EXHIBIT 99.3
PLACEMENT AGENT AGREEMENT
December 10, 2003
Xxxxxxx Xxxxxx Xxxxxx Inc.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Dear Sirs:
1. INTRODUCTORY. Tag-It Pacific, Inc., a Delaware corporation (the
"Company"), proposes to sell up to 575,000 shares (the "Shares") of Series D
Convertible Preferred Stock, $0.001 par value per share (the "Preferred Stock"),
of the Company at a purchase price of $44.00 per share (the "Offering Price").
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants, and agrees that:
(i) All reports and statements required to be filed by the
Company with the Securities and Exchange Commission (the "Commission")
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder, due at or prior to the
date of this Agreement have been made. Such filings, together with all
documents incorporated by reference therein, are referred to as
"Exchange Act Documents." Each Exchange Act Document, as amended,
conformed in all material respects to the requirements of the Exchange
Act and the rules and regulations thereunder, and no Exchange Act
Document, as amended, at the time each such document was filed,
included any untrue statement of a material fact or omitted 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.
(ii) The audited financial statements, together with the
related notes of the Company at December 31, 2002 and 2001, and for the
years then ended, included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2002, and the unaudited financial
statements of the Company at September 30, 2003, and for the nine
months then ended (collectively, the "Company Financial Statements"),
included in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003, respectively, fairly present in all material
respects, on the basis stated therein and on the date thereof, the
financial position of the Company at the respective dates therein
specified and its results of operations and cash flows for the periods
then ended
(subject to, in the case of the unaudited financial statements, normal
audit adjustments). To the knowledge of the Company, such statements
and related notes have been prepared in accordance with generally
accepted accounting principles in the United States applied on a
consistent basis except as expressly noted therein (provided that the
unaudited financial statements lack footnotes and other presentation
items).
(iii) Except as disclosed on SCHEDULE 2(iii), subsequent to
September 30, 2003, the Company has not incurred any material
liabilities or obligations, direct or contingent, except in the
ordinary course of business and except for liabilities or obligations
reflected or reserved against on the Company's balance sheet dated
September 30, 2003, and there has not been any material adverse change,
or to the actual knowledge of the Company, any development involving a
prospective material adverse change, in the condition (financial or
otherwise), business, or results of operations of the Company or any
change in the capital or material increase in the long-term debt of the
Company, nor has the Company declared, paid, or made any dividend or
distribution of any kind on its capital stock.
(iv) All action required to be taken by the Company necessary
for the authorization of this Agreement, the Certificate, and the
Related Agreements, the performance of all obligations of the Company
hereunder and thereunder at the Closing (as hereinafter defined), and
as a condition to the due and proper authorization, issuance, sale, and
delivery of the Shares to subscribers therefor in accordance with the
terms of this Agreement and the Conversion Shares pursuant to the
Certificate, as the case may be, has been, or prior to the Closing
Date, will have been taken, other than, with respect to the issuance of
the shares (the "Conversion Shares") of Common Stock, $0.001 par value
per share ("Common Stock") of the Company issuable upon conversion of
the Shares, the approval by the Company's shareholders of the
conversion of the Shares into the Conversion Shares, as required under
Section 713 of the Amex Company Guide of the American Stock Exchange
("Amex Approval") and pursuant to the terms of the Certificate, which
the Company undertakes to obtain as promptly as practicable; and upon
the payment of the consideration for the Shares specified herein, the
Shares will be duly and validly issued, fully paid, and non-assessable
with no personal liability attaching to the ownership thereof and free
and clear of all liens imposed by or through the Company. The
Conversion Shares have been duly authorized except that shareholder
approval of the issuance of the Conversion Shares has not and will not
be obtained prior to the Closing, and upon issuance of the Conversion
Shares upon proper conversion of the Shares, in accordance with the
terms of the Certificate, the Conversion Shares will be validly issued,
fully paid, and non-assessable.
(v) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware,
is duly qualified to do business as a foreign corporation and in good
standing in the State of
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California, and has all requisite right, power, and authority to own or
lease its properties, to conduct its business as described in the
Exchange Act Documents, and to execute, deliver, and perform this
Agreement, the Subscription Agreements between the Company and the
purchasers of the Preferred Stock in the form attached as EXHIBIT A
hereto (the "Subscription Agreements"), the Certificate of Designation
of Preferences, Rights, and Limitations of Series D Preferred Stock in
the form attached as EXHIBIT B hereto (the "Certificate"), the
Registration Rights Agreement in the form attached as EXHIBIT C hereto
(the "Registration Rights Agreement" and together with the Subscription
Agreements, the "Related Agreements"), to issue and sell the Shares and
the Conversion Shares, and to carry out the provisions of this
Agreement, the Related Agreements and the Certificate and to carry on
its business as presently conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in all other
jurisdictions in which its ownership or leasing of properties, or the
conduct of its business requires or may require such qualification
except where the failure to be so qualified would not have a material
adverse effect on the Company. The Company has complied in all material
respects with all material laws, rules, regulations, applicable to the
Company's business, operations, properties, assets, products, and
services, and the Company is in possession of and operating in
compliance with all material permits, licenses, and other
authorization, required to conduct its business as currently conducted.
(vi) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, $0.001 par value per share, of which
11,513,909 shares were issued and outstanding as of December 5, 2003,
and 3,000,000 shares of preferred stock, $0.001 par value per share, of
which 250,000 shares have been designated as Series A Preferred Stock,
none of which are issued or outstanding, 850,000 shares have been
designated Series B Convertible Preferred Stock, none of which are
issued and outstanding, and 759,494 have been designated Series C
Convertible Redeemable Preferred Stock, of which 759,494 were issued
and outstanding at September 30, 2003. Except as contemplated by this
Agreement, or as described in the Exchange Act Documents or on SCHEDULE
2(vi), (a) there is no commitment by the Company to issue any shares of
capital stock, subscriptions, warrants, options, convertible
securities, or other similar rights to purchase or receive Company
securities or to distribute to the holders of any of its equity
securities any evidence of indebtedness, cash, or other assets, (b) the
Company is under no obligation (contingent or otherwise) to purchase,
redeem, or otherwise acquire any of its equity or debt securities or
any interest therein, and (c) to the Company's knowledge there are no
voting trusts or similar agreements, shareholders' agreements, pledge
agreements, buy-sell agreements, rights of first refusal, preemptive
rights, or proxies relating to any securities of the Company. Except as
set forth in the Exchange Act Documents or filings with the Commission
made by third parties pursuant to Schedule 13D or 13G or Form 3 or 4,
and to the knowledge of the Company, no person holds of record or
beneficially, 5% or more of the outstanding shares of the capital stock
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of the Company. All outstanding securities of the Company were issued
in compliance with applicable Federal and state securities laws.
(vii) Except as disclosed in the Exchange Act Documents or as
described on SCHEDULE 2(vii), there is no material pending or, to the
knowledge of the Company, threatened (a) action, suit, claim,
proceeding, or investigation against the Company, at law or in equity,
or before or by any Federal, state, municipal, or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign (each, a "Governmental Body"), (b) arbitration
proceeding against the Company, (c) governmental inquiry against the
Company, or (d) any action or suit by or on behalf of the Company
pending or threatened against others.
(viii) The Company is not in violation of its certificate of
incorporation or bylaws, or in default, or with the giving of notice or
lapse of time or both, would be in default, in the performance of any
material obligation, agreement, or condition contained in any lease,
license, material contract, indenture, or loan agreement or in any
bond, debenture, note, or any other evidence of indebtedness, except
for such defaults as would not have a material adverse effect on the
Company. The execution, delivery, and performance of this Agreement,
the Certificate, the Related Agreements, and the Escrow Agreement (as
hereinafter defined), the incurrence of the obligations herein, the
issuance, sale, and delivery of the Shares, and the consummation of the
transactions contemplated herein, have been duly authorized by all
requisite corporate action on the part of the Company and (a) do not
and will not conflict with the Company's certificate of incorporation
or bylaws, (b) do not and will not, with or without the passage of time
or the giving of notice, result in the breach of, or constitute a
default, cause the acceleration of performance, or require any consent
under, or result in the creation of any lien, charge or encumbrance
upon any property assets of the Company pursuant to, any material loan
agreement, mortgage, deed of trust, indenture, or other instrument or
agreement to which the Company is a party or by which the Company or
its properties are bound, except such consents as have been obtained as
of the date hereof or to the extent that the same have been, or prior
to the Closing Date will be, waived or cured, and the Amex Approval,
which the Company undertakes to obtain as promptly as practicable, or
(c) do not and will not result in the violation of any law, statute,
order, rule, administrative regulation, or decree of any court, or
governmental agency or body having jurisdiction over the Company or its
properties.
(ix) Except as disclosed in the Exchange Act Documents or as
described on SCHEDULE 2(ix), there are no pre-emptive rights or other
rights to subscribe for or to purchase, or any restriction upon the
voting or transfer of, shares of Common Stock pursuant to the Company's
certificate of incorporation, bylaws, or any agreement or other
instrument to which the Company is a party. Except as disclosed on
SCHEDULE 2(ix), the issuance of the Shares is not subject to
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any preemptive right of any shareholder of the Company or to any right
of first refusal or other right in favor of any person.
(x) This Agreement has been duly and validly executed and
delivered by or on behalf of the Company and constitutes a legal,
valid, and binding obligation of the Company enforceable in accordance
with its terms, except to the extent that its enforceability is limited
by (a) applicable bankruptcy, insolvency, reorganization, moratorium,
or other laws of general application relating to or affecting the
enforcement of creditors' rights generally, and (b) laws relating to
the availability of specific performance, injunctive relief, or other
equitable remedies and except as enforceability of the indemnity and
contribution provisions contained in Section 7 hereof may be limited by
applicable law or principles of public policy.
(xi) The escrow agreement (the "ESCROW AGREEMENT") among the
Company, you, and Sterling Bank (the "ESCROW AGENT") has been duly and
validly executed and delivered by or on behalf of the Company and
constitutes a legal, valid, and binding obligation of the Company
enforceable in accordance with its terms, except as such enforceability
may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application
relating to or affecting enforcement of creditors' rights generally and
(b) laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
(xii) No consent, approval, authorization, or order of any
court or governmental authority or agency is required for the
consummation by the Company of the transactions contemplated by this
Agreement, except such as may be required by the National Association
of Securities Dealers, Inc. ("NASD"), the Securities Act of 1933, as
amended (the "Act"), or the rules and regulations thereunder or state
securities or Blue Sky laws.
(xiii) Except as would not have a material adverse effect on
the business, assets, results of operation, or condition of the
Company, the Company has filed, or caused to be filed, on a timely
basis, all tax returns (including payroll, unemployment, and other
taxes related to its employees and independent contractors) required to
be filed with any Governmental Body and has paid or caused to be paid
all taxes, levies, assessments, tariffs, duties or other fees imposed,
assessed, or collected by any Governmental Body that may have become
due and payable pursuant to those tax returns or otherwise except taxes
being disputed by the Company in good faith. Except as disclosed on
SCHEDULE 2(xiii), no deficiency assessment with respect to or proposed
adjustment of any of the Company's Federal, state, municipal, or local
tax returns has occurred or is threatened. There has been no tax lien
imposed by any Governmental Body outstanding against the Company's
assets or properties, except the lien for current taxes not yet due.
The charges, accruals, and reserves on the books of the Company with
respect to taxes for all fiscal periods are adequate, in the opinion
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of the Company, and the Company does not know of any actual or proposed
tax assessment for any fiscal period or of any basis therefor against
which adequate reserves have not been set up. Except as disclosed on
SCHEDULE 2(xiii), the Company has not been advised that any Federal
income tax return of the Company has been, or will be, examined or
audited by the Internal Revenue Service.
(xiv) The Common Stock is registered pursuant to Section 12(b)
of the Exchange Act and is listed for quotation with the symbol "TAG"
on the American Stock Exchange.
(xv) The Company has not during the past six months offered or
sold any security by or for the Company that is of the same or a
similar class as the Shares, other than offers of securities made
solely to accredited investors or otherwise under an employee benefit
plan as defined in Rule 405 under the Act, securities issued in
connection with acquisitions, or other securities that will not
invalidate the exemption from registration relied on to offer and sell
the Shares.
(xvi) Neither the Company nor any of its affiliates is or has
been subject to any order, judgment, or decree of any court of
competent jurisdiction temporarily, preliminarily, or permanently
enjoining such person for failure to comply with Rule 503 under
Regulation D.
(xvii) Other than (A) Amex Approval and approval by the
Company's shareholders of the issuance of the Conversion Shares
pursuant to the terms of the Certificate, which the Company undertakes
to obtain as promptly as practicable and (B) the filing of the
Certificate, which the Company undertakes to file with the Delaware
Secretary of State prior to the Closing, (i) the execution, delivery,
and performance by the Company of this Agreement and the Related
Agreements, (ii) the offer and sale of the Shares, and (iii) the
issuance of the Conversion Shares upon due conversion of the Shares
require no consent of, action by or in respect of, or filing with, any
person or Governmental Body other than those consents that have been
obtained and filings that have been made pursuant to applicable state
securities laws and post-sale filings pursuant to applicable state and
federal securities laws, which the Company undertakes to file within
the applicable time period.
3. REPRESENTATIONS AND WARRANTIES OF XXXXXXX XXXXXX XXXXXX INC. You
represent and warrant to, and agree with, the Company that:
(i) You have been duly organized and are validly existing
and in good standing as a corporation under the laws of the State of
Texas, with power and authority (corporate and other) to perform your
obligations under this Agreement and the Escrow Agreement; you are a
broker-dealer registered and in good standing under the Exchange Act
and under the securities or Blue Sky laws of each state in which the
Shares are being offered or sold by you, and you are a
6
member in good standing of the NASD; you are in possession of and
operating in compliance with all authorizations, licenses, permits,
consents, certificates, and orders required for the performance of your
duties under this Agreement and the Escrow Agreement, and your
performance of your duties hereunder and thereunder will be in
compliance with all applicable laws, including state securities and
Blue Sky laws.
(ii) There are no legal or governmental proceedings pending
to which you are a party or of which any of your properties is the
subject or, to your knowledge, threatened, which, if determined
adversely to you, would individually or in the aggregate materially and
adversely affect your ability to perform your obligations under this
Agreement or the Escrow Agreement.
(iii) No consent, approval, authorization or order of any
court or governmental authority or agency is required for the
performance by you of your obligations under this Agreement, except
such as may be required by the NASD or under Regulation D or state
securities or Blue Sky laws.
(iv) This Agreement has been duly and validly executed and
delivered by or on behalf of you and constitutes a legal, valid, and
binding obligation of you enforceable in accordance with its terms,
except to the extent that its enforceability is limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (b) laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies
and except as enforceability of the indemnity and contribution
provisions contained in Section 7 hereof may be limited by applicable
law or principles of public policy.
(v) The Escrow Agreement among the Company, you, and the
Escrow Agent has been duly and validly executed and delivered by or on
behalf of you and constitutes a legal, valid, and binding obligation of
you enforceable in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application
relating to or affecting enforcement of creditors' rights generally and
(b) laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
4. OFFERING AND SALE OF THE SHARES. (a) On the basis of the
representations, warranties, and covenants herein contained, but subject to the
terms and upon the conditions herein set forth, you are hereby appointed the
non-exclusive placement agent of the Company during the term herein specified
(the "Offering Period") for the purpose of finding subscribers for the Shares on
a best-efforts basis for the account of the Company at the Offering Price
through a private offering (the "Offering") to an unlimited number of
"accredited investors" (as such term is defined in Rule 501 of Regulation
D)("Accredited Investors") pursuant to and in accordance with the Act. Subject
to the performance by the Company of all its obligations to be performed
hereunder, and to the
7
completeness and accuracy of all the representations and warranties contained
herein, you hereby accept such agency and agree on the terms and conditions
herein set forth to use your best efforts during the Offering Period to find
subscribers for Shares at the Offering Price. Your agency hereunder, which is
terminable as provided in Section 11 hereof, shall terminate at 11:59 p.m.,
Houston, Texas time, on December 31, 2003; provided that such termination date
(the "Termination Date") may be extended by mutual written agreement of the
parties until January 31, 2004.
(b) Each Investor desiring to purchase Shares will be required to: (i)
complete, execute, and deliver to you an executed copy of (a) a Subscription
Agreement between the Investor and the Company, in the form attached as EXHIBIT
A hereto (the "Subscription Agreement"), and (b) an Investor Questionnaire, in
the form attached as EXHIBIT D hereto, and (ii) deliver to you payment for such
subscription in the form of a check payable to the order of "TAG-IT PACIFIC -
ESCROW ACCOUNT" or a wire transfer of immediately available funds in the amount
that the Investor desires to purchase. Any payment you receive that does not
conform to this requirement will be returned to an Investor by the end of the
next business day following receipt. Upon receipt, you shall hold all such
Subscription Agreements and Investor Questionnaires for safekeeping and
immediately forward all funds delivered to you to the Escrow Agent. The Escrow
Agent, upon receipt of such funds, will hold the funds in an escrow account
pursuant to the Escrow Agreement. You shall promptly forward each executed
Subscription Agreement received to the Company for acceptance or rejection
together with a schedule setting forth the name and address of each subscriber
and the amount received from each subscriber. The Company shall notify you of
such acceptance or rejection within 10 days of receipt of a Subscription
Agreement.
(c) In the event that acceptable subscriptions for $21,825,000 in
Shares (the "Minimum Shares") shall not have been received and accepted by the
Company by the Termination Date, all funds received from subscribers (if any)
shall be returned in full, and your agency and this Agreement shall terminate
without obligation on your part or on the part of the Company.
(d) If, by the Termination Date or such earlier time as may be agreed
upon by you and the Company, you have received subscriptions for the Minimum
Shares and such subscriptions have been accepted by the Company (in its sole
discretion), you shall promptly notify the Company in writing of the aggregate
amount of Shares for which you have received subscriptions (the "Notice Date").
Payment of the purchase price for the Shares for which you have found
subscribers, and delivery, with respect to each subscriber for Shares, of a copy
of a Subscription Agreement signed by such subscriber (the "Closing"), shall
then be made at such place and time as shall be agreed upon between you and the
Company, no later than the fifth full business day after the Notice Date (the
"Closing Date").
(e) As compensation for your services, a cash commission will be paid
to you with respect to subscriptions received by you as to which the payments
and deliveries provided for in this Section 4 are made at the Closing Date equal
to 7.5% of the purchase
8
price of each Share purchased at the Closing. Such commissions shall be paid to
you on the Closing Date by bank wire transfer payable in immediately available
funds. In addition, the Company agrees to reimburse you for your reasonable
out-of-pocket expenses in accordance with Section 6 hereof.
(f) Neither you, the Company, nor any Additional Agent (as hereinafter
defined) shall, directly or indirectly, pay or award any finder's fees,
commissions or other compensation to any person engaged by a potential investor
for investment advice as an inducement to such advisor to advise the purchase of
the Shares; provided, however, that normal sales commissions payable to a
registered broker-dealer or other properly licensed person for selling the
Shares shall not be prohibited hereby.
(g) You will prepare and file such statements and reports as are or
may be required to enable the Shares to be qualified for sale under the
securities laws of such jurisdictions as you may designate.
(h) As additional compensation, the Company will issue to you on the
Closing Date a Common Stock purchase warrant (the "AGENT'S WARRANT") in
substantially the form attached hereto as EXHIBIT E granting you the right to
purchase from the Company for a period commencing on the date six months after
the Closing Date and ending five years after the Closing Date, a number of
shares of Common Stock equal to 10% of the number of common equivalent shares
sold in the Offering, at a per share purchase price equal to the higher of the
closing price of the Common Stock as reported by the American Stock Exchange on
the Closing Date or the book value per share (i.e., shareholders' equity divided
by shares outstanding) of the Common Stock on the Closing Date.
(i) In connection with the Offering you will, to the extent within
your control, conduct the Offering in accordance with the applicable provisions
of the Act and Regulation D so as to preserve for the Company the exemption
provided by Rule 506 of Regulation D. You agree not to offer or sell the Shares
by means of (a) any means of general solicitation, including any advertisement,
article, notice, or other communication published in any newspaper, magazine, or
similar media or broadcast over television or radio or (b) any seminar or
meeting, whose attendees have been invited by any general solicitation or
general advertising. Prior to the sale of any of the Shares, you will have
reasonable grounds to believe, and in fact believe, that each subscriber for
Shares is an Accredited Investor. You agree not to disclose any material
nonpublic information regarding the Company to any subscriber except as such
disclosure may be permitted pursuant to Regulation FD and is agreed to in
advance by the Company.
(j) In connection with the performance of your obligations under this
Agreement, you may engage, for the account of the Company, the services of one
or more broker-dealers ("Additional Agents") who are members of the NASD and who
are acceptable to the Company, and, as compensation for their services, shall
pay to such Additional Agents an amount to be negotiated between you and such
Additional Agents. Such amount will be paid to the Additional Agents by you only
out of the commissions
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received by you in respect of sales of Preferred Stock as described in paragraph
(e) of this Section 4, and the Company shall have no obligation to any
Additional Agents respecting any such payment. The arrangements, if any, between
the Company, you, and any Additional Agent shall be set forth in an Additional
Agent Agreement ("Additional Agent Agreement"), which shall provide, among other
things, that such Additional Agent shall be deemed to have agreed to the matters
set forth herein as if the Additional Agent were a signatory hereof. Nothing
contained in this Agreement or in the Additional Agent Agreement shall be deemed
to constitute the Additional Agents, if any, as your agents, and you shall not
be liable to the Company in respect of the performance by the Additional Agents,
if any, of any representations, warranties or covenants of such Additional
Agents contained herein or in the Additional Agent Agreement.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with you that:
(a) Except as contemplated or described in this Agreement or in a
public disclosure made prior to the date hereof, it will not, prior to the
Closing Date, incur any material liability or obligation, direct or contingent,
or enter into any material transaction, in each case, other than in the ordinary
course of business. It will not, prior to the Closing Date, declare or pay any
dividend on the Common Stock or make any distribution on the Common Stock
payable to shareholders of record on a date prior to the Closing Date.
(b) It will cooperate with you to enable the Shares to be qualified
for sale under the securities laws of such jurisdictions as you may designate,
subject to approval by the Company, and at your request will make such
applications and furnish such information as may be required of it for that
purpose; provided, however, that you and the Company shall first determine
whether an exemption from registration other than the Uniform Limited Offering
Exemption (ULOE) or a similar exemption is available in each such jurisdiction
and the Company shall not be required to qualify to do business or to file a
general consent to service of process in any such jurisdiction or to subject
itself to taxation. It will, from time to time, prepare and file such statements
and reports as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for the distribution of the
Shares.
(c) It will make available to you and each purchaser of Shares at a
reasonable time prior to the Closing Date the opportunity to ask questions and
receive answers concerning the terms and conditions of the Offering and to
obtain any additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of any information in the Exchange Act Documents or otherwise furnished by the
Company to you or any purchaser of Shares; provided, however, that the Company
shall not be required to disclose any material nonpublic information to any
purchaser of Shares.
(d) It will file all reports required by Regulation D with regard to
sales of the Shares and use of the proceeds therefrom; provided that you provide
all relevant
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information to the Company in writing as to purchasers of the Shares required
for such filings.
(e) It will not offer or sell any securities of the Company that are
of the same or a similar class as the Shares for a period of six months after
the Closing Date, other than those offers or sales of securities under an
employee benefit plan as defined in Rule 405 under the Act, in connection with
options, warrants, or convertible securities outstanding as of the Closing Date,
or in connection with an acquisition of assets or another business by the
Company if such offering will be integrated with the Offering of the Shares
pursuant to this Agreement for purposes of the exemptions under Regulation D, so
as to invalidate the exemption from registration relied on to offer and sell the
Shares.
(g) For a period of at least 18 months following the Closing Date, the
Company will maintain the registration of its Common Stock under Section 12 of
the Exchange Act so long as the Exchange Act requires it to be so registered,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act unless required to do so by the Exchange Act.
(h) The Company shall prepare and file with the American Stock
Exchange an additional shares listing application covering the Shares and take
all steps necessary to cause such shares to be approved for listing as soon as
practicable thereafter.
(i) For a period of at least 18 months following the Closing Date, the
Company will use its commercially reasonable best efforts (i) to timely file all
reports required to be filed by the Company after the date hereof under the
Securities Act and the Exchange Act (including the reports pursuant to Section
13(a) or 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule
144) and the rules and regulations adopted by the Commission thereunder), (ii)
if the Company is not required to file reports pursuant to such sections, it
will prepare and furnish to the purchasers of Shares and make publicly available
in accordance with Rule 144(c) such information as is required for the
purchasers to sell the Shares under Rule 144, and (iii) to take such further
action as any holder of Shares may reasonably request, all to the extent
required from time to time to enable the purchasers to sell Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144, including causing its attorneys to issue and deliver any
appropriate legal opinion required to permit a purchaser to sell Shares under
Rule 144 upon receipt of appropriate documentation relating to such sale.
(j) Unless previously prepared and filed, simultaneously with the
Closing, the Company agrees that it shall prepare and file with the Commission a
preliminary proxy statement (as amended and supplemented, the "Proxy Statement")
in connection with the meeting of its shareholders (the "Shareholders Meeting").
At the Shareholders Meeting
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the Company will seek to obtain shareholder approval ("Shareholder Approval") of
the issuance of the Conversion Shares. The Company shall use its reasonable
efforts to respond to written comments of the Commission and its staff, and, to
the extent permitted by law, to cause the Proxy Statement to be mailed to the
Company's shareholders as promptly as practicable after responding to all such
comments to the satisfaction of the Commission staff. The Company shall take all
reasonable steps necessary to file with the Commission and have declared
effective or cleared by the Commission any amendment or supplement to the Proxy
Statement so as to correct the same and cause the Proxy Statement as so
corrected to be disseminated to the shareholders of the Company, in each case to
the extent required by applicable law.
6. PAYMENT OF EXPENSES. If this Agreement becomes effective and the
transactions contemplated by this Agreement are consummated, the Company will
pay (a) all reasonable expenses incident to the performance of the obligations
of the Company under this Agreement, (b) all of your reasonable out-of-pocket
expenses (including fees and disbursements of your counsel, travel, and related
expenses incurred in connection with this Agreement and the Offering) incurred
in connection with this Agreement, preparing to market, and marketing the
Shares, (c) the fees and expenses of the Escrow Agent, and (d) the reasonable
legal fees and expenses incurred by counsel to subscribers for Shares in
connection with the negotiation, execution, and delivery of subscription
agreements and any related agreements; provided that the aggregate expenses
reimbursed pursuant to clauses (b) and (d) shall not to exceed $45,000 in the
aggregate.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless you, each Additional Agent, and each person, if any,
who controls you or such Additional Agent within the meaning of the Act, against
any losses, claims, damages, liabilities, or expenses (including, unless the
Company elects to assume the defense as hereinafter provided, the reasonable
cost of investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which arise out of the
Company's breach of a representation or warranty or covenant or agreement
contained in this Agreement; provided that in no case is the Company to be
liable with respect to any claims made against you, such Additional Agent, or
any such controlling person unless you, such Additional Agent, or such
controlling person shall have notified the Company in writing promptly after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon you or such controlling person, but failure to
notify the Company of any such claim shall not relieve it from any liability
that it may have to you, such Additional Agent, or such controlling person
otherwise than on account of the indemnity agreement contained in this
paragraph. The Company will be entitled to participate at its own expense in the
defense, or if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if the Company elects to assume the defense,
such defense shall be conducted by counsel chosen by it and reasonably
acceptable to you. In the event the Company elects to assume the defense of any
such suit and retain such counsel, you, such Additional Agent, or such
controlling person or persons, defendant or defendants in the suit, may retain
additional counsel but shall bear the fees and expenses of such counsel unless
(i) the Company shall have specifically authorized the retaining of
12
such counsel or (ii) the parties to such suit include you, such Additional
Agent, or such controlling person or persons, and the Company and you, such
Additional Agent, or such controlling person or persons have been advised by
counsel that one or more material legal defenses may be available to you, such
Additional Agent, or them that may not be available to the Company in which case
the Company shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the reasonable fees and expenses of such
counsel. In no event shall the Company be liable for the fees and expenses of
more than one counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. The Company shall
not be required to indemnify any person for any settlement of any such claim
effected without the Company's consent, which shall not be unreasonably
withheld. The Company shall not, without your consent, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof, the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. This indemnification obligation will be in addition to any primary
liability that the Company might otherwise have. The foregoing obligation of
indemnification of the Company shall be limited to the net proceeds of the
Offering.
(b) You and each Additional Agent agree to indemnify and hold harmless
the Company, each of the Company's officers, directors, and each other person,
if any, who controls the Company within the meaning of the Act, against any
losses, claims, damages, liabilities, or expenses (including, unless you or such
Additional Agent elect to assume the defense, the reasonable cost of
investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which (i) arise of any
untrue statement of a material fact with respect to the Company made by you or
such Additional Agent to any purchaser of Shares not contained in an Exchange
Act Document or other written material provided to you or such Additional Agent
by the Company, (ii) arise out of any acts or omissions by you, any Additional
Agent, or any purchaser of Shares that cause the offering to involve a public
offering under the Act or your failure to be properly licensed to sell the
Shares or (iii) arise out of your breach of a representation or warranty or
covenant or agreement contained in this Agreement; provided, however, that in no
case are you or any Additional Agent to be liable with respect to any claims
made against the Company or any such person against whom the action is brought
unless the Company or such person shall have notified you or such Additional
Agent in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Company or such person, but failure to notify you or such Additional
Agent of such claim shall not relieve you or such Additional Agent from any
liability that you or such Additional Agent may have to the Company or such
person otherwise than on account of the indemnity agreement contained in this
paragraph. You or such Additional Agent shall be entitled to participate at your
or its expense in the defense, or if you or such Additional Agent so elect, to
assume the defense of any suit brought to enforce any such liability, but, if
you or such Additional Agent elect to assume the defense, counsel chosen by you
or such Additional Agent and reasonably acceptable to the Company shall conduct
such defense. In the event that you or such Additional Agent elect to assume the
13
defense of any such suit and retain such counsel, the Company, said officers and
directors and any person or persons, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such counsel
unless (i) you shall have specifically authorized the retaining of such counsel
or (ii) the parties to such suit include you, such Additional agent, or such
controlling person or persons, and the Company and you, such Additional Agent,
or such controlling person or persons have been advised by counsel that one or
more material legal defenses may be available to the Company that may not be
available to you or them in which case you shall not be entitled to assume the
defense of such suit notwithstanding your obligation to bear the reasonable fees
and expenses of such counsel. You or such Additional Agent shall not be liable
to indemnify any person for any settlement of any such claim effected without
your or its consent which consent shall not be unreasonably withheld. You shall
not, without the consent of the Company, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term
thereof, the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. This
indemnification obligation will be in addition to any primary liability that you
or any Additional Agent might otherwise have.
(c) If the indemnification provided for in this Section 7 is
unavailable, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect not only the relative benefits received by the Company on
one hand and you and the Additional Agents, if any, on the other from the
offering, but also the relative fault of the Company on the one hand and you and
the Additional Agents, if any, on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities, or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and you and the Additional Agents, if any, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the Offering
(before deducting expenses) received by the Company, bear to the total selling
commissions received by you and the value of the Agent's Warrant issued to you
pursuant to Section 4(h). 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 Company, you, or an Additional Agent, the
party's relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and whether a party breached a
representation or warranty or covenant or agreement contained in this Agreement.
The Company and you agree that it would not be just and equitable if
contribution were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
referred to above 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. No person guilty of fraudulent misrepresentation
(within the
14
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective representations and warranties of you and the Company as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of you, the Company, or any of the officers or directors of the Company
or any controlling person, and shall survive delivery of and payment for the
Shares for a period ending on the date two years subsequent to the Closing Date.
9. CONDITIONS OF YOUR OBLIGATIONS. Your obligations hereunder are
subject to the accuracy in all material respects at and (except as otherwise
stated herein) as of the date hereof and at and as of the Closing Date, of the
representations and warranties made herein by the Company, to the compliance in
all material respects at and as of the Closing Date by the Company with its
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to the Closing Date and to the following additional
conditions:
(a) You shall not have stated in writing prior to the Closing Date to
the Company that any Exchange Act Document, or any amendment or supplement
thereto contains an untrue statement of fact which, in your reasonable opinion,
is material, or omits to state a fact which, in your reasonable opinion, is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) You shall have received a certificate, dated the Closing Date, on
behalf of the Company by the Chief Executive Officer or the President and the
chief financial or accounting officer of the Company to the effect that:
(i) To the best of the knowledge of the signers, the
representations and warranties of the Company in this Agreement are
true and correct in all material respects at and as of the Closing
Date, and the Company has complied in all material respects with all
the agreements and satisfied in all material respects all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) Between the date of this Agreement and the Closing Date,
no litigation has been instituted or, to the knowledge of the Company,
threatened against the Company of a character required to be disclosed
in an Exchange Act Document under Item 103 of Regulation S-K that has
not been so disclosed to you; and
(iii) Between the date of this Agreement and the Closing Date,
there has not been any material adverse change in the financial
condition, business, or results of operations of the Company.
15
(d) The Company shall have entered into the Registration Rights
Agreement with the Purchasers in the form attached hereto as EXHIBIT C.
(e) The Company shall have prepared the Proxy Statement and be
prepared to file it with the Commission immediately following the Closing.
(f) The Placement Agent shall have entered into a Voting Agreement in
the form attached hereto as EXHIBIT F with beneficial owners of at least 51% of
the issued and outstanding shares of Common Stock of the Company.
(g) You shall have received from Xxxxxx Xxxxxxxx & Merkiles, LLP,
counsel to the Company, an opinion, dated the Closing Date, with respect to such
matters as you may reasonably request.
..
If any of the conditions provided for in this Section 9 shall not have
been satisfied when and as required by this Agreement, this Agreement may be
terminated by you by notifying the Company of such termination in writing at or
prior to the Closing Date, but you shall be entitled to waive any of such
conditions.
10. EFFECTIVE DATE. This Agreement shall become effective at 11:00
A.M., Houston time, on the date hereof (the "Effective Time").
11. TERMINATION. In the event of any termination of this Agreement
under this or any other provision of this Agreement, there shall be no liability
of any party to this Agreement to any other party, other than as provided in
Sections 6, 7, and 8 and this Section 11.
This Agreement may be terminated after the Effective Time by (a) the
Company for any reason by notice to you and (b) you by notice to the Company (i)
if at or prior to the Closing Date trading in securities on the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq Stock Market (collectively,
the "Exchanges") shall have been suspended for longer than four consecutive
hours or minimum or maximum prices shall have been established on either such
exchange or stock market, or a banking moratorium shall have been declared by
Texas or United States authorities (unless such suspension is made pending
completion of the sale of the Shares, at which time, such suspension will be
lifted); (ii) if at or prior to the Closing Date there shall have been a
material escalation of hostilities between the United States and any foreign
country (other than Iraq), or any other material insurrection or armed conflict
involving the United States which, in your reasonable judgment, after
consultation with the Company, makes it impracticable or inadvisable to offer or
sell the Shares; or (iii) if there shall be any material litigation or
regulatory action, pending or threatened against or involving the Company,
which, in your reasonable judgment, after consultation with the Company, makes
it impracticable or inadvisable to offer or deliver the Shares on the terms
contemplated by this Agreement.
16
If, and only if, the Company terminates this Agreement after it becomes
effective for any reason (other than your material failure to comply with your
obligations under this Agreement or material breach of your representations and
warranties) or the Offering fails to close because of the Company's breach of
any representations or warranties contained in this Agreement or the Company's
failure to fulfill its covenants and agreements contained in this Agreement, the
Company shall pay you your actual out-of-pocket expenses incurred as provided in
Section 6 hereof.
12. AGREEMENT CONCERNING DISCLOSURE OF INFORMATION. You agree to treat
confidentially any material nonpublic information that is furnished to you (or
to parties acting on your behalf) by or on behalf of the Company (the
"Information"). You agree that you will use the Information only for the
purposes related to a determination of your willingness to act as non-exclusive
selling agent pursuant to this Agreement, and that the Information will be kept
confidential by you and your partners, members, managers, officers, directors,
employees, agents, and other affiliates (collectively, the "Affiliates"), and
your attorneys and accountants (collectively, the "Professionals"), and that
you, such Affiliates, or Professionals will not disclose the Information to any
investor or other person; provided, however, that the Information may be
disclosed to (a) Affiliates and Professionals who need to know such Information
for the purpose of evaluating or providing services in connection with the your
and your clients' investment in the Company; provided such parties agree to be
bound by this undertaking, (b) to any federal or state regulatory agency and
their employees, agents, and attorneys (collectively, "Regulators") for the
purpose of making any filings with Regulators if disclosure of such Information
is required by law (provided that you advise the Company in writing of the
Information to be so disclosed within a reasonable time prior to such filing),
and (c) any other person to which the Company consents in writing prior to any
such disclosure.
In the event that you are requested or required (by oral questions,
documents, subpoena, civil investigation, demand, interrogatories, request for
information, or other similar process) to disclose to any person or entity any
information supplied to you, your Affiliates, or your Professionals in the
course of their dealings with the Company or their respective representatives,
you agree that you will provide the Company with prompt notice of such
request(s) within a reasonable time prior to such disclosure so that the Company
may seek an appropriate protective order and/or waiver of compliance with the
provisions of this Agreement. It is further agreed that, if a protective order
is not obtained, or a waiver is not granted hereunder, and you are nonetheless,
in the written opinion of counsel, compelled to disclose information concerning
the Company to any tribunal or else stand liable for contempt or suffer the
censure or penalty, you may disclose such information to such tribunal without
liability hereunder. Prior to making such disclosure, you shall deliver a
written opinion of your counsel to the Company's counsel that disclosure is
compelled by law. You will exercise your best efforts to obtain a protective
order or other reliable assurance that confidential treatment will be accorded
the Information.
13. NOTICES. All notices or other communications that are required or
permitted under this Agreement shall be in writing and sufficient if delivered
by hand, by
17
facsimile transmission, by registered or certified mail, postage pre-paid, by
electronic mail, or by courier or overnight carrier, to the persons at the
addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
If to the Company: Tag-It Pacific, Inc.
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
e-mail: xxxxx.xxxx@xxxxxxxxxxxx.xxx
If to you: Xxxxxxx Xxxxxx Xxxxxx Inc.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: President
Facsimile: (000) 000-0000
e-mail: xxx.xxxxxx@xxxxxx.xxx
or at such other address as any party shall have furnished to the other parties
in writing.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon you, and Additional Agents, the Company, and their respective
successors and legal representatives, except that neither the Company nor you
may assign or transfer any of its or your rights or obligations under this
Agreement without the prior written consent of the other. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company contained in
this Agreement shall also be for the benefit of the person or persons, if any,
who control you or any Additional agents within the meaning of Section 15 of the
Act, and your and any Additional Agent's indemnities shall also be for the
benefit of each officer and director of the Company and the person or persons,
if any, who control the Company within the meaning of Section 15 of the Act.
15. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware. Any judicial proceeding
brought against either of the parties to this agreement or any dispute arising
out of this Agreement or any matter related hereto may be brought in the courts
of the State of California or the State of Texas or in the United States
District Court for the Central District of California or the Southern District
of Texas and, by its execution and delivery of this agreement, each party to
this Agreement accepts the jurisdiction of such courts. The foregoing consent to
jurisdiction shall not be deemed to confer rights on any person other than the
18
parties to this Agreement. The prevailing party in any such litigation shall be
entitled to receive from the losing party or parties all costs and expenses,
including reasonable attorney fees, incurred by the prevailing party.
[Signatures on the following page]
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If the foregoing correctly sets forth our understanding please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
TAG-IT PACIFIC, INC.
By: /S/ XXXXX XXXX
--------------------------
Name: Xxxxx Xxxx
Title: Chief Executive Officer
Accepted and delivered in Houston,
Texas as of the date first above written
XXXXXXX XXXXXX XXXXXX INC.
By: /s/ Xxxxx Xxxxx
-----------------------------
Name: Xxxxx Xxxxx
Title: Vice President
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