PREFERRED STOCK PLACEMENT AGREEMENT


      PREFERRED STOCK PLACEMENT AGREEMENT ("Agreement") dated as of the 28th day
of August, 1998, by and between EFFECTIVE MANAGEMENT SYSTEMS,  INC., a Wisconsin
corporation (the "Company") and TAGLICH  BROTHERS,  D'AMADEO,  WAGNER & COMPANY,
INCORPORATED ("Placement Agent").


                              W I T N E S S E T H :

      WHEREAS,  in  reliance  upon the  representations,  warranties,  terms and
conditions  hereinafter set forth,  Placement Agent will use its best efforts to
privately  place a minimum of 1,000 and a maximum of 5,000 shares of Series A 8%
convertible  redeemable  preferred  stock (the  "Preferred  Stock") at $1000 per
share of  Preferred  Stock  (the  "Purchase  Price")  for an  aggregate  minimum
purchase  price  of $1  million  ("Minimum  Amount")  and an  aggregate  maximum
purchase  price  of $5  million  ("Maximum  Amount"),  with  each  share  of the
Preferred Stock being  convertible  into shares of common stock,  $.01 par value
per  share  (the  "Common  Stock"),  of  the  Company  at a  price,  subject  to
adjustment,  of $3.50 per share,  and the persons and entities so purchasing the
Preferred  Stock from time to time and the number of shares of  Preferred  Stock
being so purchased  being as listed on Exhibit A to this Agreement (such persons
and entities being referred to individually as "Purchaser" and collectively,  as
"Purchasers"); and

      WHEREAS,  the shares of Preferred  Stock are being issued  pursuant to the
Company's  Confidential  Private Placement Memorandum and Exhibits thereto dated
August 19, 1998,  as the same may be amended  and/or  supplemented  from time to
time (collectively, the "Memorandum"); and

      WHEREAS,  the shares of Preferred  Stock are being  issued  pursuant to an
exemption from the  registration  requirements of the Securities Act of 1933, as
amended (the "1933 Act").

      NOW,  THEREFORE,  in  consideration  of the  premises  and the  respective
promises hereinafter set forth, the Company and the Placement Agent hereby agree
as follows:

      1. Sale and Purchase of Preferred Stock.

          (a) Subject to the terms and conditions of this Agreement, the Company
shall sell to the Purchasers a minimum of 1,000 and a maximum of 5,000 shares of
Preferred Stock at the Purchase Price per share for an aggregate  purchase price
of not less  than the  Minimum  Amount  nor  greater  than the  Maximum  Amount,
respectively. The form of the Preferred Stock is included in the Memorandum.


                                       -1-

<PAGE>



          (b) The initial sale and purchase  described in Paragraph 1(a) of this
Agreement  shall  take  place at a closing  (the  "Closing")  at the  offices of
ROBINSON  SILVERMAN PEARCE ARONSOHN & BERMAN,  LLP, 1290 Avenue of the Americas,
New York,  New York  10104 or such  other  place as shall be  acceptable  to the
Company  and  Placement  Agent on such date or dates as  Placement  Agent  shall
advise the Company on two (2)  business  days notice or such  shorter  notice as
shall be  reasonably  acceptable  to the Company.  In no event shall the Initial
Closing (as defined below) occur unless the Minimum  Amount is sold.  Subsequent
sale and purchase of Preferred  Stock up to the Maximum  Amount shall take place
at one or more Closings  held on such dates as the Company and  Placement  Agent
shall mutually  determine.  All Closings  pursuant to this Agreement shall occur
not later than  September  30,  1998 unless such date is extended by the Company
and the  Placement  Agent to a date no later than October 30, 1998.  The initial
Closing hereunder shall be referred to as "Initial  Closing",  the final Closing
hereunder  shall be  referred  to as "Final  Closing"  and the date of the Final
Closing shall be referred to as the "Final Closing Date".

          (c) All defined terms used in this  Agreement  which are not otherwise
defined shall have the meanings ascribed to them in the Memorandum.

         2.  Payment.  At each  Closing,  the Company shall deliver to Placement
Agent,  on behalf of the  Purchasers,  the  original  executed  Preferred  Stock
certificates  being purchased by the Purchasers,  against its receipt of payment
therefor  by  certified  or bank  check  drawn on a bank  located  in the United
States,  or by Federal wire  transfer,  in the amount of the aggregate  purchase
price for such  Preferred  Stock being sold,  less the amount of fees payable to
Placement  Agent pursuant to Paragraph  10(a) of this  Agreement.  All Preferred
Stock being purchased by the Purchasers  shall be issued in the respective names
of the Purchasers in accordance  with  instructions  provided by Placement Agent
not later than the day of Closing.

         3.  Representations  and Warranties of the Company.  The Company hereby
represents and warrants to and covenants and agrees with the Placement Agent, as
of the date hereof and as of the date of each Closing, as follows:

          (a) The Company is a corporation  duly organized and validly  existing
under the laws of the State of Wisconsin  and is qualified  and in good standing
as a  foreign  corporation  in each  jurisdiction  in which  the  nature  of the
business conducted by the Company or the property owned or leased by the Company
requires such qualification, except where the failure to be so qualified has not
had or will  not have a  material  adverse  effect  on the  business,  financial
condition or results of operations of the Company or its subsidiaries,  taken as
a whole ("Material  Adverse  Effect").  The Company has no subsidiaries and does
not own any  equity  interest  and has not made  any  loans  or  advances  to or
guarantees of  indebtedness  to any person,  corporation,  partnership  or other
entity,  except for EMS-East,  Inc.,  Effective  Management Systems of Illinois,
Inc. and EMS-China, Ltd, which are wholly-owned  subsidiaries,  Total Management
Systems,  Inc., a 50% owned subsidiary  (collectively,  the  "Subsidiaries") and
EMS-Asia  Pacific,  Ltd., a 20% owned  corporation.  Each  Subsidiary is, to the
extent  applicable,  a corporation duly organized,  validly existing and in good
standing under the laws of the  jurisdiction  of its  incorporation  and, to the
extent applicable, each

                                       -2-

<PAGE>



Subsidiary is qualified and in good  standing as a foreign  corporation  in each
jurisdiction in which the nature of its business or the property owned or leased
by the Subsidiary requires such qualification, except where the failure to be so
qualified  has not had or will not have a  Material  Adverse  Effect.  Except as
disclosed in the Memorandum,  no Subsidiary has any subsidiary and no Subsidiary
owns any equity  interest  in any other  entity and no  Subsidiary  has made any
loans or advances to or guarantees of indebtedness  to any person,  corporation,
partnership  or other  entity.  Except as indicated in this  Section  3(b),  the
Company owns all of the issued and outstanding shares of common stock of each of
the Subsidiaries  free and clear of any lien,  claim,  encumbrance,  pre-emptive
rights or contractual rights of first refusal.

          (b) The  authorized  capital of the  Company  consists  of  20,000,000
shares of Common Stock and 3,000,000  shares of preferred stock, of which, as of
the date of this Agreement,  (i) 4,102,486 shares of Common Stock are issued and
outstanding,  (ii) 12,625 shares of Common Stock are held in treasury,  (iii) no
shares of  preferred  stock are issued  and  outstanding  (other  than as may be
issued at any prior  Closing  pursuant  to the  Memorandum),  and  (iv)1,205,606
shares  of Common  Stock  have been  reserved  for  issuance  upon  exercise  of
outstanding  debentures,  options,  warrants and other rights to acquire  Common
Stock and upon the exercise of options  granted  pursuant to the Company's stock
option plans and pursuant to other  agreements,  excluding  the shares of Common
Stock (the "Conversion  Shares") issuable upon conversion of the Preferred Stock
and the  shares of  Common  Stock  (the "PAW  Exercise  Shares")  issuable  upon
exercise of the Placement Agent Warrants (as defined below). Except as set forth
in the Memorandum, the Company is not a party to any agreement to issue, nor has
it issued,  any warrants,  options or rights or preferred stock,  notes or other
evidence of indebtedness or other securities, instruments or agreements upon the
exercise or  conversion  of which or  pursuant to the terms of which  additional
shares of capital stock of the Company may become issuable.  No holder of any of
the Company's  securities has preemptive  rights or contractual  rights of first
refusal.

          (c) The Company has the full right,  power and  authority  to execute,
deliver and perform under this Agreement,  the Preferred Stock and the Placement
Agent  Warrants.  This  Agreement  has been duly executed by the Company and, at
each Closing,  the Preferred Stock and the Placement Agent Warrants being issued
will have been duly executed by the Company,  and this Agreement,  the Preferred
Stock and the Placement Agent Warrants and the transactions contemplated by this
Agreement,  the  Preferred  Stock and  Placement  Agent  Warrants have been duly
authorized by all necessary  corporate  action and each  constitute,  the legal,
valid and binding  obligations of the Company,  enforceable  in accordance  with
their respective terms.

          (d) All of the issued and  outstanding  shares of Common  Stock of the
Company have been duly and validly  authorized and issued and are fully paid and
nonassessable  (except as otherwise  provided by Section  180.0622 (2)(b) of the
Wisconsin Business Corporation Law), with no personal liability attaching to the
holders thereof (except as otherwise  provided in Section 180.0622 (2)(b) of the
Wisconsin  Business  Corporation  Law), and such shares of Common Stock have not
been issued in violation of the preemptive  rights or rights of first refusal of
any holder of  securities  of the  Company.  All of the  issued and  outstanding
shares of Common Stock of the

                                       -3-

<PAGE>



Company  have been issued  pursuant to either a current  effective  registration
statement under the 1933 Act or an exemption from the registration  requirements
of the 1933 Act and were issued in accordance  with all  applicable  Federal and
state securities laws. All of the issued and outstanding  shares of common stock
of each  Subsidiary  have been duly and  validly  authorized  and issued and are
fully paid and nonassessable  (except as otherwise  provided by Section 180.0622
(2)(b) of the Wisconsin  Business  Corporation Law), with no personal  liability
attaching  to the Company  (except as  otherwise  provided  by Section  180.0622
(2)(b) of the Wisconsin Business Corporation Law).

          (e) The shares of Common Stock included in the  Conversion  Shares and
the PAW Exercise  Shares have been validly  authorized  for issuance  and,  when
issued  pursuant to this Agreement and the terms of the Preferred  Stock and the
Placement  Agent  Warrants,  as the  case  may  be,  will be  duly  and  validly
authorized  and  issued,  fully  paid and  nonassessable  (except  as  otherwise
provided by Section 180.0622 (2)(b) of the Wisconsin  Business  Corporation Law)
and free from preemptive rights or rights of first refusal held by any person.

          (f) The following  financial  statements  of the Company  (hereinafter
collectively,  the  "Financial  Statements")  are included in the Memorandum (i)
consolidated  balance sheets as at November 30, 1997 and 1996, and  consolidated
statements  of  operations,  shareholders'  equity and cash flows for the fiscal
years ended  November 30, 1997 and 1996,  and the related notes  thereto,  which
have  been  audited  by  Ernst  &  Young  LLP,   independent   certified  public
accountants,  (ii) unaudited  balance sheets as at February 28 and May 31, 1998,
and (iii)  unaudited  statements  of  operations  and cash  flows for the fiscal
quarters  ended  February 28 and May 31, 1998,  and the related  notes  thereto,
which have been  prepared by the Company.  The Financial  Statements,  which are
included in the Company's Annual Report on Form 10-K for the year ended November
30, 1997 ("Form  10-K"),  were prepared in accordance  with  generally  accepted
accounting  principles  consistently  applied and present and reflect fairly the
financial  position of the Company at the respective balance sheet dates and the
results of its operations,  changes in  stockholders'  equity and cash flows for
the periods then ended.  During the period of Ernst & Young LLP's  engagement as
the  Company's  independent  certified  public  accountants,  there  has been no
material  disagreements  between  the  accounting  firm and the  Company  on any
matters of accounting principles or practices, financial statement disclosure or
auditing  scope  or  procedure  and  no  reportable   events   relating  to  the
relationship between the Company and the accounting firm.

          (g) The Company has good and  marketable  title to all of its material
property and assets and,  except as set forth in the Memorandum or the Financial
Statements,  none of such  property  or assets of the  Company is subject to any
lien, mortgage,  pledge, encumbrance or other security interest, other than such
liens, mortgages, pledges, encumbrances or other security interests which in the
aggregate would not have a Material Adverse Effect.

          (h) Except as may be disclosed in the  Memorandum,  since November 30,
1997, there has not been any material adverse change in the financial  condition
or in the operations, or business of the Company or any of the Subsidiaries from
that shown in the Financial Statements or

                                       -4-

<PAGE>



any damage or destruction,  not covered by insurance,  which materially  affects
the business, property or assets of the Company or any of the Subsidiaries.

          (i) Except as set forth in the Exhibits to the Memorandum, the Company
has not filed any Current  Reports on Form 8-K or other  reports  filed with the
Securities and Exchange Commission (the "SEC") subsequent to November 30, 1997.

          (j) Neither the execution or delivery of this Agreement, the Preferred
Stock or the Placement  Agent Warrants by the Company nor the performance by the
Company of the transactions  contemplated by this Agreement, the Preferred Stock
or the Placement Agent  Warrants:  (i) requires the consent,  waiver,  approval,
license or  authorization  of or filing with or notice to any person,  entity or
public  authority  (except any filings  required by Federal or state  securities
laws);  (ii) violates or  constitutes a default under or breach of any law, rule
or regulation applicable to the Company; or (iii) conflicts with or results in a
breach or termination  of any provision of, or  constitutes a default under,  or
will result in the creation of any lien,  charge or encumbrance  upon any of the
property  or assets of the  Company  with or without  the giving of notice,  the
passage of time or both,  pursuant  to (A) the  Company's  restated  articles of
incorporation or by-laws, (B) any mortgage, deed of trust, indenture, note, loan
agreement,  security agreement,  contract,  lease, license,  alliance agreement,
joint venture  agreement,  or other  agreement or instrument,  or (C) any order,
judgment,  decree,  statute,  regulation or any other restriction of any kind or
character  to which the  Company is a party or by which any of the assets of the
Company  may be bound,  except in any case set forth  above where the failure to
obtain such  consent or the like,  or such  violation or breach would not have a
Material Adverse Effect.

          (k) Neither the  Company nor any of the  Subsidiaries  (other than for
inter-company  debt)  has  any  indebtedness  to  any  officer,   director,   5%
stockholder or other  Affiliate (as defined in the Rules and  Regulations of the
SEC under the 1933 Act) of the Company.

          (l) The Company and each of the Subsidiaries is in compliance with all
laws, rules and regulations of all Federal,  state and local government agencies
having  jurisdiction  over the Company and each of the Subsidiaries or affecting
the business,  assets or  properties of the Company or any of the  Subsidiaries,
except where the failure to comply has not and will not have a Material  Adverse
Effect. The Company and each of the Subsidiaries possess all licenses,  permits,
consents,  approvals and  agreements  which are required to be issued by any and
all applicable Federal,  state or local authorities  necessary for the operation
of their respective  business and/or in connection with their respective  assets
or  properties,  except  where the failure to possess  such  licenses,  permits,
consents,  approvals or agreements has not and will not have a Material  Adverse
Effect.

          (m)  Neither the  Company  nor any of the  Subsidiaries  is in default
under  any  note,  loan  agreement,  security  agreement,   mortgage,  contract,
franchise agreement,  distribution agreement,  lease, alliance agreement,  joint
venture agreement,  agreement,  license, permit, consent, approval or instrument
to which it is a party,  and no event has  occurred  which,  with or without the
lapse of time or  giving of  notice,  or both,  would  constitute  such  default
thereof by the Company or any of the

                                       -5-

<PAGE>



Subsidiaries or would cause acceleration of any obligation of the Company or any
of the  Subsidiaries  or would  adversely  affect the  business,  operations  or
financial condition of the Company or any of the Subsidiaries, except where such
default or event, whether with or without the lapse of time or giving of notice,
or both, has not and will not have a Material Adverse Effect. To the best of the
knowledge  of the  Company and except for the cases in which it would not have a
Material  Adverse  Effect,  no  party  to any  note,  loan  agreement,  security
agreement,  mortgage,  contract,  franchise agreement,  distribution  agreement,
lease, alliance agreement, joint venture agreement,  agreement, license, permit,
consent,  approval  or  instrument  with or given to the  Company  or any of the
Subsidiaries is in default  thereunder and no event has occurred with respect to
such party,  which,  with or without  the lapse of time or giving of notice,  or
both,  would  constitute a default by such party or would cause  acceleration of
any obligations of such party.

          (n) To the best of the Company's knowledge, except as set forth in the
Memorandum,  no  officer,  director  or 5%  stockholder  of the  Company  and no
Affiliate of any such person  either (i) holds any interest in any  corporation,
partnership,  business,  trust, sole proprietorship or any other entity which is
engaged in a business  substantially similar to that conducted by the Company or
any of the Subsidiaries  (other than a passive  immaterial  interest in a public
company  engaged in any such  business)  or (ii)  engages in  business  with the
Company or any of the Subsidiaries.

          (o)  Except as set  forth in the  Memorandum,  there  are no  material
(i.e.,  involving an asserted  liability  that  reasonably  could be expected to
result in a judgement in excess of four  hundred  thousand  dollars  ($400,000))
claims,   actions,   suits,   proceedings  or  labor   disputes,   inquiries  or
investigations  (whether or not  purportedly  on behalf of the Company or any of
the  Subsidiaries),  pending  or,  to  the  best  of  the  Company's  knowledge,
threatened,  against the Company or any of the Subsidiaries, at law or in equity
or by or before any Federal,  state,  county,  municipal  or other  governmental
department,  SEC, National Association of Securities Dealers Automated Quotation
System  ("NASDAQ"),  board,  bureau,  agency  or  instrumentality,  domestic  or
foreign,  whether legal or administrative or in arbitration or mediation, nor is
there any basis for any such action or proceeding.  Neither the Company,  any of
the Subsidiaries  nor any of their respective  assets are subject to, nor is the
Company or any of the Subsidiaries in default with respect to, any order,  writ,
injunction, judgment or decree that could have a Material Adverse Effect.

          (p) The  accounts  receivable  of the  Company  and  the  Subsidiaries
represent  receivables  generated  from the sale of goods  and  services  in the
ordinary  course  of  business.  The  Company  knows  of  no  material  disputes
concerning accounts receivable of the Company and the Subsidiaries not disclosed
in the Memorandum.

          (q) Except as set forth in the  Memorandum or as set forth on Schedule
3(q),  hereof,  neither  the  Company  nor any of the  Subsidiaries  has (i) any
written employment  contracts and no oral employment contracts not terminable at
will by the  Company  or any  Subsidiary,  as  applicable,  with any 5%  percent
shareholder,   officer  or  director  of  the  Company  or  any  Subsidiary,  as
applicable,  (ii) any consulting agreement or other compensation  agreement with
any 5% percent

                                       -6-

<PAGE>



shareholder,   officer  or  director  of  the  Company  or  any  Subsidiary,  as
applicable,  or (iii) any agreement or contract with any 5% percent shareholder,
officer or director of the Company or any Subsidiary,  as applicable,  that will
result in the payment by the Company or any  Subsidiary,  as applicable,  or the
creation of any  commitment  or  obligation  (absolute  or  contingent),  of the
Company or any  Subsidiary,  as applicable,  to pay any severance,  termination,
"golden parachute", or similar payment to any present or former personnel of the
Company or any Subsidiary,  as applicable,  following termination of employment.
No  director  or  executive  officer  of  the  Company  or  any  Subsidiary,  as
applicable, has advised the Company that he or she intends to resign as director
and/or executive officer of the Company or any Subsidiary,  as applicable, or to
terminate  his or  her  employment  with  the  Company  or  the  Subsidiary,  as
applicable.

          (r) The accounts payable of the Company and the Subsidiaries represent
bona fide payables to third parties  incurred in the ordinary course of business
and represent bona fide debts for services  and/or goods provided to the Company
and the Subsidiaries.

          (s) Except as set forth in the Memorandum, neither the Company nor any
of the Subsidiaries is a party to a labor agreement with respect to any of their
respective  employees with any labor  organization,  union, group or association
and  there  are  no  employee   unions  (nor  any  similar   labor  or  employee
organizations).  There is no labor strike or labor stoppage or slowdown pending,
or, to the best knowledge of the Company,  threatened against the Company or any
of the Subsidiaries  nor has the Company or any of the Subsidiaries  experienced
in the last five (5) years any work  stoppage  or other  labor  difficulty.  The
Company  is in  compliance  with all  applicable  laws,  rules  and  regulations
regarding employment practices,  employee documentation,  terms or conditions of
employment and wage and hours and the Company is not engaged in any unfair labor
practices,  except  where  the  failure  to  comply  has not and will not have a
Material  Adverse  Effect.  There  are no  unfair  labor  practices  charges  or
complaints  against the Company or any of the  Subsidiaries  pending  before the
National Labor Relations Board or any other governmental agency.

          (t)  Except as  disclosed  in the  Memorandum,  there are no  employee
pension,  retirement  or other  benefit  plans,  maintained,  contributed  to or
required to be contributed to by the Company or any of the Subsidiaries covering
any  employee  or former  employee  of the  Company or any of the  Subsidiaries.
Neither the Company nor any of the  Subsidiaries  has any material  liability or
obligation  of any kind or nature,  whether  accrued or  contingent,  matured or
unmatured,  known or unknown,  under any  provision of the  Employee  Retirement
Income  Security  Act of 1974,  as amended  ("ERISA")  or any  provision  of the
Internal  Revenue  Code of 1986,  as amended,  specifically  relating to persons
subject to ERISA.

          (u) The Company and each of the Subsidiaries has timely filed with the
appropriate  taxing  authorities  all returns in respect of taxes required to be
filed  through  the date  hereof and each has timely paid all taxes that each is
required to pay or has established an adequate  reserve  therefor,  except where
the Company or the Subsidiary,  as applicable,  has timely filed for extensions.
There  are no  pending  or, to the best  knowledge  of the  Company,  threatened
audits,

                                       -7-

<PAGE>

investigations  or claims for or relating to any liability of the Company or any
of the Subsidiaries in respect of taxes.


          (v) There are no finder's fees or brokerage  commissions  payable with
respect to the transactions  contemplated by this Agreement,  except as provided
in Paragraph 10 of this Agreement,  and the Company agrees to indemnify and hold
harmless  the  Placement  Agent  from  and  against  any and all  cost,  damage,
liability,  judgment  and expense  (including  reasonable  fees and  expenses of
counsel) arising out of or relating to claims for such fees or commissions.

          (w)  Except  as  set  forth  in the  Memorandum,  the  Company  is not
currently  and has  not  during  the  past  four  (4)  months  been  engaged  in
substantive  negotiations (as compared with informal  discussions)  with respect
to: (i) any merger or  consolidation  of the Company where the Company would not
be  the  surviving  entity;  or  (ii)  the  sale  of  the  Company,  any  of its
Subsidiaries  or any of their assets other than sales in the ordinary  course of
business.

          (x) The Company and each of the  Subsidiaries has the right to conduct
their respective  business in the manner in which their respective  business has
been heretofore conducted.  To the best knowledge of the Company, the conduct of
such businesses by the Company and each of the Subsidiaries  does not violate or
infringe upon the patent, copyright, trade secret or other proprietary rights of
any third party,  other than any such violation or  infringement  that would not
have  a  Material  Adverse  Effect,  and  neither  the  Company  nor  any of the
Subsidiaries  has  received  any  notice of any claim of any such  violation  or
infringement.

          (y)  The  Company  and  each  of the  Subsidiaries  are  currently  in
compliance in all respects with all  applicable  Environmental  Laws (as defined
below), including,  without limitation,  obtaining and maintaining in effect all
permits,  licenses,  consents and other  authorizations  required by  applicable
Environmental  Laws and the Company and each  Subsidiary  are each  currently in
compliance with all such permits,  licenses,  consents and other authorizations,
except where the failure to comply has not and will not have a Material  Adverse
Effect. Neither the Company nor any of its Subsidiaries has received notice from
any property  owner,  landlord,  tenant or  Governmental  Authority  (as defined
below) that  Hazardous  Wastes (as  defined  below) are being  improperly  used,
stored or disposed of at any property  currently or formerly  owned or leased by
the  Company  or any of its  Subsidiaries  or  that  any  soil or  ground  water
contamination has emanated from any such property. For purposes hereof, the term
"Environmental  Laws"  means,  collectively,   the  Comprehensive  Environmental
Response,  Compensation  and Liability  Act of 1980,  as amended,  the Superfund
Amendments  and  Reauthorization  Act of 1986,  the  Resource  Conservation  and
Recovery  Act,  the Toxic  Substances  Act,  as  amended,  the Clean Air Act, as
amended,  the Clean Water Act, as amended,  any other "Superfund" or "Superlien"
law or any other federal,  state or local statute,  law, ordinance,  code, rule,
regulation,  order or decree  regulating,  relating to, or imposing liability or
standards  of  conduct  concerning  any  hazardous,  toxic or  dangerous  waste,
substance or material,  as now or at any time hereafter in effect.  For purposes
hereof, the term  "Governmental  Authority" shall mean the Federal Government of
the United States of America, any state or any political

                                       -8-

<PAGE>



subdivision of the Federal Government or any state, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.  For purposes hereof,  the term "Hazardous  Waste" shall mean
any  regulated  quantity of hazardous  substances as listed by the United States
Environmental  Protection  Agency  ("EPA")  and  the  list of  toxic  pollutants
designated by the United States  Congress and/or the EPA or defined by any other
Federal, state or local statute, law, ordinance, code, rule, regulation,  order,
or decree regulating, relating to or imposing liability for standards of conduct
concerning any hazardous, toxic substance or material.

          (z) The  information  contained in the  Financial  Statements  and the
Memorandum, taken together, does not contain any misstatement of a material fact
or  omit to  state a  material  fact  necessary  to  make  the  information  not
misleading.

         4. Survival of Representations and Warranties and Indemnification.  The
representations  and  warranties  of the  Company set forth in Section 3 of this
Agreement shall survive the execution and delivery of the Preferred  Stock.  The
indemnification  obligations of the Company as set forth in the  indemnification
rider  identified as Exhibit B (the  "Indemnification  Rider") to the August 14,
1998  engagement  letter  between the Company and the Placement  Agent,  as same
shall be supplemented and/or amended, is hereby incorporated herein by reference
in its  entirety  as if more fully set forth  herein and the  provisions  of the
Indemnification  Rider shall apply and be applicable to, among other things, all
representations and warranties of the Company contained herein.

         5. Use of  Proceeds.  The net proceeds  from the sale of the  Preferred
Stock will be used by the Company as disclosed in the Memorandum.

         6.  Unregistered  Securities.  Neither the Preferred Stock,  Conversion
Shares,  Placement  Agent Warrants nor PAW Exercise  Shares have been registered
under the 1933 Act, in reliance upon the  applicability  of Section 3(b),  4(2),
4(6)  and/or  Regulation  D of the  1933  Act to the  transactions  contemplated
hereby.  The  certificates  representing the Preferred Stock and Placement Agent
Warrants will bear an investment  legend and the  certificates  representing the
Conversion  Shares and PAW  Exercise  Shares  issued  prior to their  respective
registration  under Section 3 of the Preferred Stock Purchase  Agreement (a copy
of which is annexed as an exhibit to the  Memorandum)  and  Section 7 below will
also bear investment legends.

         7.       Registration Rights and "Piggy-Back" Registration Rights.

          (a) As soon as possible  after the Final Closing Date, but in no event
later than  forty-five  (45) days after the Final  Closing Date  (regardless  of
whether the maximum  number of shares of Preferred  Stock shall have been sold),
the Company shall, at its sole cost and expense,  file a registration  statement
on the appropriate form with the SEC covering all of the PAW Exercise Shares and
such  additional  shares of Common  Stock  that may be  issued  pursuant  to the
anti-dilution  rights contained in the Placement Agent Warrants and as set forth
below in this Section 7(a) (collectively,  the "Registrable  Securities"),  time
being  of the  essence.  The  Company  will use its best  efforts  to have  such
registration  statement declared effective as soon as possible after filing, and
shall

                                       -9-

<PAGE>



keep such  registration  statement  current and effective for at least three (3)
years from the  effective  date thereof or until such earlier date as all of the
Registrable  Securities registered pursuant to such registration statement shall
have been sold.  Notwithstanding  anything to the contrary  contained herein, if
such  registration  statement shall not be filed with the SEC within  forty-five
(45) days after the Final Closing Date or the  Registration  Statement shall not
be  declared  effective  within one  hundred  eighty  (180) days after the Final
Closing Date  (regardless  of whether the maximum  number of shares of Preferred
Stock shall have been sold),  then the exercise  price for the  Placement  Agent
Warrants shall be reduced by the percentage resulting from multiplying 3% by the
number of thirty (30) day periods,  or any part thereof,  beyond said forty-five
(45) day or one  hundred  eighty  (180) day  period,  as  applicable,  until the
initial  registration   statement  described  herein  covering  the  Registrable
Securities is filed or declared effective, as applicable.  The maximum reduction
pursuant to this provision shall be eighteen (18%) percent.

          (b) In the event the Company effects any  registration  under the 1933
Act of any  Registrable  Securities  pursuant to  Paragraphs  7(a) above or 7(g)
below,  the Company shall  indemnify,  to the extent  permitted by law, and hold
harmless any registered holder whose Registrable Securities are included in such
registration  statement  (each,  a  "Seller"),  any  underwriter,  any  officer,
director, employee or agent of any Seller or underwriter, and each other person,
if any, who controls any Seller or underwriter  within the meaning of Section 15
of the 1933 Act, against any losses, claims,  damages or liabilities,  judgment,
fines,  penalties,  costs and expenses,  joint or several, or actions in respect
thereof  (collectively,  the  "Claims"),  to which each such  indemnified  party
becomes subject,  under the 1933 Act or otherwise,  insofar as such Claims arise
out of or are based upon any untrue statement or alleged untrue statement of any
material  fact  contained in the  registration  statement or  prospectus  or any
amendment or supplement  thereto or any document filed under a state  securities
or blue sky law (collectively,  the "Registration Documents") or insofar as such
Claims arise out of or are based upon the omission or alleged  omission to state
in any  Registration  Document a material fact required to be stated  therein or
necessary to make the statements made therein not misleading, and will reimburse
any such indemnified party for any legal or other expenses  reasonably  incurred
by such indemnified party in investigating or defending any such Claim; provided
that  the  Company  shall  not  be  liable  in any  such  case  to a  particular
indemnified  party to the extent such Claim is based upon an untrue statement or
alleged untrue statement of a material fact or omission or alleged omission of a
material  fact  made  in any  Registration  Document  in  reliance  upon  and in
conformity with written information  furnished to the Company by or on behalf of
such  indemnified  party  specifically  for  use  in  the  preparation  of  such
Registration Document.

          (c) In connection with any registration  statement in which any Seller
is participating,  each Seller,  severally and not jointly, shall indemnify,  to
the  extent  permitted  by law,  and  hold  harmless  the  Company,  each of its
directors, each of its officers who have signed the registration statement, each
other person,  if any, who controls the Company within the meaning of Section 15
of the 1933 Act, each other Seller and each underwriter,  any officer, director,
employee or agent of any such other Seller or underwriter and each other person,
if any, who  controls  such other  Seller or  underwriter  within the meaning of
Section 15 of the 1933 Act against any Claims to

                                      -10-

<PAGE>



which  each such  indemnified  party may  become  subject  under the 1933 Act or
otherwise, insofar as such Claims (or actions in respect thereof) are based upon
any untrue  statement or alleged untrue statement of any material fact contained
in any  Registration  Document,  or  insofar  as any  Claims  are based upon the
omission or alleged  omission to state in any  Registration  Document a material
fact  required to be stated  therein or  necessary to make the  statements  made
therein not misleading,  and will reimburse any such  indemnified  party for any
legal  or  other  expenses  reasonably  incurred  by such  indemnified  party in
investigating  or  defending  any  such  claim;  provided,  however,  that  such
indemnification  or  reimbursement  shall be payable  only if, and to the extent
that,  any such  Claim  arises out of or is based  upon an untrue  statement  or
alleged  untrue   statement  or  omission  or  alleged   omission  made  in  any
Registration   Document  in  reliance  upon  and  in  conformity   with  written
information  furnished to the Company by the Seller  specifically for use in the
preparation thereof.

          (d) Any person entitled to  indemnification  under  Paragraphs 7(b) or
7(c)  above  shall  notify  promptly  the  indemnifying  party in writing of the
commencement of any Claim if a claim for  indemnification  in respect thereof is
to be made against an  indemnifying  party under this  Paragraph  7(d),  but the
omission  of such  notice  shall not  relieve  the  indemnifying  party from any
liability  which it may  have to any  indemnified  party  otherwise  than  under
Paragraph  7(b) or 7(c)  above,  except to the extent  that such  failure  shall
materially  adversely affect any indemnifying party or its rights hereunder.  In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement  thereof, the indemnifying party shall be
entitled to  participate  in, and, to the extent that it chooses,  to assume the
defense thereof with counsel  reasonably  satisfactory to the indemnified party;
and, after notice from the indemnifying  party to the indemnified  party that it
so chooses,  the  indemnifying  party shall not be liable for any legal or other
expenses  subsequently  incurred by the indemnified party in connection with the
defense thereof; provided,  however, that (i) if the indemnifying party fails to
take  reasonable  steps  necessary to defend  diligently the Claim within twenty
(20) days after receiving notice from the indemnified party that the indemnified
party  believes it has failed to do so; (ii) if the  indemnified  party who is a
defendant  in any  action  or  proceeding  which  is also  brought  against  the
indemnifying party reasonably shall have concluded that there are legal defenses
available to the indemnified  party which are not available to the  indemnifying
party;  or (iii) if  representation  of both  parties  by the  same  counsel  is
otherwise  inappropriate under applicable standards of professional conduct, the
indemnified  party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel  for all  indemnified
parties,  except to the extent any indemnified party or parties reasonably shall
have concluded that there are legal defenses  available to such party or parties
which  are not  available  to the other  indemnified  parties  or to the  extent
representation  of all  indemnified  parties by the same  counsel  is  otherwise
inappropriate  under  applicable  standards  of  professional  conduct)  and the
indemnifying  party  shall  be  liable  for any  reasonable  expenses  therefor;
provided,  that no indemnifying  party shall be subject to any liability for any
settlement  of a Claim made without its consent  (which may not be  unreasonably
withheld, delayed or conditioned). If the indemnifying party assumes the defense
of any Claim  hereunder,  such  indemnifying  party  shall  not  enter  into any
settlement  without  the  consent of the  indemnified  party if such  settlement
attributes liability to the indemnified party.


                                      -11-

<PAGE>



          (e) If for any reason the  indemnity  provided in  Paragraphs  7(b) or
7(c) above is unavailable,  or is insufficient to hold harmless,  an indemnified
party,  then the  indemnifying  party  shall  contribute  to the amount  paid or
payable by the indemnified  party as a result of any Claim in such proportion as
is appropriate  to reflect the relative  benefits  received by the  indemnifying
party  on the  one  hand  and  the  indemnified  party  on the  other  from  the
transactions  contemplated  by  this  Agreement.  If,  however,  the  allocation
provided in the  immediately  preceding  sentence is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or payable
by such  indemnified  party in such  proportion as is appropriate to reflect not
only such  relative  benefits  but also the relative  fault of the  indemnifying
party  and  the  indemnified  party  as  well as any  other  relevant  equitable
considerations.  The relative  fault shall be  determined by reference to, among
other things,  whether the untrue or alleged untrue statement of a material fact
or the  omission  or  alleged  omission  to state a  material  fact  relates  to
information  supplied by the indemnifying  party or by the indemnified party and
the parties' relative intent,  knowledge,  access to information and opportunity
to correct or prevent such statement or omission.  The amount paid or payable in
respect  of any Claim  shall be deemed to  include  any legal or other  expenses
reasonably  incurred by such indemnified party in connection with  investigating
or defending any such Claim.  Notwithstanding  the foregoing,  no underwriter or
controlling person thereof, if any, shall be required to contribute,  in respect
of such  underwriter's  participation  as an  underwriter  in the offering,  any
amount in excess of the amount by which the total price at which the Registrable
Securities  underwritten by it and distributed to the public were offered to the
public  exceeds the amount of any damages which such  underwriter  has otherwise
been  required to pay by reason of such untrue or alleged  untrue  statement  or
omission or alleged omission.  No person guilty of fraudulent  misrepresentation
(within  the  meaning of Section  11(f) of the 1933 Act)  shall be  entitled  to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.  The obligation of any underwriters to contribute pursuant to
this  paragraph  (e)  shall  be  several  in  proportion  to  their   respective
underwriting commitments and not joint.

          (f) The  provisions of Paragraphs  7(b) through 7(e) of this Agreement
shall be in  addition to any other  rights to  indemnification  or  contribution
which any  indemnified  party may have  pursuant  to law or  contract  and shall
remain  operative and in full force and effect  regardless of any  investigation
made or omitted by or on behalf of any  indemnified  party and shall survive the
transfer of the Registrable Securities by any such party.

          (g) The Sellers shall have certain  "piggy-back"  registration  rights
with respect to the Registrable Securities as hereinafter provided:

               A. If at any time after the Final  Closing  Date and prior to the
date that the Registered  Securities are registered  under the 1933 Act pursuant
to Section  7(a)  above,  the  Company  shall  file with the SEC a  registration
statement under the 1933 Act (other than a registration statement on Form S-4 or
Form S-8 or any successor thereof, or filed in connection with an exchange offer
or an  offer  of  securities  solely  to the  Company's  existing  shareholders)
registering any shares of Common Stock, the Company shall give written notice to
each Seller thereof prior to such filing.


                                      -12-

<PAGE>



               B. Within  fifteen  (15) days after such notice from the Company,
each Seller shall give written  notice to the Company  whether or not the Seller
desires  to have all of the  Seller's  Registrable  Securities  included  in the
registration  statement.  If a Seller  fails to give  such  notice  within  such
period,  such  Seller  shall  not have the  right to have  Seller's  Registrable
Securities registered pursuant to such registration statement. If a Seller gives
such notice, then the Company shall include such Seller's Registrable Securities
in the registration statement,  at the Company's sole cost and expense,  subject
to the remaining  terms of this Paragraph  7(g);  provided,  however,  that each
Seller shall pay all  underwriting  discounts,  commissions,  and transfer taxes
relating to the sale of such Seller's Registered Securities, as well as his, her
or its own counsel fees, if any, relating to the sale of the Seller's Registered
Securities.

               C.  If the  registration  statement  relates  to an  underwritten
offering,  and the underwriter in its sole discretion shall determine in writing
that the total number of shares of Common Stock to be included in the  offering,
including  the  Registrable  Securities,  shall  exceed  the  amount  which  the
underwriter in its sole discretion deems to be appropriate for the offering, the
number of shares of the Registrable  Securities shall be reduced pro rata (based
on the number of Registered  Securities  requested to be included).  The Sellers
shall  enter  into  such  agreements  as  may  be  reasonably  required  by  the
underwriters.


                                      -13-

<PAGE>



               D. The holders of  Placement  Agent  Warrants  shall have two (2)
opportunities to have the Registrable Securities registered under this Paragraph
7(g).

               E.  Seller   shall   furnish  in  writing  to  the  Company  such
information  as the  Company  shall  reasonably  require  in  connection  with a
registration statement.

               F. The  Company  may,  at any  time  and in its sole  discretion,
decide not to proceed with the filing of a registration statement which may have
given rise to  "piggy-back"  rights  under this  Section 7(g) or may at any time
terminate  or suspend such  registration,  in which event each  Seller's  rights
under this Section 7 as to the number of opportunities to "piggy-back"  shall be
reset.

          (h) If and  whenever  the  Company is required  by the  provisions  of
Paragraph  7(a) to use its best efforts to register any  Registrable  Securities
under the 1933 Act, the Company shall,  as  expeditiously  as possible under the
circumstances and subject to the terms of this Section 7:

               A. Prepare and file with the SEC a  registration  statement  with
respect to such  Registrable  Securities  and use its best efforts to cause such
registration  statement to become effective as soon as possible after filing and
remain effective.

               B. Prepare and file with the SEC such  amendments and supplements
to such registration  statement and the prospectus used in connection  therewith
as may be necessary to keep such  registration  statement  current and effective
and to  comply  with  the  provisions  of the  1933  Act,  and  any  regulations
promulgated  thereunder,  with  respect  to  the  sale  or  disposition  of  all
Registrable  Securities covered by the registration statement required to effect
the  distribution  of the  securities,  but in no event  shall  the  Company  be
required  to do so for a period of more  than  three  (3)  years  following  the
effective date of the registration statement.

               C. Furnish to the Sellers  participating in the offering,  copies
(in  reasonable   quantities)  of  summary,   preliminary,   final,  amended  or
supplemented  prospectuses,  in conformity with the requirements of the 1933 Act
and any regulations  promulgated  thereunder,  and other documents as reasonably
may be required in order to facilitate the  disposition of the  securities,  but
only  while the  Company is  required  under the  provisions  hereof to keep the
registration statement current.

               D. Use its best  efforts to register  or qualify the  Registrable
Securities covered by such registration statement under such other securities or
blue  sky  laws  of such  jurisdictions  of the  United  States  as the  Sellers
participating in the offering shall reasonably request, and do any and all other
acts and things which may be reasonably  necessary to enable each  participating
Seller to  consummate  the  disposition  of the  Registrable  Securities in such
jurisdictions.

                                      -14-

<PAGE>



               E. Notify each Seller selling Registrable Securities, at any time
when a prospectus  relating to any such Registrable  Securities  covered by such
registration  statement is required to be  delivered  under the 1933 Act, of the
Company's  becoming  aware that the  prospectus  included  in such  registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact  required to be stated  therein or necessary to
make the  statements  therein not  misleading in the light of the  circumstances
then  existing,  and  promptly  prepare and furnish to each such Seller  selling
Registrable   Securities  a   reasonable   number  of  copies  of  a  prospectus
supplemented  or amended so that, as thereafter  delivered to the  purchasers of
such  Registrable  Securities,  such  prospectus  shall  not  include  an untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.

               F.  As  soon  as  practicable  after  the  effective  date of the
registration statement, and in any event within eighteen (18) months thereafter,
make generally  available to Sellers  participating  in the offering an earnings
statement (which need not be audited)  covering a period of at least twelve (12)
consecutive  months  beginning  after  the  effective  date of the  registration
statement which earnings statement shall satisfy the provisions of Section 11(a)
of the 1933 Act, including, at the Company's option, Rule 158 thereunder. To the
extent that the Company files such  information  with the SEC in satisfaction of
the  foregoing,  the  Company  need not deliver  the above  referenced  earnings
statement to Sellers.

               G. Upon  request,  deliver  promptly  to counsel  of each  Seller
participating in the offering copies of all  correspondence  between the SEC and
the Company,  its counsel or auditors and all memoranda  relating to discussions
with the SEC or its staff with respect to the registration  statement and permit
each  such  Seller  to do such  investigation  at such  Seller's  sole  cost and
expense,  upon reasonable advance notice, with respect to information  contained
in or omitted from the registration  statement as it deems reasonably necessary.
Each  Seller  agrees  that  it  will  use  its  best  efforts  not to  interfere
unreasonably with the Company's  business when conducting any such investigation
and each  Seller  shall  keep any such  information  received  pursuant  to this
Paragraph 7(h)G confidential.

               H. Provide a transfer  agent located in the United States for all
such Registrable  Securities  covered by such  registration  statement not later
than the effective date of such registration statement.

               I. List the Registrable  Securities  covered by such registration
statement  on such  exchanges  and/or on the NASDAQ as the Common  Stock is then
currently listed upon.

               J. Pay all  Registration  Expenses (as defined below) incurred in
connection  with a registration of Registrable  Securities,  whether or not such
registration


                                      -15-


<PAGE>



statement  shall  become  effective;  provided  that each  Seller  shall pay all
underwriting  discounts,  commissions and transfer taxes,  and their own counsel
fees, if any,  relating to the sale or disposition of such Seller's  Registrable
Securities pursuant to a registration statement.  As used herein,  "Registration
Expenses"  means any and all  reasonable  and  customary  expenses  incident  to
performance  of or  compliance  with the  registration  rights set forth herein,
including,  without  limitation,  (i) all SEC and  stock  exchange  or  National
Association of Securities Dealers,  Inc.  registration and filing fees, (ii) all
fees and expenses of complying with state securities or blue sky laws (including
reasonable fees and  disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities but no other expenses
of the  underwriters  or their  counsel),  (iii)  all  printing,  messenger  and
delivery expenses, and (iv) the reasonable fees and disbursements of counsel for
the Company and the Company's independent public accountants.

          (i) The Company  acknowledges  that there is no adequate remedy at law
for failure by it to comply  with the  provisions  of this  Paragraph 7 and that
such failure  would not be  adequately  compensable  in damages,  and  therefore
agrees that its  agreements  contained in this  Paragraph 7 may be  specifically
enforced.  In the event that the  Company  shall fail to file such  registration
statement  when  required  pursuant  to  Paragraph  7(a)  above  or to keep  any
registration  statement  effective  as provided in this  Paragraph  or otherwise
fails to comply with its  obligations  and agreements in this Paragraph 7, then,
in  addition  to any other  rights  or  remedies  Sellers  may have at law or in
equity, including without limitation, the right of rescission, the Company shall
indemnify  and hold harmless  each holder of Placement  Agent  Warrants from and
against  any and all  manner  or loss  which  they may incur as a result of such
failure. In addition,  the Company shall also reimburse such holders for any and
all  reasonable  legal  fees  and  expenses  incurred  by them  in  successfully
enforcing  their rights  pursuant to this Paragraph 7, regardless of whether any
litigation  was  commenced;  provided,  however,  that the Company  shall not be
liable for the fees and expenses of more than one law firm,  which firm shall be
designated by the Placement Agent.

          8.  Conditions.  The  following  obligations  of the Company  shall be
satisfied or fulfilled on or prior to the date of each Closing, unless otherwise
agreed to in writing by the Placement Agent:

          (a) The Company shall have  delivered to the Placement  Agent,  at the
Initial  Closing,  (i) a  currently-dated  long-form good standing or comparable
certificate  or  telegram  from the  Secretary  of  State  or other  appropriate
authority where the Company and each U.S.- based  Subsidiary is incorporated and
each other  jurisdiction  in which the  Company and any of the  Subsidiaries  is
qualified  to do  business as a foreign  corporation;  (ii) the  certificate  of
incorporation  of the  Company  and each  Subsidiary,  as  currently  in effect,
certified by the Secretary of State or other appropriate  authority of the state
where the Company and each Subsidiary is incorporated; (iii) a certified copy of
the filed  Articles  of  Amendment  setting  forth the  designation,  preference
rights, qualifications, limitations or restrictions of the Preferred Stock; (iv)
by-laws of the Company certified by the secretary of the Company; and



                                      -16-

<PAGE>



(v)  certified  resolutions  of the Board of Directors of the Company  approving
this  Agreement,  the execution of the Preferred  Stock and the Placement  Agent
Warrants,  the  registration  of  the  Registerable  Securities  and  the  other
transactions contemplated by the Preferred Stock.

          (b) There shall have occurred no material  adverse event affecting the
Company or the Subsidiaries or any of their  respective  businesses or assets or
the Company's  securities since the date of this Agreement which has had or will
have a Material Adverse Effect.

          (c)  No  litigation  or  administrative  proceeding  shall  have  been
threatened or commenced against the Company or any of the Subsidiaries which (i)
seeks to enjoin or  otherwise  prohibit  or  restrict  the  consummation  of the
transactions  contemplated  by this  Agreement or (ii) if adversely  determined,
would have a Material  Adverse  Effect or have a material  adverse effect on the
Company's securities.

          (d)  The  Company  shall  have  delivered  to the  Placement  Agent  a
certificate of its principal  executive and financial officers as to the matters
set forth in Paragraphs  8(a),  (b) and (c) of this Agreement and to the further
effect that (i) neither the  Company nor any  Subsidiary  is in default,  in any
respect, under any note, loan agreement,  security agreement,  mortgage, deed of
trust, indenture,  contract,  alliance agreement,  lease, license, joint venture
agreement,  agreement  or other  instrument  to which it is a party,  except  as
disclosed in the Financial  Statements or the  Memorandum  and except where such
default has not and will not have a Material Adverse Effect;  (ii) the Company's
representations and warranties  contained in this Agreement are true and correct
in all material  respects on such date with the same force and effect as if made
on such date;  (iii) there has been no amendment or changes to the  Company's or
Subsidiaries' charter or by-laws or authorizing resolutions from those delivered
pursuant to  Paragraph  8(a) of this  Agreement;  and (iv) no event has occurred
which,  with or without  the lapse of time or giving of notice,  or both,  would
constitute a material breach or default thereof by the Company or any Subsidiary
or would cause  acceleration  of any material  obligation  of the Company or any
Subsidiary, or could materially and adversely affect the business, operations or
financial condition of the Company.

          (e) The  Placement  Agent shall have  received  the opinion of Foley &
Lardner,  counsel  for the  Company,  dated as of the  closing  date in form and
substance reasonably satisfactory to the Placement Agent and its counsel.

          (f) The Company  shall have prepared and filed or delivered to counsel
for filing with the SEC and any states in which such filing is required,  a Form
D  relating  to the sale of the  Preferred  Stock and such other  documents  and
certificates as are required.

          (g)  Subscriptions  for at least the Minimum Amount of Preferred Stock
shall have been accepted by the Company.

                                      -17-


<PAGE>



          (h) In addition to the right of the Placement  Agent to terminate this
Agreement and not consummate the transactions  contemplated by this Agreement as
a result of the failure of the Company to comply with any of its obligations set
forth in this Agreement, this Agreement may be terminated by the Placement Agent
by written notice to the Company at any time prior to the Initial Closing if, in
the Placement Agent's sole judgment,  (i) the Company and/or  Subsidiaries shall
have sustained a loss that is material to the Company or its Subsidiaries, taken
as a whole,  whether  or not  insured,  by  reason of fire,  earthquake,  flood,
accident or other  calamity,  or from any labor  dispute or court or  government
action,  order or decree;  (ii) trading in  securities on any exchange or system
shall have been  suspended  or limited  either  generally or  specifically  with
respect to the Common Stock; (iii) material governmental  restrictions have been
imposed on trading in securities  generally or specifically  with respect to the
Common  Stock  (not in force and effect on the date of this  Agreement);  (iv) a
banking  moratorium  shall  have been  declared  by  Federal  or New York  State
authorities;  (v) an  outbreak  of  major  international  hostilities  or  other
national or international calamity shall have occurred; (vi) the Congress of the
United  States or any state  legislative  body  shall  have  passed or taken any
action or measure,  or such bodies or any governmental body or any authoritative
accounting institute, or board, or any governmental executive shall have adopted
any orders, rules or regulations,  which the Placement Agent reasonably believes
is likely to have a material adverse effect on the business, financial condition
or financial  statements of the Company or the market for the  Preferred  Stock;
(vii) the Common Stock shall have been  delisted  from  NASDAQ;  or (viii) there
shall have been, in the Placement  Agent's  judgment,  a material decline in the
Dow Jones  Industrial  Index or the market price of the Common Stock at any time
subsequent to the date of this Agreement.

          9.  Covenants of the Company.  The Company agrees at all times as long
as the  Preferred  Stock and the  Placement  Agent  Warrants may be converted or
exercised,  to keep reserved from the authorized and unissued Common Stock, such
number of shares of Common  Stock as may be,  from time to time,  issuable  upon
conversion of the Preferred Stock and exercise of the Placement Agent Warrants.

          10. Fees.

          (a)  Upon  the  receipt  by the  Company  of  the  payments  from  the
Purchasers,  the Company shall pay to the  Placement  Agent a fee equal to 8% of
the gross proceeds from the Preferred Stock sold pursuant to this  Agreement,  a
portion  of  which  may be paid  by the  Placement  Agent  to  other  registered
broker-dealers;  provided,  however,  that the Company  shall have no obligation
with respect to payments that may be due such broker-dealers. Such amount may be
deducted  by the  Placement  Agent from the  payment  being made to the  Company
pursuant to Paragraph 2 of this Agreement.  In addition, the Company shall issue
at the Final  Closing,  five (5) year  warrants  to purchase an amount of Common
Stock equal to 10% of the shares of Common Stock that the Preferred  Stock could
be converted into, at an exercise price of 120% of the Conversion Price, subject
to  adjustment  (the  "Placement  Agent  Warrants"),  a portion  of which may be
allotted by the Placement Agent to other registered


                                      -18-

<PAGE>




broker-dealers;  provided,  however,  that the Company  shall have no obligation
with  respect  to the  allocation  of the  Placement  Agents  Warrants  to  such
broker-dealers.  The  persons in whose name the  Placement  Agent  Warrants  are
issued  shall  all be  "accredited  investors"  as  defined  in the  regulations
promulgated  under the 1933 Act and such persons shall acquire such warrants for
investment purposes only and not with a view towards the redistribution thereof.
The  Company  shall  reimburse  the  Placement  Agent for up to  $32,500  of its
reasonable  costs and expenses,  including the  reasonable  fees and expenses of
counsel to the Placement Agent, if and when a closing occurs.

          (b) The Company  shall pay any fees  required in  connection  with the
qualification  of the sale of the Preferred Stock under the state  securities or
blue sky laws of any state which the Placement Agent  reasonably deems necessary
and any other out-of-pocket  expenses incurred by the Company in connection with
the transaction contemplated by this Agreement.

          (c) All payments in connection  with the sale of the  Preferred  Stock
shall be made pursuant to the terms and conditions of the escrow agreement dated
as of August 17, 1998  between  Placement  Agent and American  Stock  Transfer &
Trust Company,  an executed copy of which has been delivered to and acknowledged
by the Company.

          11.  Notices.  All notices  provided for in this Agreement shall be in
writing signed by the party giving such notice, and delivered personally or sent
by overnight  courier or messenger against receipt thereof or sent by registered
or certified mail, return receipt requested,  or by facsimile  transmission,  if
confirmed by mail as provided in this  Paragraph 11.  Notices shall be deemed to
have been received on the date of personal  delivery or facsimile or, if sent by
certified or registered mail,  return receipt  requested,  shall be deemed to be
delivered on the third business day after the date of mailing.  Notices shall be
sent to the following addresses:

                To the Company:

                          EFFECTIVE MANAGEMENT SYSTEMS, INC.
                          12000 West Park Place
                          Milwaukee, WI 53224
                          Telecopier:      (414) 359-9011
                          Attention: Michael D. Dunham
                                     Jeffrey J. Fossum

                With a copy to:

                          FOLEY & LARDNER
                          777 East Wisconsin Avenue
                          Milwaukee, WI 53202-5367

                                      -19-

<PAGE>



                          Telecopier:      (414) 297-4900
                          Attention:       Jay O. Rothman, Esq.



                To Placement Agent:

                          TAGLICH BROTHERS, D'AMADEO, WAGNER
                              & COMPANY, INCORPORATED
                          100 Wall Street
                          New York, NY 10005
                          Telecopier:      (212) 509-6587
                          Attention:       Mr. Michael N. Taglich

                With a copy to:

                          ROBINSON SILVERMAN PEARCE ARONSOHN
                              & BERMAN LLP
                          1290 Avenue of the Americas
                          New York, New York 10104
                          Telecopier:       (212) 541-4630
                          Attention:       Robert G. Leonard, Esq.

or to such other address as any party shall  designate in the manner provided in
this Paragraph 11.

          12. Miscellaneous.

          (a) This  Agreement  constitutes  the  entire  agreement  between  the
parties relating to the subject matter hereof,  superseding any and all prior or
contemporaneous  oral and prior  written  agreements  and  understandings.  This
Agreement may not be modified or amended nor may any right be waived except by a
writing  which  expressly  refers  to  this  Agreement,  states  that  it  is  a
modification, amendment or waiver and is signed by all parties with respect to a
modification  or  amendment  or the party  granting the waiver with respect to a
waiver.  No course of  conduct  or dealing  and no trade  custom or usage  shall
modify any provisions of this Agreement.

          (b) This  Agreement  shall be governed by and  construed in accordance
with the laws of the State of New York  applicable  to contracts  made and to be
performed  entirely  within  such  state.  Each  party  hereby  consents  to the
exclusive  jurisdiction  of the  Federal and State  Courts  situated in New York
County, New York in connection with any action arising out of or based upon this
Agreement and the transaction contemplated by this Agreement.

          (c) This  Agreement  shall be binding upon and inure to the benefit of
the parties hereto, and their respective  personal  representatives,  successors
and permitted assigns.



                                      -20-


<PAGE>



          (d) In the event that any  provision of this  Agreement  becomes or is
declared by a court of competent  jurisdiction to be illegal,  unenforceable  or
void,  this  Agreement  shall  continue  in full force and effect  without  said
provision.

          (e) Each party shall, without payment of any additional  consideration
by any other party,  at any time on or after the date of any Closings  take such
further action and execute such other and further  documents and  instruments as
the other  party may  request  in order to  provide  the  other  party  with the
benefits of this Agreement.

          (f)  The  captions  and  headings  contained  herein  are  solely  for
convenience and reference and do not constitute a part of this Agreement.

          (g) All  references  to any  gender  shall be  deemed to  include  the
masculine,  feminine or neuter gender, the singular shall include the plural and
the plural shall include the singular.

          (h) This Agreement may be executed in two or more  counterparts,  each
of which shall be deemed an original but all of which together shall  constitute
one and the same document.




                                      -21-

<PAGE>



         IN WITNESS WHEREOF,  the parties have executed this Agreement as of the
date and year first aforesaid.



EFFECTIVE MANAGEMENT                    TAGLICH BROTHERS, D'AMADEO, WAGNER
SYSTEMS, INC.                            & COMPANY, INCORPORATED



By:  /S/ Thomas M. Dykstra              By:  /s/ Richard Oh                     
      Name: Thomas M. Dykstra                    Name:    Richard Oh
      Title: Secretary                           Title:   Vice President