EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made and
entered into as of the 9th day of November, 2004 (the "EFFECTIVE DATE") between
Tag-It Pacific, Inc., a Delaware corporation (the "COMPANY"), and the parties
set forth on the signature page and Exhibit A hereto (each, a "PURCHASER" and
collectively, the "PURCHASERS"), and Xxxxxxx Xxxxxx Xxxxxx Inc. ("SMH").
R E C I T A L S:
A. The Purchasers have purchased 6% convertible promissory notes
(the "NOTES"), convertible into shares of Common Stock (as defined below), and
Common Stock Purchase Warrants (the "WARRANTS") entitling the holders thereof to
purchase shares of Common Stock, pursuant to Subscription Agreements (each, a
"SUBSCRIPTION AGREEMENT" and collectively, the "SUBSCRIPTION AGREEMENTS") by and
between the Company and each Purchaser.
B. The Company has issued a warrant (the "AGENT'S WARRANT") to
purchase shares of the Company's Common Stock to SMH.
C. The Company, the Purchasers, and SMH desire to set forth the
registration rights to be granted by the Company to the Purchasers and SMH.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth herein and in
the Subscription Agreements, the parties mutually agree as follows:
A G R E E M E N T:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"APPROVED MARKET" means the Nasdaq National Market, the Nasdaq SmallCap
Market, the New York Stock Exchange, Inc., or the American Stock Exchange, Inc.
"BUSINESS DAY" means any day of the year, other than a Saturday,
Sunday, or other day on which the Commission is required or authorized to close.
"CLOSING DATE" means November 9, 2004, or such other time as is
mutually agreed between the Company and the Purchasers for the closing of the
sale referred to in Recital A above.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" means the common stock, par value $.001 per share, of
the Company and any and all shares of capital stock or other equity securities
of: (i) the Company which are added to or exchanged or substituted for the
Common Stock by reason of the declaration of any stock dividend or stock split,
the issuance of any distribution or the reclassification, readjustment,
recapitalization or other such modification of the capital structure of the
Company; and (ii) any other corporation, now or
hereafter organized under the laws of any state or other governmental authority,
with which the Company is merged, which results from any consolidation or
reorganization to which the Company is a party, or to which is sold all or
substantially all of the shares or assets of the Company, if immediately after
such merger, consolidation, reorganization or sale, the Company or the
stockholders of the Company own equity securities having in the aggregate more
than 50% of the total voting power of such other corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"FAMILY MEMBER" means (a) with respect to any individual, such
individual's spouse, any descendants (whether natural or adopted), any trust all
of the beneficial interests of which are owned by any of such individuals or by
any of such individuals together with any organization described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended, the estate of any
such individual, and any corporation, association, partnership or limited
liability company all of the equity interests of which are owned by those above
described individuals, trusts or organizations and (b) with respect to any
trust, the owners of the beneficial interests of such trust.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any registration form under the Securities Act subsequently
adopted by the Commission, which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the Commission.
"HOLDER" means each Purchaser, SMH, or any of such Purchaser's
respective successors and Permitted Assigns who acquire rights in accordance
with this Agreement with respect to the Registrable Securities directly or
indirectly from a Purchaser or SMH, including from any Permitted Assignee.
"INSPECTOR" means any attorney, accountant, or other agent retained by
a Purchaser for the purposes provided in Section 4(j).
"MAJORITY HOLDERS" means at any time Holders of a majority of the
Registrable Securities.
"PERMITTED ASSIGNEE" means any person or entity to whom is transferred
Registrable Securities in accordance with Section 7 hereof.
The terms "REGISTER," "REGISTERED," and "REGISTRATION" refers to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" means shares of Common Stock issued or
issuable to (i) each Purchaser upon conversion of principal or accrued interest
on the Notes, (ii) each Purchaser upon exercise of the Warrants, or (iii) SMH
pursuant to the Agent's Warrant, EXCLUDING (x) any Registrable Securities that
have been publicly sold or may be publicly sold immediately without registration
under the Securities Act either pursuant to Rule 144 of the Securities Act or
otherwise; (y) any Registrable Securities sold by a person in a transaction
pursuant to a registration statement filed under the Securities Act or (z) any
Registrable Securities that are at the time subject to an effective registration
statement under the Securities Act.
"REGISTRATION DEFAULT DATE" means the date which is 60 days following
the Closing Date;
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PROVIDED, HOWEVER, (i) if the Registration Statement is subject to review by the
SEC staff, the Registration Default Date shall be the date which is 150 days
following the Closing Date; (ii) if the Registration Statement is not subject to
review by the SEC staff and the 60th day following the Closing Date falls during
an S-3 Blackout Period, the Registration Default Date shall be the date
immediately following the last day of such S-3 Blackout Period, (iii) if the
Registration Statement is subject to review by the SEC staff and the Company is
unable to file necessary pre-effective amendments to the Registration Statement
with the SEC because of an S-3 Blackout Period, the Registration Default Date
shall be extended by the number of calendar days that the Company is unable to
file any such pre-effective amendment during any such S-3 Blackout Period that
occurs prior to the end of the 150-day period, and (iv) if the Registration
Statement is subject to review by the SEC staff and the Company is unable in the
ordinary course of business to comply with Rule 3-12(b) of Regulation S-X, the
Registration Default Date shall be the date ten Business Days following the date
the Company files its Annual Report on Form 10-K for the year ending December
31, 2004, but no later than April 14, 2005.
"REGISTRATION DEFAULT PERIOD" means the period following the
Registration Default Date during which any Registration Event occurs and is
continuing.
"REGISTRATION EVENT" means the occurrence of any of the following
events:
(a) the Company fails to file with the SEC the Registration
Statement on or before the Registration Filing Date pursuant to Section
3(a),
(b) the Registration Statement covering Registrable Securities
is not declared effective by the Commission on or before the
Registration Default Date,
(c) after the SEC Effective Date, sales cannot be made
pursuant to the Registration Statement for any reason (including
without limitation by reason of a stop order, or the Company's failure
to update the Registration Statement) but except as excused pursuant to
Section 3(a) or for the reasons specified in clause (d), or
(d) the Common Stock generally or the Registrable Securities
specifically are not listed or included for quotation on an Approved
Market, or trading of the Common Stock is suspended or halted on the
Approved Market, which at the time constitutes the principal market for
the Common Stock, for more than two full, consecutive Trading Days;
PROVIDED, HOWEVER, a Registration Event shall not be deemed to occur if
all or substantially all trading in equity securities (including the
Common Stock) is suspended or halted on the Approved Market for any
length of time.
"REGISTRATION STATEMENT" means the registration statement required to
be filed by the Company pursuant to Section 3(a).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute promulgated in replacement thereof, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"SEC EFFECTIVE DATE" means the date the Registration Statement is
declared effective by the Commission.
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"S-3 BLACKOUT PERIOD" means, with respect to a registration, a period
in each case commencing on the day immediately after the Company notifies the
Purchasers and SMH that they are required, pursuant to Section 4(f), to suspend
offers and sales of Registrable Securities during which the Company, in the good
faith judgment of its Board of Directors, determines (because of the existence
of, or in anticipation of, any acquisition, financing activity, or other
transaction involving the Company, or the unavailability for reasons beyond the
Company's control of any required financial statements, disclosure of
information which is in its best interest not to publicly disclose, or any other
event or condition of similar significance to the Company) that the registration
and distribution of the Registrable Securities to be covered by such
registration statement, if any, would be seriously detrimental to the Company
and its shareholders and ending on the earlier of (1) the date upon which the
material non-public information commencing the S-3 Blackout Period is disclosed
to the public or ceases to be material and (2) such time as the Company notifies
the selling Holders that the Company will no longer delay such filing of the
Registration Statement, recommence taking steps to make such Registration
Statement effective, or allow sales pursuant to such Registration Statement to
resume; PROVIDED, HOWEVER, that (a) the Company shall limit its use of S-3
Blackout Periods, in the aggregate, to 30 Trading Days in any 12-month period
and (b) no S-3 Blackout Period may commence sooner than 60 days after the end of
a prior S-3 Blackout Period.
"TRADING DAY" means a day on whichever (a) the national securities
exchange, (b) the Nasdaq Stock Market, or (c) such other securities market, in
any such case which at the time constitutes the principal securities market for
the Common Stock, is open for general trading of securities.
2. TERM. This Agreement shall continue in full force and effect
for a period of three (3) years from the Effective Date, unless terminated
sooner hereunder.
3. REGISTRATION.
(a) REGISTRATION ON FORM S-3. As promptly as reasonably
practicable after the date hereof, but in any event not later than 30 days after
the Closing Date (the "REGISTRATION FILING DATE"), the Company shall file with
the Commission a shelf registration statement on Form S-3 relating to the resale
by the Holders of all of the Registrable Securities; PROVIDED, HOWEVER, that the
Company shall not be obligated to effect any such registration, qualification,
or compliance pursuant to this Section 3(a), or keep such registration effective
pursuant to Section 4 during any S-3 Blackout Period, in which case the
Registration Filing Date shall be extended to the date immediately following the
last day of such S-3 Blackout Period.
(b) PIGGYBACK REGISTRATION. If the Company shall determine to
register for sale for cash any of its Common Stock, for its own account or for
the account of others (other than the Holders), other than (i) a registration
relating solely to employee benefit plans or securities issued or issuable to
employees, consultants (to the extent the securities owned or to be owned by
such consultants could be registered on Form S-8) or any of their Family Members
(including a registration on Form S-8) or (ii) a registration relating solely to
a Commission Rule 145 transaction, a registration on Form S-4 in connection with
a merger, acquisition, divestiture, reorganization, or similar event, the
Company shall promptly give to the Holders written notice thereof (and in no
event shall such notice be given less than 20 calendar days prior to the filing
of such registration statement), and shall, subject to Section 3(c), include in
such registration (and any related qualification under blue sky laws or other
compliance) (a "PIGGYBACK REGISTRATION"), all of the Registrable Securities
specified in a written request or requests, made within 10 calendar days after
receipt of such written notice from the Company, by any Holder or
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Holders. However, the Company may, without the consent of the Holders, withdraw
such registration statement prior to its becoming effective if the Company or
such other shareholders have elected to abandon the proposal to register the
securities proposed to be registered thereby.
(c) UNDERWRITING. If a Piggyback Registration is for a registered
public offering involving an underwriting, the Company shall so advise the
Holders in writing or as a part of the written notice given pursuant to Section
3(b). In such event the right of any Holder to registration pursuant to Section
3(b) shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and any other
shareholders of the Company distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company or
selling shareholders, as applicable. Notwithstanding any other provision of this
Section 3(c), if the underwriter or the Company determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may exclude some or all Registrable Securities from such
registration and underwriting. The Company shall so advise all Holders (except
those Holders who failed to timely elect to distribute their Registrable
Securities through such underwriting or have indicated to the Company their
decision not to do so), and the number of shares of Registrable Securities that
may be included in the registration and underwriting, if any, shall be allocated
among such Holders as follows:
(i) In the event of a Piggyback Registration that is
initiated by the Company, the number of shares that may be included in
the registration and underwriting shall be allocated first to the
Company and then, subject to obligations and commitments existing as of
the date hereof, to all selling shareholders, including the Holders,
who have requested to sell in the registration on a pro rata basis
according to the number of shares requested to be included; and
(ii) In the event of a Piggyback Registration that is
initiated by the exercise of demand registration rights by a
shareholder or shareholders of the Company (other than the Holders),
then the number of shares that may be included in the registration and
underwriting shall be allocated first to such selling shareholders who
exercised such demand and then, subject to obligations and commitments
existing as of the date hereof, to all other selling shareholders,
including the Holders, who have requested to sell in the registration,
on a pro rata basis according to the number of shares requested to be
included.
No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities and/or other securities so withdrawn
from such underwriting shall also be withdrawn from such registration; PROVIDED,
HOWEVER, that, if by the withdrawal of such Registrable Securities a greater
number of Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities pursuant to the terms and limitations set forth herein in the same
proportion used above in determining the underwriter limitation.
(e) OTHER REGISTRATIONS. Prior to the SEC Effective Date the
Company will not, without the prior written consent of the Majority Holders,
file or request the acceleration of any other registration statement filed with
the Commission, and during any time subsequent to the SEC Effective
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Date when the Registration Statement for any reason is not available for use by
any Holder for the resale of any Registrable Securities, the Company shall not,
without the prior written consent of the Majority Holders, file any other
registration statement or any amendment thereto with the Commission under the
Securities Act or request the acceleration of the effectiveness of any other
registration statement previously filed with the Commission, other than (A) any
registration statement on Form S-8 or Form S-4 and (B) any registration
statement or amendment which the Company is required to file or as to which the
Company is required to request acceleration pursuant to any obligation in effect
on the date of execution and delivery of this Agreement.
(f) FAILURE TO FILE REGISTRATION STATEMENT. If a Registration
Event occurs, then the Company will make payments to each Purchaser and SMH (to
the extent that it has exercised the Agent's Warrant)(a "QUALIFIED PURCHASER"),
as partial liquidated damages for the minimum amount of damages to the Qualified
Purchaser by reason thereof, and not as a penalty, at a rate equal to $0.0365
per share of Common Stock that may then be acquired by such Qualified Purchaser
upon conversion of the principal amount of the Notes and Common Stock that
already has been acquired by such Qualified Purchaser upon exercise of the
Warrants or the Agent's Warrants or upon conversion of principal or accrued
interest on the Notes (the "DEFAULT SHARES"), per month, for each calendar month
of the Registration Default Period (pro rated for any period less than 30 days);
provided, however, if a Registration Event occurs (or is continuing) on a date
more than one-year after the Qualified Purchaser acquired the Registrable
Securities (and thus the one-year holding period under Rule 144(d) has elapsed),
liquidated damages shall be paid only with respect to that portion of a
Qualified Purchaser's Default Shares that cannot then be immediately resold in
reliance on Rule 144. Each such payment shall be due and payable within five
days after the end of each calendar month of the Registration Default Period
until the termination of the Registration Default Period and within five days
after such termination. Such payments shall be in partial compensation to the
Qualified Purchaser, and shall not constitute the Qualified Purchaser's
exclusive remedy for such events. The Registration Default Period shall
terminate upon (i) the filing of the Registration Statement in the case of
clause (a) of the definition of "Registration Event," (ii) the SEC Effective
Date in the case of clause (b) of the definition of "Registration Event," (iii)
the ability of the Qualified Purchaser to effect sales pursuant to the
Registration Statement in the case of clause (c) of the definition of
"Registration Event," (iv) the listing or inclusion and/or trading of the Common
Stock on an Approved Market, as the case may be, in the case of clause (d) of
the definition of "Registration Event," and (v) in the case of the events
described in clauses (b) and (c) of the definition of "Registration Event," the
earlier termination of the Registration Default Period. The amounts payable as
partial liquidated damages pursuant to this paragraph shall be payable in lawful
money of the United States. Amounts payable as partial liquidated damages to
each Qualified Purchaser hereunder with respect to each Default Share shall
cease when the Qualified Purchaser no longer holds such Default Share or such
Default Share can be immediately sold by the Qualified Purchaser in reliance on
Rule 144. Each Purchaser and SMH acknowledges and agrees that the partial
liquidated damages provided for in this Section 3(f) shall apply to Registrable
Securities of such Purchaser or SMH that consist of shares of Common Stock that
have not, at the time determination, been acquired upon exercise of the Warrants
or Agent's Warrants, as the case may be, or shares of Common Stock that have
not, at the time determination, been issued upon conversion of interest that has
accrued or will accrue on the principal amount of the Notes.
4. REGISTRATION PROCEDURES. In the case of each registration,
qualification, or compliance effected by the Company pursuant to Section 3
hereof, the Company will keep each Holder including securities therein
reasonably advised in writing (which may include e-mail) as to the initiation of
each registration, qualification, and compliance and as to the completion
thereof. At its expense with respect to any registration statement filed
pursuant to Section 3, the Company will:
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(a) prepare and file with the Commission with respect to such
Registrable Securities, a registration statement on Form S-3 or any other form
for which the Company then qualifies or which counsel for the Company shall deem
appropriate, and which form shall be available for the sale of the Registrable
Securities in accordance with the intended method(s) of distribution thereof,
and use its commercially reasonable efforts to cause such registration statement
to become and remain effective at least for a period ending with the first to
occur of (i) the sale of all Registrable Securities covered by the registration
statement, (ii) the availability under Rule 144 for the Holder to immediately,
freely resell without restriction all Registrable Securities covered by the
registration statement, and (iii) one year after a registration statement filed
pursuant to Section 3(a) is declared effective by the Commission (in either
case, the "EFFECTIVENESS PERIOD"); PROVIDED, HOWEVER, if at the end of such
one-year period, any Holder is not able to immediately, freely resell all
Registrable Securities that it owns, the Effectiveness Period shall continue
until terminated pursuant to clause (i) or (ii); provided that no later than two
business days before filing with the Commission a registration statement or
prospectus or any amendments or supplements thereto, the Company shall (i)
furnish to each Holder a copy of the "Plan of Distribution" and "Selling
Shareholder" portions of the registration statement and the other portions of
such documents proposed to be filed that the Company considers not to contain
material, non-public information (excluding any exhibits other than applicable
underwriting documents), in substantially the form proposed to be filed and (ii)
notify each Holder of Registrable Securities covered by such registration
statement of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered;
(b) if a registration statement is subject to review by the
Commission, promptly respond to all comments and diligently pursue resolution of
any comments to the satisfaction of the Commission;
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
during the Effectiveness Period (but in any event at least until expiration of
the 90-day period referred to in Section 4(3) of the Securities Act and Rule
174, or any successor thereto, thereunder, if applicable), and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended method(s) of disposition by the sellers thereof set
forth in such registration statement;
(d) furnish, without charge, to each Holder of Registrable
Securities covered by such registration statement (i) a reasonable number of
copies of such registration statement (including any exhibits thereto other than
exhibits incorporated by reference), each amendment and supplement thereto as
such Holder may request, (ii) such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus and any
other prospectus filed under Rule 424 under the Securities Act) as such Holders
may request, in conformity with the requirements of the Securities Act, and
(iii) such other documents as such Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Holder,
but only during the Effectiveness Period;
(e) use its commercially reasonable best efforts to register or
qualify such Registrable Securities under such other applicable securities or
blue sky laws of such jurisdictions as any Holder of Registrable Securities
covered by such registration statement reasonably requests as may be necessary
for the marketability of the Registrable Securities (such request to be made by
the time the applicable registration statement is deemed effective by the
Commission) and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the disposition
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in such jurisdictions of the Registrable Securities owned by such Holder;
PROVIDED that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (e), (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction;
(f) as promptly as practicable after becoming aware of such event,
notify each Holder of such Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event which comes to the Company's attention if as a result of
such event the prospectus included in such registration statement contains an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and the Company shall promptly prepare and furnish to such Holder a supplement
or amendment to such prospectus (or prepare and file appropriate reports under
the Exchange Act) so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, unless suspension of
the use of such prospectus otherwise is authorized herein or in the event of an
S-3 Blackout Period, in which case no supplement or amendment need be furnished
(or Exchange Act filing made) until the termination of such suspension or S-3
Blackout Period;
(g) comply, and continue to comply during the period that such
registration statement is effective under the Securities Act, in all material
respects with the Securities Act and the Exchange Act and with all applicable
rules and regulations of the Commission with respect to the disposition of all
securities covered by such registration statement, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first full calendar month after the SEC
Effective Date, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act.
(h) as promptly as practicable after becoming aware of such event,
notify each Holder of Registrable Securities being offered or sold pursuant to
the Registration Statement of the issuance by the Commission of any stop order
or other suspension of effectiveness of the Registration Statement at the
earliest possible time;
(i) permit the Holders of Registrable Securities being included in
the Registration Statement and their legal counsel, at such Holders' sole cost
and expense (except as otherwise specifically provided in Section 6) to review
and have a reasonable opportunity to comment on the Registration Statement and
all amendments and supplements thereto at least two Business Days prior to their
filing with the Commission and shall not file any such document to which the
Majority Holders reasonably object;
(j) make available for inspection by any Holder and any Inspector
retained by such Holder, at such Holder's sole expense, all Records as shall be
reasonably necessary to enable such Holder to exercise its due diligence
responsibility, and cause the Company's officers, directors, and employees to
supply all information which such Holder or any Inspector may reasonably request
for purposes of such due diligence; PROVIDED, HOWEVER, that such Holder shall
hold in confidence and shall not make any disclosure of any record or other
information which the Company determines in good faith to be confidential, and
of which determination such Holder is so notified at the time such Holder
receives such information, unless (i) the disclosure of such record is necessary
to avoid or correct a misstatement or omission in the Registration Statement and
a reasonable time prior to such disclosure the Holder shall have informed the
Company of the need to so correct such misstatement or omission
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and the Company shall have failed to correct such misstatement of omission, (ii)
the release of such record is ordered pursuant to a subpoena or other order from
a court or governmental body of competent jurisdiction or (iii) the information
in such record has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such records to any
Inspector until and unless such Inspector shall have entered into a
confidentiality agreement with the Company with respect thereto, substantially
in the form of this Section 4(j), which agreement shall permit such Inspector to
disclose records to the Holder who has retained such Inspector. Each Holder
agrees that it shall, upon learning that disclosure of such Records is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at the Company's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, the records deemed confidential. The Company shall hold
in confidence and shall not make any disclosure of information concerning a
Holder provided to the Company pursuant to this Agreement unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) disclosure of such information to the Staff of the Division of
Corporation Finance is necessary to respond to comments raised by the Staff in
its review of the Registration Statement, (iii) disclosure of such information
is necessary to avoid or correct a misstatement or omission in the Registration
Statement, (iv) release of such information is ordered pursuant to a subpoena or
other order from a court or governmental body of competent jurisdiction, or (v)
such information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning a Holder
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to such Holder and allow such Holder, at
such Holder's expense, to undertake appropriate action to prevent disclosure of,
or to obtain a protective order for, such information;
(k) use its best efforts to cause all the Registrable Securities
covered by the Registration Statement to be quoted on the American Stock
Exchange or such other principal securities market on which securities of the
same class or series issued by the Company are then listed or traded;
(l) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities at all times;
(m) cooperate with the Holders of Registrable Securities being
offered pursuant to the Registration Statement to issue and deliver certificates
(not bearing any restrictive legends) representing Registrable Securities to be
offered pursuant to the Registration Statement within five Trading Days after
delivery of certificates to the Company and enable such certificates to be in
such denominations or amounts as the Holders may reasonably request and
registered in such names as the Holders may request;
(n) during the Effectiveness Period, refrain from bidding for or
purchasing any Common Stock or any right to purchase Common Stock or attempting
to induce any Person to purchase any such security or right if such bid,
purchase or attempt would in any way limit the right of the Holders to sell
Registrable Securities by reason of the limitations set forth in Regulation M
under the 1934 Act; and
(o) take all other reasonable actions necessary to expedite and
facilitate disposition by the Holders of the Registrable Securities pursuant to
the Registration Statement.
5. SUSPENSION OF OFFERS AND SALES. Each Holder of Registrable
Securities agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in
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Section 4(f) hereof or of the commencement of an S-3 Blackout Period, such
Holder shall discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 4(f) hereof or notice of the end of the S-3 Blackout Period, and, if so
directed by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies (including, without limitation, any and all
drafts), other than permanent file copies, then in such Holder's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice, the
period mentioned in Section 4(a)(iii) hereof shall be extended by the greater of
(i) ten business days or (ii) the number of days during the period from and
including the date of the giving of such notice pursuant to Section 4(f) hereof
to and including the date when each Holder of Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 4(f) hereof.
6. REGISTRATION EXPENSES. The Company shall pay all expenses in
connection with any registration, including, without limitation, all
registration, filing, stock exchange fees, printing expenses, all fees and
expenses of complying with securities or blue sky laws, and the fees and
disbursements of counsel for the Company and of its independent accountants;
provided that, in any underwritten registration, each party shall pay for its
own underwriting discounts and commissions and transfer taxes. Except as
provided above in this Section 6 and Section 9, the Company shall not be
responsible for the expenses of any attorney or other advisor employed by a
Holder of Registrable Securities.
7. ASSIGNMENT OF RIGHTS. A Holder may transfer and assign its
rights under this Agreement to any person or entity as long as (a) such transfer
or assignment is effected in accordance with applicable securities laws; (b)
such transferee or assignee agrees in writing to become subject to the terms of
this Agreement; and (c) the Company is given written notice by such Holder of
such transfer or assignment, stating the name and address of the transferee or
assignee and identifying the Registrable Securities with respect to which such
rights are being transferred or assigned.
8. INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing.
9. INDEMNIFICATION.
(a) In the event of the offer and sale of Registrable Securities
held by Holders under the Securities Act, the Company shall, and hereby does,
indemnify and hold harmless, to the fullest extent permitted by law, each
Holder, its directors, officers, partners, each other person who participates as
an underwriter in the offering or sale of such securities, and each other
person, if any, who controls or is under common control with such Holder or any
such underwriter within the meaning of Section 15 of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, and expenses to
which the Holder or any such director, officer, partner or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such shares
were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact
10
required to be stated therein or necessary to make the statements therein in
light of the circumstances in which they were made not misleading, and the
Company shall reimburse the Holder, and each such director, officer, partner,
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating, defending or
settling any such loss, claim, damage, liability, action or proceeding; provided
that the Company shall not be liable in any such case (i) to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by or on behalf of
such Holder specifically stating that it is for use in the preparation thereof,
(ii) provided that the Company has complied with its obligations hereunder to
furnish such Holder with copies of the applicable prospectus, if the person
asserting any such loss, claim, damage, liability (or action or proceeding in
respect thereof) who purchased the Registrable Securities that are the subject
thereof did not receive a copy of an amended preliminary prospectus or the final
prospectus (or the final prospectus as amended or supplemented) at or prior to
the written confirmation of the sale of such Registrable Securities to such
person because of the failure of such Holder or underwriter to so provide such
amended preliminary or final prospectus and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact made in such
preliminary prospectus was corrected in the amended preliminary or final
prospectus (or the final prospectus as amended or supplemented), or (iii)
provided that the plan of distribution mechanics described in the applicable
prospectus are, in form and substance, reasonable and customary for transactions
of this type, to the extent that the Holders failed to comply with the terms of
such plan of distribution mechanics. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Holders,
or any such director, officer, partner, underwriter or controlling person and
shall survive the transfer of such shares by the Holder.
(b) As a condition to including any Registrable Securities to be
offered by a Holder in any registration statement filed pursuant to this
Agreement, each such Holder agrees to be bound by the terms of this Section 9
and to indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors and officers, and each other person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information about such Holder as a Holder of the
Company furnished to the Company, and such Holder shall reimburse the Company,
and each such director, officer, and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating,
defending, or settling and such loss, claim, damage, liability, action, or
proceeding; PROVIDED, HOWEVER, that such indemnity agreement found in this
Section 9(b) shall in no event exceed the gross proceeds from the offering
received by such Holder. Such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling person and shall survive the transfer by any
Holder of such shares.
11
(c) Promptly after receipt by an indemnified party of notice of
the commencement of any action or proceeding involving a claim referred to in
Section 9(a) or (b) hereof (including any governmental action), such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the indemnifying party of the commencement of such
action; provided that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under Section 9(a) or (b) hereof, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in the reasonable
judgment of counsel to such indemnified party a conflict of interest between
such indemnified and indemnifying parties may exist or the indemnified party may
have defenses not available to the indemnifying party in respect of such claim,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party
and, after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties arises in respect of such claim after the
assumption of the defenses thereof or the indemnifying party fails to defend
such claim in a diligent manner, other than reasonable costs of investigation.
Neither an indemnified nor an indemnifying party shall be liable for any
settlement of any action or proceeding effected without its consent. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement, which 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. Notwithstanding anything to the contrary set forth herein, and
without limiting any of the rights set forth above, in any event any party shall
have the right to retain, at its own expense, counsel with respect to the
defense of a claim.
(d) In the event that an indemnifying party does or is not
permitted to assume the defense of an action pursuant to Section 9(c) or in the
case of the expense reimbursement obligation set forth in Section 9(a) and (b),
the indemnification required by Section 9(a) and (b) hereof shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills received or expenses, losses, damages, or
liabilities are incurred.
(e) If the indemnification provided for in this Section 9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall (i) contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
as is appropriate to reflect the proportionate relative fault of the
indemnifying party on the one hand and the indemnified party on the other
(determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission relates to information supplied
by the indemnifying party or the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission), or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, not only the
proportionate relative fault of the indemnifying party and the indemnified
party, but also the relative benefits received by the indemnifying party on the
one hand and the indemnified party on the other, as well as any other relevant
equitable considerations. No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any indemnifying party who was not guilty
of such fraudulent misrepresentation.
12
(f) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subsections of this Section 9 (with appropriate
modifications) shall be given by the Company and each Holder of Registrable
Securities with respect to any required registration or other qualification of
securities under any federal or state law or regulation or governmental
authority other than the Securities Act.
10. RULE 144. For a period of at least 24 months following the
Closing Date, the Company will use its commercially reasonable best efforts (a)
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), (b) if the Company is not required to file reports
pursuant to such sections, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell shares of Common Stock under Rule 144, and
(c) to take such further action as any holder of shares of Common Stock may
reasonably request, all to the extent required from time to time to enable the
Purchasers to sell shares of Common Stock 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 of Common Stock under Rule
144 upon receipt of appropriate documentation relating to such sale.
11. INDEPENDENT NATURE OF EACH PURCHASER'S OBLIGATIONS AND RIGHTS.
The obligations of each Purchaser under this Agreement are several and not joint
with the obligations of any other Purchaser, and each Purchaser shall not be
responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement. The decision of each Purchaser to purchase the
Notes and Warrants and the Common Stock that may be acquired upon conversion or
exercise of the Notes and Warrants and enter into this Agreement has been made
by each Purchaser independently of any other Purchaser. Nothing contained herein
and no action taken by any Purchaser pursuant hereto, 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 are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement. Each Purchaser acknowledges that no
other Purchaser has acted as agent for the Purchaser in connection with making
its investment in the Notes and Warrants and the Common Stock that may be
acquired upon conversion or exercise of the Notes and Warrants and that no other
Purchaser will be acting as agent of the Purchaser in connection with monitoring
its investment in the Notes and Warrants and the Common Stock that may be
acquired upon conversion or exercise of the Notes and Warrants or enforcing its
rights under this Agreement. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
12. MISCELLANEOUS
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware and the United
States of America, both substantive and remedial.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, Permitted Assigns, executors and administrators of the parties
hereto. In the event the Company merges with, or is otherwise acquired by, a
direct or indirect subsidiary of a publicly traded company, the Company shall
condition the
13
merger or acquisition on the assumption by such parent company of the Company's
obligations under this Agreement.
(c) ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof.
(d) NOTICES, ETC. All notices or other communications which are
required or permitted under this Agreement shall be in writing and sufficient if
delivered by hand, by 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 the Purchasers: To each Purchaser at the address
set forth on Exhibit A
with a copy to: 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.
(e) DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any Holder of any Registrable Securities,
upon any breach or default of the Company under this Agreement, shall impair any
such right, power or remedy of such Holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Holder of any breach or default under
this Agreement, or any waiver on the part of any Holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
14
(g) SEVERABILITY. In the case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
(h) AMENDMENTS. The provisions of this Agreement may be amended at
any time and from time to time, and particular provisions of this Agreement may
be waived, with and only with an agreement or consent in writing signed by the
Company and by the holders of an 80% majority of the number of shares of
Registrable Securities outstanding as of the date of such amendment or waiver.
The Purchasers acknowledge that by the operation of this Section 12(h), the
holders of an 80% majority of the outstanding Registrable Securities may have
the right and power to diminish or eliminate all rights of the Purchasers under
this Agreement.
(i) LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date
of this Agreement, the Company shall not, without the prior written consent of
the Holders of at least a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company that would grant such holder registration rights
senior to those granted to the Holders hereunder.
[Signatures on following page]
15
This Registration Rights Agreement is hereby executed as of the date
first above written.
COMPANY:
TAG-IT PACIFIC, INC.
By: /s/ Xxxxx Xxxx
---------------------------------
Name: Xxxxx Xxxx
Its: Chief Executive Officer
XXXXXXX XXXXXX XXXXXX INC.
By: /s/ Xxxxx X. Xxxxx
---------------------------------
Name: Xxxxx X. Xxxxx
Its: Vice President
PURCHASER:
THE PINNACLE FUND, L.P.
-----------------------
(Print Name)
By: /s/ Xxxxx X. Xxxx
--------------------------------------------
Name: Xxxxx X. Xxxx
Sole Member, Pinnacle Fund Management, LLC,
the GP of Pinnacle Advisers, LP, the GP of
The Pinnacle Fund, LP
WESTPARK CAPITAL, L.P.
-----------------------
(Print Name)
By: /s/ X.X. Xxxxxxxxx
--------------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Its: General Partner
FLYLINE HOLDINGS LIMITED
------------------------
(Print Name)
By: /s/ W. Xxxxxxx Xxxxxx
--------------------------------------------
Name: W. Xxxxxxx Xxxxxx
Its: Director
16
XXXXXXX MAPLE TRADING, LTD.
--------------------------
(Print Name)
By: /s/ Xxxxx X. Xxxx
--------------------------------------------
Name: Xxxxx X. Xxxx
Title: VP, Xxxxxxx Capital Management, LLC,
Sub-Investment Advisor to Xxxxxxx Maple Trading, Ltd.
ATLAS CAPITAL MASTER FUND
By: Atlas Capital Offshore Fund, Ltd.
/s/ Xxxxxx X. Xxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxx, Director
By: Atlas Capital, L.P., its General Partner
By: RHA, Inc., its General Partner
/s/ Xxxxxx X. Xxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxx, President
ATLAS CAPITAL (Q.P.), L.P.
By: Atlas Capital Management, L.P., its General Partner
By: RHA, Inc., its General Partner
/s/ Xxxxxx X. Xxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxx, President
ACM PARTNERS, L.P.
By: Atlas Capital Management, L.P., its General Partner
By: RHA, Inc., its General Partner
/s/ Xxxxxx X. Xxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxx, President
17
XXXXXXXXX PARTNERS, L.P.
-----------------------
(Print Name)
By: /s/ Xxxxxx Xxxxxxx
--------------------------------------------
Name: Xxxxxx X. Xxxxxxx
Its: Managing Director
18
EXHIBIT A
PURCHASER INFORMATION
NAME ADDRESS
The Pinnacle Fund, L.P. 0000 Xxxxxxx Xx., #000
Xxxxx, XX 00000
Attn: Xxxxx Xxxx
Westpark Capital, L.P. 0000 Xxxxxxx Xx., #000
Xxxxx, XX 00000
Attn: Xxx Xxxxxxxxx
Flyline Holdings Limited 000 X. 0xx Xxxxxx, #000
Xx. Xxxxx, XX 00000
Attn: Frosty Xxxxxx
Xxxxxxx Maple Trading, Ltd. 000 X. 0xx Xxxxxx, #000
Xx. Xxxxx, XX 00000
Attn: Frosty Tempel
Atlas Capital Master Fund 000 Xxxxxxxx Xxxxx, #000
Xxxxxx, XX 00000
Attn: Xxxxxx Xxxxxx
Atlas Capital (Q.P.), L.P. 000 Xxxxxxxx Xxxxx, #000
Xxxxxx, XX 00000
Attn: Xxxxxx Xxxxxx
ACM Partners, L.P. 000 Xxxxxxxx Xxxxx, #000
Xxxxxx, XX 00000
Attn: Xxxxxx Xxxxxx
Xxxxxxxxx Partners, L.P. 0000 X. Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx Xxxxxxx
19
