EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (the "Agreement") is made as of November 9,
2004, by and between TAG-IT PACIFIC, INC., a Delaware corporation (the
"Company"), and the investor identified on the signature page to this Agreement
(the "Investor").
W I T N E S S E T H:
WHEREAS, the Investor desires to subscribe for, purchase and acquire
from the Company and the Company desires to sell and issue to the Investor (i) a
6% Convertible Promissory Note (the "Note"), in the principal amount set forth
set forth on the signature page of this Agreement, convertible into shares of
the Company's common stock, $0.001 par value per share (the "Common Stock"), and
(ii) Common Stock Purchase Warrants (the "Warrants") entitling the Investor to
purchase shares of the Company's Common Stock, as more fully set forth herein.
NOW, THEREFORE, for and in consideration of the mutual premises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. PURCHASE AND SALE OF THE SECURITIES.
(a) Subject to the terms and conditions of this Agreement, the
Investor subscribes for and agrees to purchase and acquire from the Company and
the Company agrees to sell and issue to the Investor (i) the Note in the
principal amount set forth on the signature page to this Agreement (the
"Committed Amount"), and (ii) Warrants initially exercisable for a number of
shares of Common Stock determined by dividing (A) five percent (5%) of the
Committed Amount by (B) $3.65, at an exercise price equal to $3.65 per share, in
the manner set forth in Section 2 hereof, at a purchase price equal to the
Committed Amount (the "Purchase Price").
(b) The shares of Common Stock issuable upon conversion of the
Note are referred to herein as the "Conversion Shares," the shares of Common
Stock issuable upon exercise of the Warrants are referred to herein as the
"Warrant Shares," and the Notes, the Warrants, the Conversion Shares and the
Warrant Shares are collectively referred to herein as the "Securities."
(c) The terms and provisions of the Note are set forth in the form
of 6% Convertible Promissory Note attached hereto as EXHIBIT A. The terms and
provisions of the Warrants are more fully set forth in the form of Common Stock
Purchase Warrant, attached hereto as EXHIBIT B.
(d) The Company's obligations under the Note will be secured by
the collateral set forth in that certain Trademark Security Agreement (the
"Security Agreement"), dated as of the Closing (as defined below), by and
between the Company's wholly-owned subsidiary, Talon International, Inc., the
Investor and each of the other purchasers of 6% Convertible Promissory Notes at
the Closing, in the form attached hereto as EXHIBIT C.
2. TERMS OF PURCHASE AND SALE OF THE SECURITIES. The closing of the
transactions contemplated hereby (the "Closing") shall take place on or before
the first full business day after the Notice Date (as such term is defined in
the Placement Agent Agreement dated as of November 9, 2004 (the "Placement Agent
Agreement"), between the Company and Xxxxxxx Xxxxxx Xxxxxx Inc. (the "Placement
Agent")), at the offices of the Placement Agent, or at such other time and place
as the
Company and the Placement Agent may agree upon. Contemporaneously with the
delivery of this Agreement, the Investor shall deliver to Xxxxxx Xxxxxxxx &
Markiles, LLP (the "Escrow Agent") the Purchase Price by wire transfer of
immediately available funds pursuant to wire transfer instructions given to the
Investor by the Company. At the Closing, the Escrow Agent shall deliver to the
Company the Purchase Price by wire transfer of immediately available funds
pursuant to wire transfer instructions given to the Escrow Agent by the Company,
and the Company shall deliver to the Investor the Note and the Warrants.
Notwithstanding the foregoing, the obligations of the Company and the Investor
hereunder are subject to the Company's receipt of aggregate subscriptions for a
minimum of $8,000,000 in principal amount of convertible promissory notes on or
prior to November 30, 2004 (or such earlier closing date as may be agreed by the
Company and the Placement Agent), which date may be extended by the Company and
the Placement Agent pursuant to the terms of the Placement Agent Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce the
Investor to enter into this Agreement, the Company represents and warrants to
the Investor the following:
(a) AUTHORITY. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware,
and has all requisite right, power, and authority to execute, deliver and
perform this Agreement.
(b) SUBSIDIARIES. The Company has no direct or indirect
Subsidiaries other than those listed in Schedule 3(b). Except as disclosed in
Schedule 3(b), the Company owns, directly or indirectly, all of the capital
stock of each Subsidiary free and clear of any and all liens, and all the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights.
(c) ENFORCEABILITY. The execution, delivery, and performance of
this Agreement by the Company have been duly authorized by all requisite
corporate action. This Agreement has been duly executed and delivered by the
Company, and, upon its execution by the Investor, shall constitute the legal,
valid, and binding obligation of the Company, enforceable in accordance with its
terms, except to the extent that its enforceability is limited by bankruptcy,
insolvency, reorganization, or other laws relating to or affecting the
enforcement of creditors' rights generally and by general principles of equity.
(d) NO VIOLATIONS. The execution, delivery, and performance of
this Agreement by the Company do not and will not violate or conflict with any
provision of the Company's Certificate of Incorporation or Bylaws and 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 (except such consents as have been obtained as of
the date hereof), or result in the creation of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to, any material 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.
(e) CAPITALIZATION. The authorized capital stock of the Company
consists of: 30,000,000 shares of Common Stock, of which 18,144,351 were issued
and outstanding as of September 30, 2004, and 3,000,000 shares of preferred
stock, none of which were issued and outstanding as of September 30, 2004. As of
September 30, 2004, the Company has outstanding options and warrants to purchase
2,982,184 shares of Common Stock, and a convertible promissory note in the
principal amount of $500,000, the principal and interest of which are
convertible into shares of Common Stock at a price of $4.50 per share. Upon
issuance in
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accordance with the terms of the Note and the Warrant and upon payment of any
additional consideration therefore, the Conversion Shares and the Warrant
Shares, respectively, will be duly and validly issued, fully paid, and
nonassessable with no personal liability attaching to the ownership thereof and
free and clear of all liens imposed by or through the Company, and, assuming the
accuracy of the representations and warranties of the Investor and all other
purchasers of shares of Common stock in the offering contemplated by the
Placement Agent Agreement, as of the date hereof and as of the date of exercise
or conversion, as the case may be, will be issued in accordance with a valid
exemption from the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Securities Act"), and any applicable state
securities laws (the "State Acts").
(f) EXCHANGE ACT FILING. During the twelve (12) calendar months
immediately preceding the date of this Agreement, all reports and statements
required to be filed by the Company with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder, have been timely filed. 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.
(g) COMPANY FINANCIAL STATEMENTS. The audited financial
statements, together with the related notes of the Company at December 31, 2003
and December 31, 2002, and for the years then ended, included in the Company's
Annual Report of Form 10-K for the year ended December 31, 2003, and the
unaudited financial statements of the Company at June 30, 2004, and for the six
months then ended, (collectively, the "Company Financial Statements") included
in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2004, 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 (provided that the unaudited financial statements are
subject to normal year-end audit adjustments and lack footnotes and other
presentation items). 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.
(h) NO MATERIAL LIABILITIES. Except for liabilities or obligations
not individually in excess of $1,000,000, and as set forth on Schedule 3(g),
since June 30, 2004, 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 as of June 30, 2004, and there has not been any change,
or to the knowledge of the Company, development or effect (individually or in
the aggregate) that is or is reasonably likely to be, materially adverse to the
condition (financial or otherwise), business, prospects, or results of
operations of the Company and the Subsidiaries considered as a whole (a
"Material Adverse Effect") 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.
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(i) NO DISPUTES AGAINST COMPANY. Except as disclosed in the
Exchange Act Documents or set forth set forth on Schedule 3(h), 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, (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.
(j) APPROVALS. (i) The execution, delivery, and performance by the
Company of this Agreement, the Note, the Warrant, the Security Agreement, and
the Registration Rights Agreement (as defined in the Placement Agent Agreement),
and (ii) the offer and sale of the Note and Warrants, require no consent of,
action by or in respect of, or filing with, any Person, governmental body,
agency, or official 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.
(k) COMPLIANCE. Except as set forth on Schedule 3(j), neither the
Company nor any Subsidiary (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor
has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement, or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator, or governmental body, or (iii) is or has been in violation of any
statute, rule, or regulation of any governmental authority, including without
limitation all foreign, federal, state, and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. The Company is in compliance with the applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002, as amended, and the rules and
regulations thereunder, except where such noncompliance could not have or
reasonably be expected to result in a Material Adverse Effect.
(l) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses, and other
similar rights that are necessary or material for use in connection with their
respective businesses as described in the Exchange Act Documents and which the
failure to so have could, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
Except as set forth in the Exchange Act Documents, to the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another person of any of the Intellectual Property
Rights, except where such infringement could not have or reasonably be expected
to result in a Material Adverse Effect.
(m) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
forth in the Exchange Act Documents, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any
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transaction with the Company or any Subsidiary (other than for services as
employees, officers, and directors), including any contract, agreement, or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director, or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee, or partner.
(n) INTERNAL ACCOUNTING CONTROLS. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for
the Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company's Form 10-K or 10-Q, as the
case may be, is being prepared. The Company's certifying officers have evaluated
the effectiveness of the Company's controls and procedures as of a date within
90 days prior to the filing date of the Form 10-Q for the Company's most
recently ended fiscal quarter (such date, the "Evaluation Date"). The Company
presented in its most recently filed Form 10-K or Form 10-Q the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company's
internal controls (as such term is defined in Item 307(b) of Regulation S-K
under the Exchange Act) or, to the Company's knowledge, in other factors that
could significantly affect the Company's internal controls.
(o) SOLVENCY. Based on the financial condition of the Company as
of the Closing Date (and assuming that the Closing shall have occurred), (i) the
Company's fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company's assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
(p) CERTAIN FEES. Except as may be due to the Placement Agent from
the Company, no brokerage or finder's fees or commissions are or will be payable
by the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank, or other person with respect to the transactions
contemplated by this Agreement. The Investor shall have no obligation with
respect to any Placement Agent fees or with respect to any claims (other
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than such fees or commissions owed by an Investor pursuant to written agreements
executed by the Investor which fees or commissions shall be the sole
responsibility of such Investor) made by or on behalf of other Persons for fees
of a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
(q) CERTAIN REGISTRATION MATTERS. Assuming the accuracy of the
Investor's representations and warranties set forth in Section 4, no
registration under the Securities Act is required for the offer and sale of the
Note and the Warrants by the Company to the Investor hereunder.
(r) LISTING AND MAINTENANCE REQUIREMENTS. Except as specified in
the Exchange Act Documents, the Company has not, in the two years preceding the
date hereof, received notice from any stock exchange or automated dealer
quotation system to the effect that the Company is not in compliance with the
listing or maintenance requirements thereof. The Company is, and has no reason
to believe that it will not in the foreseeable future continue to be, in
compliance with the listing and maintenance requirements for continued listing
of the Common Stock on the American Stock Exchange. The issuance and sale of the
Securities under the Transaction Documents does not contravene the rules and
regulations of the trading market on which the Company's Common Stock is
currently listed or quoted, and no approval of the shareholders of the Company
thereunder is required for the Company to issue and deliver to the Investors the
Securities contemplated by the Transaction Documents.
(s) INVESTMENT COMPANY. The Company is not, and is not an
"affiliate" of, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(t) NO ADDITIONAL AGREEMENTS. The Company does not have any
agreement or understanding with any Investor with respect to the transactions
contemplated by this Agreement and the Registration Rights Agreement on terms
that differ from those set forth in this Agreement and the Registration Rights
Agreement.
(u) DISCLOSURE. Except as set forth in the Schedules to this
Agreement, the Company confirms that neither it nor any person acting on its
behalf has provided the Investor or its agents or counsel with any information
that the Company believes would constitute material, non-public information
following the announcement of the Closing. The Company understands and confirms
that the Investor will rely on the foregoing representations and covenants in
effecting transactions in securities of the Company. All disclosure provided to
the Investor regarding the Company, its business and the transactions
contemplated hereby, furnished by or on behalf of the Company (including the
Company's representations and warranties set forth in this Agreement) are true
and correct and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(v) USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Note solely to repay outstanding indebtedness under the Company's
senior credit facility with UPS Capital Global Trade Finance Corporation, and
for general working capital purposes.
(w) ISSUANCE OF THE SECURITIES. The Securities have been duly
authorized and, when issued and paid for in accordance with the Transaction
Documents (as defined below), will be duly and validly issued, fully paid and
nonassessable, free and clear of all liens. The Company has reserved from its
duly authorized capital stock a number of shares of Common Stock for
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issuance upon conversion of the Notes and upon exercise of the Warrants not less
than the amount of Registrable Securities (as defined in the Registration Rights
Agreement) being offered pursuant to the Transaction Documents.
(x) REGULATORY PERMITS. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the Exchange Act Documents, except where
the failure to possess such permits could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect, and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such permits.
(y) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. The Company has no reason to believe
that it will not be able to renew its and the Subsidiaries' existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business on terms
consistent with market for the Company's and such Subsidiaries' respective lines
of business.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. In order to induce the
Company to enter into this Agreement, the Investor represents and warrants to
the Company the following:
(a) AUTHORITY. If a corporation, partnership, limited partnership,
limited liability company, or other form of entity, the Investor is duly
organized or formed, as the case may be, validly existing, and in good standing
under the laws of its jurisdiction of organization or formation, as the case may
be. The Investor has all requisite individual or entity right, power, and
authority to execute, deliver, and perform this Agreement.
(b) ENFORCEABILITY. The execution, delivery, and performance of
this Agreement by the Investor have been duly authorized by all requisite
partnership or corporate action, as the case may be. This Agreement has been
duly executed and delivered by the Investor, and, upon its execution by the
Company, shall constitute the legal, valid, and binding obligation of the
Investor, enforceable in accordance with its terms, except to the extent that
its enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium, or other laws relating to or affecting the enforcement of creditors'
rights generally and by general principles of equity.
(c) NO VIOLATIONS. The execution, delivery, and performance of
this Agreement by the Investor 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 or
assets of the Investor pursuant to, any material instrument or agreement to
which the Investor is a party or by which the Investor or its properties may be
bound or affected, and, do not or will not violate or conflict with any
provision of the articles of incorporation or bylaws, partnership agreement,
operating agreement, trust agreement, or similar organizational or governing
document of the Investor, as applicable.
(d) KNOWLEDGE OF INVESTMENT AND ITS RISKS. The Investor has
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of Investor's investment in the Shares. The
Investor understands that an investment in the Company
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represents a high degree of risk and there is no assurance that the Company's
business or operations will be successful. The Investor has considered carefully
the risks attendant to an investment in the Company, and that, as a consequence
of such risks, the Investor could lose Investor's entire investment in the
Company.
(e) INVESTMENT INTENT. The Investor hereby represents and warrants
that (i) the Securities are being and will be acquired for investment for the
Investor's own account, and not as a nominee or agent and not with a view to the
resale or distribution of all or any part of the Shares, and the Investor has no
present intention of selling, granting any participation in, or otherwise
distributing any of the Securities within the meaning of the Securities Act,
(ii) the Securities are being and will be acquired in the ordinary course of the
Investor's business, and (iii) the Investor does not have any contracts,
understandings, agreements, or arrangements, directly or indirectly, with any
person and/or entity to distribute, sell, transfer, or grant participations to
such person and/or entity with respect to, any of the Securities. The Investor
is not purchasing the Securities as a result of any advertisement, article,
notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) INVESTOR STATUS. The Investor is an "Accredited Investor" as
that term is defined by Rule 501 of Regulation D promulgated under the
Securities Act and the information provided by the Investor in the Investor's
Questionnaire, a copy of which is attached hereto as EXHIBIT D, is truthful,
accurate, and complete. The Investor is not registered as a broker-dealer under
Section 15 of the Exchange Act.
(g) DISCLOSURE. The Investor has reviewed information provided by
the Company in connection with the decision to purchase the Securities,
consisting of the Company's publicly available filings with the SEC and the
information contained therein. The Company has provided the Investor with all
the information that the Investor has requested in connection with the decision
to purchase the Shares. The Investor further represents that the Investor has
had an opportunity to ask questions and receive answers from the Company
regarding the business, properties, prospects, and financial condition of the
Company. All such questions have been answered to the full satisfaction of the
Investor. Neither such inquiries nor any other investigation conducted by or on
behalf of the Investor or its representatives or counsel shall modify, amend, or
affect the Investor's right to rely on the truth, accuracy, and completeness of
the disclosure materials and the Company's representations and warranties
contained herein.
(h) NO REGISTRATION. The Investor understands that Investor may be
required to bear the economic risk of Investor's investment in the Company for
an indefinite period of time. The Investor further understands that (i) neither
the offering nor the sale of the Securities has been registered under the
Securities Act or any applicable State Acts in reliance upon exemptions from the
registration requirements of such laws, (ii) the Securities must be held by he,
she or it indefinitely unless the sale or transfer thereof is subsequently
registered under the Securities Act and any applicable State Acts, or an
exemption from such registration requirements is available, (iii) except as set
forth in the Registration Rights Agreement between the Company and the Investor,
the Company is under no obligation to register any of the Securities on the
Investor's behalf or to assist the Investor in complying with any exemption from
registration, and (iv) the Company will rely upon the representations and
warranties made by the Investor in this Subscription Agreement in order to
establish such exemptions from the registration requirements of the Securities
Act and any applicable State Acts.
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(i) TRANSFER RESTRICTIONS. The Investor will not transfer any of
the Securities unless such transfer is registered or exempt from registration
under the Securities Act and such State Acts, and, if requested by the Company
in the case of an exempt transaction, the Investor has furnished an opinion of
counsel reasonably satisfactory to the Company that such transfer is so exempt.
The Investor understands and agrees that (i) the Notes and Warrants and the
certificates evidencing the Conversion Shares and Warrant Shares will bear
appropriate legends indicating such transfer restrictions placed upon the
Securities, (ii) the Company shall have no obligation to honor transfers of any
of the Securities in violation of such transfer restrictions, and (iii) the
Company shall be entitled to instruct any transfer agent or agents for the
securities of the Company to refuse to honor such transfers.
(j) PRINCIPAL ADDRESS. The Investor's principal residence, if an
individual, or principal executive office, if an entity, is set forth on the
signature page of this Subscription Agreement.
5. INDEPENDENT NATURE OF INVESTOR'S OBLIGATIONS AND RIGHTS. Except as
otherwise set forth in the Security Agreement, the obligations of the Investor
under this Agreement, the Note, the Security Agreement, the Warrants, and the
Registration Rights Agreement, and any other documents delivered in connection
herewith and therewith (collectively, the "Transaction Documents") are several
and not joint with the obligations of any other purchaser of 6% Convertible
Promissory Notes and Common Stock Purchase Warrants, and the Investor shall not
be responsible in any way for the performance of the obligations of any other
purchaser of 6% Convertible Promissory Notes and Common Stock Purchase Warrants
under any Transaction Document. The decision of the Investor to purchase Note
and Warrants pursuant to the Transaction Documents has been made by the Investor
independently of any other purchaser of 6% Convertible Promissory Notes and
Common Stock Purchase Warrants. Nothing contained herein or in any Transaction
Document, and no action taken by any purchaser of Shares pursuant thereto, shall
be deemed to constitute such purchasers as a partnership, an association, a
joint venture, or any other kind of entity, or create a presumption that the
purchasers of Securities are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Document. The Investor acknowledges that no other purchaser of 6% Convertible
Promissory Notes and Common Stock Purchase Warrants has acted as agent for the
Investor in connection with making its investment hereunder and that no other
purchaser of 6% Convertible Promissory Notes and Common Stock Purchase Warrants
will be acting as agent of the Investor in connection with monitoring its
investment in the Note and Warrants or enforcing its rights under the
Transaction Documents. Except as otherwise set forth in the Security Agreement,
the Investor shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
purchaser of 6% Convertible Promissory Notes and Common Stock Purchase Warrants
to be joined as an additional party in any proceeding for such purpose.
6. PROSPECTUS DELIVERY REQUIREMENT.
(a) The Investor hereby covenants with the Company not to make any
sale of the Securities without complying with the provisions hereof and of the
Registration Rights Agreement, and without effectively causing the prospectus
delivery requirement under the Securities Act to be satisfied (unless the
Investor is selling such Securities in a transaction not subject to the
prospectus delivery requirement).
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7. ADDITIONAL COVENANTS OF THE COMPANY.
(a) INDEMNIFICATION OF INVESTOR. In addition to the indemnity
provided in the Registration Rights Agreement and the Security Agreement, the
Company will indemnify and hold the Investor and its directors, officers,
shareholders, partners, employees and agents (each, an "Investor Party")
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs, and reasonable attorneys' fees and costs of
investigation (collectively, "Losses") that any such Investor Party may suffer
or incur as a result of or relating to any misrepresentation, breach, or
inaccuracy of any representation, warranty, covenant, or agreement made by the
Company in any Transaction Document. In addition to the indemnity contained
herein, the Company will reimburse each Investor Party for its reasonable legal
and other expenses (including the cost of any investigation, preparation, and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred.
(b) ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of Common Stock upon conversion of Notes and exercise of the Warrants
will result in dilution of the outstanding shares of Common Stock, which
dilution may be substantial. The Company further acknowledges that its
obligation to honor conversions under the Notes and exercises under the Warrants
is unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim that the Company may have against any Investor.
(c) INTEGRATION. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Investors, or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any trading market in a manner that would require
stockholder approval of the sale of the securities to the Investors.
(d) RESERVATION OF SHARES. The Company shall maintain a reserve
from its duly authorized shares of Common Stock to comply with its conversion
obligations under the Notes. If on any date the Company would be, if notice of
conversion were to be delivered on such date, precluded from issuing the number
of shares of Common Stock issuable upon conversion of the Notes or exercise of
the Warrants, as the case may be, then the Board of Directors of the Company
shall promptly prepare and mail to the shareholders of the Company proxy
materials or other applicable materials requesting authorization to amend the
Company's certificate of incorporation or other organizational document to
increase the number of shares of Common Stock which the Company is authorized to
issue so as to provide enough shares for issuance of the Common Stock under the
Notes. In connection therewith, the Board of Directors shall (a) adopt proper
resolutions authorizing such increase, (b) recommend to and otherwise use its
best efforts to promptly and duly obtain shareholder approval to carry out such
resolutions (and hold a special meeting of the stockholders as soon as
practicable, but in any event not later than the 60th day after delivery of the
proxy or other applicable materials relating to such meeting) and (c) within
five business days of obtaining such shareholder authorization, file an
appropriate amendment to the Company's certificate of incorporation or other
organizational document to evidence such increase.
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(e) PAYMENT OF CASH DIVIDEND. The Company agrees that for so long
as any of the Notes are outstanding it will not declare, pay or make any
provision for any cash dividend or distribution with respect to the Common Stock
of the Company, without first obtaining the approval of Investors holding a
majority of the principal amount of the Notes then outstanding.
8. PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date the outstanding
indebtedness evidenced by the Investor's Note has been repaid or converted in
full, with the exception of Exempt Securities (as defined below), if the Company
authorizes the issuance or sale of any capital stock (or securities exercisable
or convertible into capital stock) (the "Offered Shares") for consideration less
than the Conversion Price (as defined in the Note) then in effect (a "Subsequent
Financing"), the Company shall first offer to sell a portion of the Offered
Shares to the Investor in accordance with this Section 8.
(b) At least 5 business days prior to the closing of the
Subsequent Financing, the Company shall deliver to the Investor a written notice
of its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask the Investor if it wants to review the details of such
financing (such additional notice, a "Subsequent Financing Notice"). Upon the
request of Investor, and only upon a request by such Investor, for a Subsequent
Financing Notice, the Company shall promptly, but no later than 1 business day
after such request, deliver a Subsequent Financing Notice to the Investor. The
Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of the Subsequent Financing, the amount of proceeds intended to be raised
thereunder, the person with whom such Subsequent Financing is proposed to be
effected, and attached to which shall be a term sheet or similar document
relating thereto.
(c) No later than 6:30 p.m. (New York City time) on the 4th
business day after the Investor has received the Pre-Notice, the Investor may
elect to purchase the Investor's Pro Rata Portion of the Offered Shares at the
price and on the terms specified in the Subsequent Financing Notice by
delivering written notice of such election to the Company. For purposes hereof,
the Investor's "Pro Rata Portion" is the ratio of (i) the number of shares of
Common Stock then beneficially owned by the Investor and its affiliates and any
other persons or entities whose beneficial ownership of Common Stock would be
aggregated with the Investor's for purposes of Section 13(d) of the Exchange Act
(including shares held by any "group" of which the holder is a member, but
excluding shares beneficially owned by virtue of the ownership of securities or
rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein), and (ii) the
Company's total outstanding Common Stock, calculated on a fully-diluted basis,
assuming the conversion of all series of the Company's issued and outstanding
preferred stock, if any, and exercise of all options, warrants and other rights
to acquire capital stock.
(d) The Company shall provide the Investor with a second
Subsequent Financing Notice, and the Investor will again have the right of
participation set forth above in this Section 8, if the Subsequent Financing
subject to the initial Subsequent Financing Notice is not consummated for any
reason substantially on terms no more favorable to the Investor than those set
forth in such Subsequent Financing Notice within 60 business days after the date
of the initial Subsequent Financing Notice.
(e) Notwithstanding the foregoing, this Section 8 shall not apply
in respect of the issuance of (i) shares of Common Stock or options to
employees, key consultant, vendors,
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officers or directors of the Company pursuant to any stock or option plan duly
adopted by the Board of Directors of the Company or a majority of the members of
a committee of non-employee directors established for such purpose, (ii)
securities upon the exercise of or conversion of any convertible securities,
options or warrants issued and outstanding on the date of this Agreement, (iii)
securities in connection with the acquisition, merger, consolidation, or other
business combination by or of the Company with, by, or of any person, the
primary purpose of which is not to raise capital, including securities issued by
the Company upon its exercise of rights to do any of the foregoing; (iv)
securities issued to parties to commercial contracts as consideration thereunder
primarily for purposes other than to raise capital, and (v) securities to third
parties in payment of trade payables which have accrued as of the date of this
Agreement (collectively, the "Exempt Securities").
(f) The value of any consideration to be paid for Offered Shares
shall be determined as follows: (i) in the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof; (ii) in the case of
the issuance of the Common Stock for consideration in whole or in part other
than cash, the consideration other than cash shall be deemed to be the fair
value thereof as determined in good faith by the Board of Directors; (iii) in
the case of the issuance of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply:
(A) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any
conditions to the right to exercise, including, without limitation, the
passage of time, but without taking into account potential antidilution
adjustments) of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such
options or rights are issued and for a consideration equal to the
consideration (determined in accordance with this Section 8), if any,
received by the Company upon the issuance of such options or rights
plus the minimum exercise price provided in such options or rights
(without taking into account potential antidilution adjustments) for
the Common Stock covered thereby; and
(B) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking
into account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or
such options or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Company
(without taking into account potential antidilution adjustments) upon
the conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in this Section 8).
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9. NON-PUBLIC INFORMATION. Subsequent to the Closing, the Company
covenants and agrees that neither it nor any other person acting on its behalf
will provide Investor or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto Investor shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that Investor shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
10. FURTHER ASSURANCES. The parties hereto will, upon reasonable request,
execute and deliver all such further assignments, endorsements and other
documents as may be necessary in order to perfect the purchase by the Investor
of the Securities.
11. ENTIRE AGREEMENT; AMENDMENTS; WAIVERS; NO ADDITIONAL CONSIDERATION.
This Agreement contains the entire agreement among the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings with respect thereto. No provision of this Agreement may be
waived or amended except in a written instrument signed by the Company and the
Investors holding at least 80% of the principal amount of the Notes then
outstanding. No waiver of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right. No consideration shall be offered or paid to any Investor to
amend or consent to a waiver or modification of any provision of any Transaction
Document unless the same consideration is also offered to all Investors who then
hold Securities.
12. BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successors
and assigns; however, nothing in this Agreement, expressed or implied, is
intended to confer on any other person other than the parties hereto, or their
respective heirs, successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
14. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the United States of America and the
State of Delaware, both substantive and remedial.
15. PREVAILING PARTIES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party shall be entitled to receive and the
nonprevailing party shall pay upon demand reasonable attorneys' fees in addition
to any other remedy.
16. NOTICES. All communication hereunder shall be in writing and, if sent
to you shall be mailed, delivered, telegraphed or sent by facsimile or
electronic mail, and confirmed to an Investor at the address set forth on the
signature page of this Agreement, or if sent to the Company, shall be mailed,
delivered, telegraphed or sent by facsimile or electronic mail and confirmed to
the Company at 00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxx Xxxxx, Xxxxxxxxxx,
Attention: Xxxxx Xxxx, Chief Executive Office, telephone number (000) 000-0000.
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17. HEADINGS. The section headings herein are included for convenience only
and are not to be deemed a part of this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
TAG-IT PACIFIC, INC.,
a Delaware corporation
By:
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Name: Xxxxx Xxxx
Its: Chief Executive Officer
INVESTOR
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By:
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Print Name and Title
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Principal Residence or Executive Office
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IRS Tax Identification No.
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Telephone Number
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Fax Number
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E-mail Address
Committed Amount: $
--------------------------
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