase one
share of EMB Common Stock for each Ten Dollars ($10.00) of Note purchased.
The Purchaser is not a U.S. Person as such term is defined by Regulation S
promulgated under the United States Securities Act of 1933, as amended. The
Purchaser has received and reviewed, or had its counsel review, the terms and
conditions of the Agreement.
Name of Holder:
----------------------------------------------------
Address:
-----------------------------------------------------------
- -------------------------------------------------------------------
Signature:
---------------------------------------------------------
(Print Name and Title of Signatory)
i
<PAGE>
EXHIBIT 10(c)
-------------
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS N0T BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AS AMENDED (THE "SECURITIES ACT"), AND HAS BEEN
SOLD IN RELIANCE ON THE EXEMPTION FROM REGISTRATION PROVIDED BY REGULATIONS
UNDER THE SECURITIES ACT ("REGULATION S"). DURING A "RESTRICTED PERIOD"
THE SECURITY REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, WITHIN THE UNITED STATES (AS DEFINED IN REGULATION
S) TO A U.S. PERSON (AS DEFINED IN REGULATION S) OR FOR THE ACCOUNT OR
BENEFIT OF A U.S. PERSON.
OFFSHORE NOTE
DUE JANUARY 30, 2000
January 30, 1998
EMB Corporation, a Hawaii corporation (hereinafter called the "Issuer"),
for value received, hereby promises to pay to the Holder as defined below) on
January 30, 2000 (the "Maturity Date") cash in immediately available funds in
the principal amount of __________________________$______, and to pay interest
on the principal sum outstanding at the rate of eight percent (8%) per annum
(the "Note Interest Rate"), payable upon maturity or any earlier conversion of
this Note.
Accrual of interest shall commence on the date hereof and shall continue
until payment in full of the outstanding principal sum has been made or duly
provided for. The interest so payable will be paid to the person in whose name
this Note is registered on the records of the Issuer regarding registration and
transfers of Notes (the "Note Register").
The principal of, and interest on, this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
Unless this Note is earlier converted in accordance with its terms, the
Issuer will pay the outstanding principal of and all accrued and unpaid interest
due upon this Note on the Maturity Date, less any amounts required by law to be
deducted or withheld, to the Holder of record of this Note as of the tenth
(10th) day
<PAGE>
prior to the Maturity Date and addressed to such Holder at the last address
appearing on the Note Register. The forwarding of such check shall constitute a
payment of such outstanding principal and interest hereunder and shall satisfy
and discharge the liability for principal and interest on this Note to the
extent of the sum represented by such check plus any amounts so deducted.
ARTICLE I
DEFINITIONS
The capitalized terms used in this Note shall have the respective meanings
specified in the Annex I, Annex of Defined Terms.
ARTICLE II
EXCHANGES AND TRANSFER
SECTION 2.1 Exchange and Registration of Transfer of Note. The Holder may,
---------------------------------------------
at its option, surrender this Note at the office of the Issuer and receive in
exchange therefor a Note or Notes, each in the denomination of Ten Thousand
Dollars ($10,000.00) or an integral multiple of $10,000.00 or any amount in
excess thereof, but not more than one Note in any Issuer amount, each dated of
the date of this Note, and payable to the Holder subject to Section 4.2, payable
to such other Person, as may be designated by such Holder. The aggregate
principal amount of such Note or Notes exchanged in accordance with Section 2.1
shall equal the aggregate unpaid principal amount of this Note as of the date of
such surrender; provided, however, that upon such exchange there shall be filed
with the Issuer the name and address for all purposes hereof of the Holder or
Holder of the Note or Notes delivered in such exchange. This Note, when
presented for registration of transfer or for exchange or conversion, shall (if
so required by the Issuer) be duly endorsed by, or be accompanied by a written
instrument of transfer in form reasonably satisfactory to the Issuer duly
executed by, the Holder duly authorized in writing.
SECTION 2.2 Loss, Theft; Destruction of Note. Upon receipt of evidence
--------------------------------
satisfactory to the Issuer of the loss, theft, destruction or mutilation of this
Note and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security reasonably satisfactory to the Issuer, or, in the case of
any such
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<PAGE>
mutilation, upon surrender and cancellation of this Note, the Issuer will make
and deliver, in lieu of such lost, stolen, destroyed or mutilated Note, a new
Note of like tenor and unpaid principal amount dated as of the date hereof. This
Note shall be held and owned upon the express condition that the provisions of
this Section 2.2 are exclusive with respect to the replacement of a mutilated,
destroyed, lost or stolen Note and the Issuer shall have no further
responsibility whatsoever with respect to the mutilated, destroyed, lost or
stolen Note, notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement of a negotiable instrument or other
securities without their surrender.
SECTION 2.3 Absolute Owner. The Issuer may deem the person in whose name
--------------
this Note shall be registered upon the registry books of the issuer to be, and
may treat it as, the absolute owner of this Note (whether or not this Note shall
be overdue) for the purpose of receiving payment of or on account of the
principal of this Note, for the conversion of this Note and for all other
purposes, and the Issuer shall not be affected by any notice to the contrary,
unless such notice is accompanied by surrender of this Note. All such payments
and such conversion shall be valid and effectual to satisfy and discharge the
liability upon this Note to the extent of the sum or sums so paid or the
conversion so made.
ARTICLE III
CONVERSION OF NOTE
SECTION 3.1 Conversion; Conversion Price. At the option of the Holder, at
----------------------------
any time from time to time after the expiration of the Restricted Period until
this Note is paid in full, this Note may be converted, either in whole or in
part up to the principal amount hereof (or in case some portion of this Note
shall have been converted prior to such date, then at the portion that is not so
converted), together with interest accrued thereon to the relevant Conversion
Date, into Common Stock of the Issuer (calculated as to each conversion to the
nearest 1/100th of a share), at the conversion price the ("Conversion Price"),
equal to the lesser of: (i) Two Dollars and Thirty Seven and One-Half Cents
($2.375) (the "Fixed Conversion Price"), subject to adjustment as hereinafter
provided, or (ii) seventy-five (75%) percent (the "Conversion Ratio") of the
average closing bid price (the "Floating Conversion Price") during the five (5)
consecutive Trading Days immediately
-3-
<PAGE>
preceding the Conversion Date (the "Valuation Period"); provided, however, that
if a Valuation Event occurs during any Valuation Period, a new Valuation Period
shall begin on the Trading Day immediately after the occurrence of such
Valuation Event and end on the Conversion Date; and provided, further, however,
that the Holder may, in its sole discretion, postpone such Conversion Date to a
Trading Day that is no more than five (5) Trading Days after the occurrence of
the latest Valuation Event. In the event that the Holder deems the Valuation
Period to be other than the five (5) Trading Days immediately prior to the
Conversion Date, the Holder shall give written notice to the Issuer at the time
of Conversion.
For purposes of this Section 3.1, a "Valuation Event" shall mean an event in
which the Issuer at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Common Shares;
(b) pays a dividend in its Capital Shares or makes any other distribution
of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 3.1(a) and 3.1(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuance, or without
consideration;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect at the hereunder immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for Capital
shares and the consideration per share for which Additional Capital Shares may
at any time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Current Market Price in effect
immediately prior to such issuance;
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<PAGE>
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Issuer's
assets (other than under the circumstances provided for in the foregoing
Sections 3.1(a) through 3.1(e)), provided, in each case, that such distribution
described in this Section 3.1(f) does not constitute an Event of Default
hereunder; or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 3.1(a) through
3.1(f) hereof, inclusive, which in the opinion of the Issuer's Board of
Directors determined in good faith, would have a materially adverse effect upon
the rights of the Holder at the time of a conversion of this Note.
Notwithstanding anything to the contrary contained herein, in no event
shall the Holder be entitled to convert this Note into any Common Stock when the
result of such conversion would entitle the Holder to receive that number of
shares of the Issuer's Common Stock of which the sum of (xx) number of shares of
Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock that may be deemed beneficially owned through the
ownership of the unconverted portion of this Note) and (yy) the number of shares
of Common Stock issuable upon conversion of this Note, would result in
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and regulation 13 D-G thereunder,
except as otherwise provided in clause (xx) of this provision.
SECTION 3.2 Exercise of Conversion Privilege.
--------------------------------
(a) In order to exercise the conversion privilege, either in whole or in
part, the Holder shall surrender this Note to the Issuer during usual business
hours at its principal office and shall give written notice to the Issuer in the
form attached hereto in Annex II (the "Conversion Notice") at said office that
the Holder elects to convert this Note.
-5-
<PAGE>
(b) The Conversion Notice shall specify whether the Holder desires to
receive its interest accumulated to date in cash or Interest Shares. If the
holder elects to receive Interest Shares, the number of Shares issuable shall be
calculated at the same Conversion Price applicable to any conversion of
principal of this Note.
(c) As promptly as practicable, the Issuer shall convert the Note and issue
the Common Stock within six (6) business days after receipt Conversion Notice,
and surrender of this Note. The Issuer shall (i) issue the Common Stock
issuable upon such conversion in accordance with the provisions of this Article
3, and (ii) deliver or direct its transfer agent to deliver by overnight courier
to the Holder (X) a certificate or certificates representing the number of
shares of Common Stock to which the Holder is entitled by virtue of such
conversion, and (Y) cash in the amount of interest accrued to date, unless the
Holder has elected to take Interest Shares, in lieu of cash interest accrued to
date, and cash, in respect of any fraction of a share issuable upon such
conversion, as provided in Section 3.4.
(d) The Conversion Notice shall also state the name or names (with
address) of the persons who are to become the holders of the Common Stock issued
at conversion in connection with such conversion. Upon surrender for
conversion, this Note shall be accompanied by a proper assignment hereof to the
Issuer or in blank.
(e) Such conversion shall be deemed to have been effected at the time at
which the Conversion Notice indicates so long as this Note shall have been
surrendered as aforesaid at such time and at such time the rights of the Holder
as holder of this Note shall cease and the person or persons in whose name or
names the Common Stock issued at conversion shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
Common Stock represented thereby.
(f) The Conversion Notice shall constitute a contract between the Holder
and the Issuer, whereby the Holder shall be deemed to subscribe for the number
of shares of Common Stock that it will be entitled to receive upon such
conversion and in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 3.3), to surrender
this
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<PAGE>
Note and to release the Issuer from all liability thereon. No cash payment of
less than One Dollar ($1.00) shall be required to be given unless specifically
requested by the Holder.
SECTION 3.3 Fractional Shares. No fractional share of Common Stock of the
-----------------
Issuer or scrip representing fractional Common Stock shall be issued upon
conversion of this Note. Instead of any fractional Common Stock which would
otherwise be issuable upon conversion of this Note, the Issuer shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction.
No cash payment of less than $1.00 shall be required to be given unless
specifically requested by the Holder.
SECTION 3.4 Adjustments. The Fixed Conversion price and, accordingly, the
-----------
number of Conversion Shares issuable upon the conversion of this Note, shall be
subject to adjustment from time to time upon the happening of any Valuation
Event. Upon the occurence of any such Valuation Evaluation, the Board of
Directors of the Issuer shall forthwith consider an adjustment to the Fixed
Conversion Price so as to retain for the Holders of the Notes the right to
acquire to the same number of Conversion Shares, proportionately, to their
current interest in the equity of the Issuer. I.e., a two for one stock split
----
shall require a 50% declination in the Fixed Conversion Price. The Board of
Directors of the Issuer shall make the initial determination as to any
adjustment in the Fixed Conversion Price. In the event of any dispute relating
thereto, the independent auditors of the Issuer shall certify as to correctness
of such adjustment. In the event that such auditors are unable or unwilling to
so certify, a separate firm of independent auditors selected by the Noteholder
shall so certify. The Issuer shall pay all expenses of the auditor's
certification.
SECTION 3.5 Notice of Adjustments. Whenever the Fixed Conversion Price
---------------------
under the terms of this Note shall be adjusted pursuant to Section 3.4 hereof,
the Issuer shall promptly make a certificate signed by its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Issuer's Board
of Directors made any determination hereunder), and the Fixed Conversion Price
and number
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<PAGE>
of Conversion Shares purchasable at that Fixed Conversion Price after giving
effect to such adjustment, and shall promptly cause copies of such certificate
to be mailed (by first class and postage prepaid) to the Holder.
ARTICLE IV
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Note. This Note is a direct, general and
--------------
unconditional obligation of the Issuer ranking pari passu with all other
---- -----
unsecured indebtedness of the Issuer, enforceable in accordance with its terms
subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
similar laws of general applicability relating to or affecting creditors' rights
and to general principles of equity.
SECTION 4.2 Restrictions on Transfer. This Note, and any Common Stock of
------------------------
the Issuer issued according to the terms hereof, have not been and will not be
registered under the United States Securities Act. Until expiration of the
Restricted Period, this Note may not be offered or sold, directly or indirectly,
within the United States (as defined in Regulation S), to a U.S. Person (as
defined in Regulation S) or for the account or benefit of a U.S. Person.
ARTICLE V
COVENANTS
The Issuer covenants and agrees that so long as this Note shall be
outstanding:
SECTION 5.1 Conversion. The Issuer will punctually issue shares of Common
----------
Stock at conversion, according to the terms hereof and of the Purchase
Agreement.
SECTION 5.2 Notice of Default. If any one or more events occur which
-----------------
constitute or with the giving of notice or the lapse of time or both, would
constitute an Event of Default or if the Holder shall demand the issuance of
Common Stock or take any other action permitted upon the occurrence of any such
Event of Default, the Issuer will forthwith give notice to the Holder,
specifying the nature and status of the Event of Default or other event or of
such demand or action, as the case may be.
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<PAGE>
SECTION 5.3 Insurance. The Issuer and each Subsidiary will carry and
---------
maintain in full force and effect at all times with insurers the Issuer
reasonably believes to be financially sound and reputable such insurance in such
amounts as is customary in the respective industries of the Issuer and such
Subsidiaries.
SECTION 5.4 Preservation of Existence. The Issuer will preserve and
-------------------------
maintain its existence, rights, franchises and privileges that are not material
to both (i) the performance of its obligations under this Note and the Purchase
Agreement; and (ii) the conduct of its business as presently or proposed to be
conducted.
SECTION 5.5 Payment of Obligations. Prior to conversion of the entire
----------------------
principal amount, the Issuer will pay, extend or discharge at or before
maturity, all its respective material obligations and liabilities, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings and will maintain, in accordance with generally
accepted accounting principles, appropriate reserves for the accrual of the
same.
SECTION 5.6 Compliance with Laws. The Issuer will comply in all material
--------------------
respects with all applicable laws, ordinances, rules, regulations and
requirements of governmental authorities except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.7 Inspection of Property, Books and Records. The Issuer will
-----------------------------------------
keep proper books of record and account in which full, true and correct entries
shall be made of all dealings and transactions in relation to its business and
activities and will permit representatives of the Holder at the Holder's expense
to visit and inspect any of its respective properties, to examine and make
abstracts from any of its respective books and records and to discuss its
respective affairs, finances and accounts with its respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
-9-
<PAGE>
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used herein
-----------------
means any of the following events:
(a) default in the due and punctual payment of the principal of,
interest on, this Note when and as the same shall become due and payable, and
continuance of such default for a period of thirty (30) calendar days; or
(b) the Issuer shall fail to perform, or observe any covenant,
agreement or obligation of the Issuer in this Note and the continuance of such
default for a period of forty-five (45) calendar days after there has been given
to the Issuer by a Holder a written notice specifying such default and requiring
it to be remedied; or
(c) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Issuer or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Issuer under the Bankruptcy
Code or any other Federal or state law, or appointing a receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of the Issuer or
of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and the continuance of any such decree or order
unstated and in effect for a period of 90 calendar days; or
(d) the institution by the Issuer or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable Federal or state law, or the consent by
it to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Issuer or of any
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<PAGE>
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate action by the
Issuer in furtherance of any such action; or
(e) the Issuer shall default in the payment, or permit a default in
the payment, when due of any principal premium (if any) or interest on any
Indebtedness (other than under this Note) exceeding One Hundred Thousand Dollars
($100,000) of the Issuer or any Subsidiary and such default shall continue
beyond any applicable grace period, or shall fail, or permit any Subsidiary to
fail, to observe or perform any terms of any instrument pursuant to which any
such Indebtedness was created or of any mortgage, indenture or other agreement
relating thereto if the effect of such failure is to cause or permit the
acceleration of such Indebtedness and such failure shall not have been waived
pursuant thereto; or
(f) (i) the Issuer or any Subsidiary is unable to pay its debts as
they fall due, stops, suspends or threatens in writing to stop or suspend
payment of all or any material part of its debts (other than debts contested in
good faith by appropriate proceedings), begins negotiations or takes any
proceeding or other step with a view to readjustment, rescheduling or deferral
of all of its Indebtedness (or any material thereof) that it will or might
otherwise be unable to pay when due or seeks the appointment of a statutory
manager or proposes in writing or makes a general assignment or an arrangement
or composition with or for the benefit of its creditors or any group or class
thereof or files a petition for suspension of payments or other relief of
debtors of for bankruptcy or is declared bankrupt or a moratorium or statutory
mangement is agreed or declared with respect of or affecting all or any material
part of the Indebtedness of the Issuer or any of its wholly-owned Subsidiaries,
or (ii) the Issuer ceases or threatens in writing to cease to carry in all or
any material part of the business carried on by the Issuer and its Subsidiaries
taken as a whole and as a result of such cessation or threat of cessation, the
Issuer will not be able to perform or comply with its payment obligations under
this Notes.
SECTION 6.2 Acceleration of Maturity, Rescission and Annulment. If an
--------------------------------------------------
Event of Default occurs and is continuing, then and in every such case any
Holder may rescind any Conversion Notice
-11-
<PAGE>
given to the Issuer and obtain payment in immediately available funds for the
entire outstanding principal amount of the Note that remains unconverted and
unredeemed and all interest accrued thereon, by a notice in writing to the
Issuer, and upon any such declaration the principal amount of this Note shall
become immediately due and payable by virtue of such rescission.
SECTION 6.3 Default Interest Rate.
---------------------
(a) If any portion of the principal of or interest on the Note shall
not br paid when due (whether at the stated maturity, by acceleration or
otherwise) such principal of and interest on the Note that is due and owing but
not paid shall, without limiting the Holder's rights under this Note or under
the Purchase Agreement, bear interest at the Default Interest Rate until paid in
full.
(b) Notwithstanding anything herein or in the Purchase Agreement to
the contrary, if at any time the applicable interest rate as provided for herein
shall exceed the maximum lawful rate which may be contracted for, charged, taken
or received by the Lender in accordance with applicable laws (the "Maximum
Rate"), the rate of interest applicable to the Note shall be limited to the
Maximum Rate.
SECTION 6.4 Remedies Not Waived. No course of dealing between the Issuer
-------------------
and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Register.
--------
(a) The Issuer shall keep at its principal office a register in which
the Issuer shall provide for the registration of this Note. Upon any transfer
of this Note in accordance with the terms of this Note, the Issuer shall
register such transfer in the Note register.
(b) The Issuer, may deem the person in whose name this Note shall be
registered upon the registry books of the Issuer to be, and may treat it as, the
absolute power if this Note (whether
-12-
<PAGE>
or not this Note shall be overdue) for the purpose of receiving payment of
interest on or principal of this Note, for the conversion of this Note and for
all other purposes, and the Issuer shall not be affected by any notice to the
contrary. All such payments and such conversions shall be valid and effective to
satisfy and discharge the liability upon this Note to the extent of the sum or
sums so paid or the conversion or conversions so made.
SECTION 7.2 Withholding. To the extent required by applicable law, the
-----------
Issuer may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Issuer from any payments made pursuant to this Note.
SECTION 7.3 Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.4 Headings. The headings of the Articles and Sections of this
--------
Note are solely for convenience only and do not constitute a part of this Note.
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed by its
duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Note.
EMB CORPORATION
By____________________________
Name:_________________________
Title:________________________
ATTEST:
By__________________________
Name:_______________________
Title:______________________
-13-
<PAGE>
ANNEX I
EMB CORPORATION
OFFSHORE NOTE
ANNEX OF DEFINED TERMS
"Business Day" shall mean a day other than Saturday Sunday or any day on
which banks in the State of New York are obligated to close.
"Capital Shares" shall mean the Common Shares and any other shares of any
other class of common stock, whether now or hereafter authorized, that have the
right to participate in the distribution of earnings and assets of the Issuer.
"Closing Date" shall mean January 30, 1998, or any mutually agreed upon
other date.
"Common Shares" or "Common Stock" shall mean shares of the Common Stock, no
par value of the Issuer.
"Conversion Date" shall mean any day on which all or some part of the
principal amount of this Note is converted into Conversion Shares in accordance
with the terms of this Note.
"Conversion Notice" shall have the meaning set forth in Section 3.2.
"Conversion Price" shall have the meaning set forth in Section 3.1.
"Conversion Shares" shall mean all Common Shares issued or issuable upon
conversion of this Note, including the Interest Shares, if any.
"Conversion Ratio" shall have the meaning set forth in Section 3.1.
"Current Market Price" per Common Share on any date herein specified shall
be deemed to be the closing bid price on such day on the National Association of
Securities Dealers Automated Quotations Small Capitalization system ("NASDAQ").
i
<PAGE>
"Default Interest Rate" shall be twenty-four (24%) per annum, to the extent
permitted by applicable law.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Fixed Conversion Price" shall have the meaning set forth in Section 3.1.
"Floating Conversion Price" shall have the meaning set forth Section 3.1.
"Holder" means the Purchaser and any subsequent holder hereof or of any
Notes for which this Note is exchanged pursuant to Article 2.
"Indebtedness" shall mean the Issuer (i) all indebtedness or other
obligations of for borrowed money or other claims which would, in accordance
with generally accepted accounting principles, be classified as a liability on
the balance sheet of the Issuer.
"Interest Shares" shall mean any Conversion Shares issued or issuable, at
the election of any Note holder, in lieu of interest accrued on any Note at the
time of conversion.
"Issuer" shall mean EMB Corporation and any successor corporation by
merger, consolidation, sale or exchange of all or substantially all of the
Issuer's assets, or otherwise.
"Note" shall mean this Offshore Convertible Note or such other Note or
Notes exchanged therefor as provided in Section 2.1.
"Outstanding" when used with reference to Common Shares or Capital Shares
(collectively the "Shares"), shall mean, at any date as of which the number of
such Shares is to be determined, all issued and outstanding Shares, and shall
include all such Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall exclude any such Shares then directly or
indirectly owned or held by or for the account of the Issuer or any Subsidiary.
ii
<PAGE>
"Person" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Purchase Agreement" means the Offshore Convertible Note Purchase
Agreement, dated as of January 30, 1998.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
"Subsidiary" shall mean any entity over which the Issuer has directly or
indirectly voting power or other interests sufficient to elect a majority of the
board of directors or other persons performing similar functions.
"Valuation Event" shall have the meaning set forth in Section 3.1.
"Valuation Period" shall have the meaning set forth in Section 3.1.
"$" herein shall mean coin or currency of the United States of America.
iii
<PAGE>
ANNEX II
EMB CORPORATION
OFFSHORE NOTE
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert any Note)
The undersigned hereby irrevocably elects to convert $_________ of the
above Note No._____ into Shares of Comon Stock of EMB Corporation (the
"Company") according to the conditions set forth in such Debenture, as of the
date written below.
The undersigned represents that neither it nor any other person to whom
shares are to be issued is a U.S. Person as defined in Regulation S promulgated
under the Securities Act of 1933, as amended, and is not converting the Note on
behalf of any U.S. Person and the representations contained in the OffShore
Securities Purchase Agreement are true and correct. If Shares are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto.
Date of Conversion:______________________________________________
Appplicable Conversion Price:____________________________________
(The applicable conversion price is the lesser of $2.375 per share, subject to
adjustment, seventy-five [75%] percent of the average closing bid price during
the five [5] consecutive trading days immediately preceding the Conversion
Date.)
Name of Holder:___________________________________________________
Address:_________________________________________________________
_________________________________________________________________
Signature:________________________________________________________
(Print Name and Title of Signatory)
iv
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 496,485
<SECURITIES> 0
<RECEIVABLES> 20,525,629
<ALLOWANCES> (17,958)
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0
1,359,000
<COMMON> 7,973,482
<OTHER-SE> (6,035,992)
<TOTAL-LIABILITY-AND-EQUITY> 27,635,860
<SALES> 1,180,443
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<TOTAL-COSTS> 476,682
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