EXHIBIT 10.6
PLACEMENT AGENT AGREEMENT
November 9, 2004
Xxxxxxx Xxxxxx Xxxxxx Inc.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Dear Sirs:
1. INTRODUCTORY. Tag-It Pacific, Inc., a Delaware corporation
(the "Company"), proposes to sell (i) up to $12,500,000 in principal amount of
6% convertible promissory note (the "Notes"), 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 holder
thereof to purchase shares of the Company's Common Stock, all at a purchase
price equal to the principal amount of the Notes. The terms and provisions of
the Notes 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. The Company's obligations under the Notes will be secured by the collateral
set forth in that certain Trademark Security Agreement attached hereto as
EXHIBIT C (the "Security Agreement"). The shares of Common Stock issuable upon
conversion of the Notes 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."
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants, and agrees that:
(i) All reports and statements required to be filed by
the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations thereunder, due at
or prior to the date of this Agreement have been made. Such filings,
together with all documents incorporated by reference therein, are
referred to as "Exchange Act Documents." Each Exchange Act Document, as
amended, conformed in all material respects to the requirements of the
Exchange Act and the rules and regulations thereunder, and no Exchange
Act Document, as amended, at the time each such document was filed,
included any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
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(ii) The audited financial statements, together with the
related notes of the Company at December 31, 2003 and 2002, and for the
years then ended, included in the Company's Annual Report on 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 (subject to, in
the case of the unaudited financial statements, normal audit
adjustments). To the knowledge of the Company, such statements and
related notes have been prepared in accordance with generally accepted
accounting principles in the United States applied on a consistent
basis except as expressly noted therein (provided that the unaudited
financial statements lack footnotes and other presentation items).
(iii) Except as disclosed on SCHEDULE 2(iii), subsequent to
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 dated June 30, 2004,
and there has not been any material adverse change, or to the actual
knowledge of the Company, any development involving a prospective
material adverse change, in the condition (financial or otherwise),
business, or results of operations of the Company or any change in the
capital or material increase in the long-term debt of the Company, nor
has the Company declared, paid, or made any dividend or distribution of
any kind on its capital stock.
(iv) All action required to be taken by the Company
necessary for the authorization of this Agreement and the Related
Agreements (as defined below), the performance of all obligations of
the Company hereunder and thereunder at the Closing (as hereinafter
defined), and as a condition to the due and proper authorization,
issuance, sale, and delivery of the Notes and Warrants to subscribers
therefor in accordance with the terms of this Agreement has been, or
prior to the Closing Date, will have been taken; and upon issuance in
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.
(v) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware,
is duly qualified to do business as a foreign corporation and in good
standing in the State of California, and has all requisite right,
power, and authority to own or lease its
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properties, to conduct its business as described in the Exchange Act
Documents, and to execute, deliver, and perform this Agreement, the
Notes, the Warrants, the Security Agreement, the Subscription
Agreements between the Company and the purchasers of the Notes and
Warrants in the form attached as EXHIBIT D hereto (the "Subscription
Agreements"), the Registration Rights Agreement in the form attached as
EXHIBIT E hereto (the "Registration Rights Agreement" and together with
the Notes, the Warrants, the Security Agreement, the Subscription
Agreements and the Registration Rights Agreement, the "Related
Agreements"), to issue and sell the Notes and Warrants, and to carry
out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. The Company is duly
qualified to do business and in good standing as a foreign corporation
in all other jurisdictions in which its ownership or leasing of
properties, or the conduct of its business requires or may require such
qualification except where the failure to be so qualified would not
have a material adverse effect on the Company. The Company has complied
in all material respects with all material laws, rules, regulations,
applicable to the Company's business, operations, properties, assets,
products, and services, and the Company is in possession of and
operating in compliance with all material permits, licenses, and other
authorization, required to conduct its business as currently conducted.
(vi) The authorized capital stock of the Company consists
of 30,000,000 shares of Common Stock, $0.001 par value per share, of
which 18,144,351 shares were issued and outstanding as of September 30,
2004, and 3,000,000 shares of preferred stock, $0.001 par value per
share, none of which were issued and outstanding at September 30, 2004.
Except as contemplated by this Agreement, or as described in the
Exchange Act Documents or on SCHEDULE 2(vi), (a) there is no commitment
by the Company to issue any shares of capital stock, subscriptions,
warrants, options, convertible securities, or other similar rights to
purchase or receive Company securities or to distribute to the holders
of any of its equity securities any evidence of indebtedness, cash, or
other assets, (b) the Company is under no obligation (contingent or
otherwise) to purchase, redeem, or otherwise acquire any of its equity
or debt securities or any interest therein, and (c) to the Company's
knowledge there are no voting trusts or similar agreements,
shareholders' agreements, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights, or proxies relating to any
securities of the Company. Except as set forth in the Exchange Act
Documents or filings with the Commission made by third parties pursuant
to Schedule 13D or 13G or Form 3 or 4, and to the knowledge of the
Company, no person holds of record or beneficially, 5% or more of the
outstanding shares of the capital stock of the Company. All outstanding
securities of the Company were issued in compliance with applicable
Federal and state securities laws.
(vii) Except as disclosed in the Exchange Act Documents or
as described on SCHEDULE 2(vii), there is no material pending or, to
the knowledge of the Company, threatened (a) action, suit, claim,
proceeding, or investigation against the Company, at law or in equity,
or before or by any Federal, state,
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municipal, or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign (each, a "Governmental
Body"), (b) arbitration proceeding against the Company, (c)
governmental inquiry against the Company, or (d) any action or suit by
or on behalf of the Company pending or threatened against others.
(viii) The Company is not in violation of its certificate of
incorporation or bylaws, or in default, or with the giving of notice or
lapse of time or both, would be in default, in the performance of any
material obligation, agreement, or condition contained in any lease,
license, material contract, indenture, or loan agreement or in any
bond, debenture, note, or any other evidence of indebtedness, except
for such defaults as would not have a material adverse effect on the
Company. The execution, delivery, and performance of this Agreement,
the Related Agreements, and the Escrow Agreement (as hereinafter
defined), the incurrence of the obligations herein, the issuance, sale,
and delivery of the Notes and Warrants, and the consummation of the
transactions contemplated herein, have been duly authorized by all
requisite corporate action on the part of the Company and (a) do not
and will not conflict with the Company's certificate of incorporation
or bylaws, (b) do not and will not, with or without the passage of time
or the giving of notice, result in the breach of, or constitute a
default, cause the acceleration of performance, or require any consent
under, or result in the creation of any lien, charge or encumbrance
upon any property assets of the Company pursuant to, any material loan
agreement, mortgage, deed of trust, indenture, or other instrument or
agreement to which the Company is a party or by which the Company or
its properties are bound, except such consents as have been obtained as
of the date hereof or to the extent that the same have been, or prior
to the Closing Date will be, waived or cured, or (c) do not and will
not result in the violation of any law, statute, order, rule,
administrative regulation, or decree of any court, or governmental
agency or body having jurisdiction over the Company or its properties.
(ix) Except as disclosed in the Exchange Act Documents or
as described on SCHEDULE 2(ix), there are no pre-emptive rights or
other rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, shares of Common Stock pursuant to the
Company's certificate of incorporation, bylaws, or any agreement or
other instrument to which the Company is a party. Except as disclosed
on SCHEDULE 2(ix), the issuance of the Shares is not subject to any
preemptive right of any shareholder of the Company or to any right of
first refusal or other right in favor of any person.
(x) This Agreement has been duly and validly executed and
delivered by or on behalf of the Company and constitutes a legal,
valid, and binding obligation of the Company enforceable in accordance
with its terms, except to the extent that its enforceability is limited
by (a) applicable bankruptcy, insolvency, reorganization, moratorium,
or other laws of general application relating to or affecting the
enforcement of creditors' rights generally, and (b) laws relating to
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the availability of specific performance, injunctive relief, or other
equitable remedies and except as enforceability of the indemnity and
contribution provisions contained in Section 7 hereof may be limited by
applicable law or principles of public policy.
(xi) The escrow agreement (the "ESCROW AGREEMENT") among
the Company, you, and Xxxxxx Xxxxxxxx & Markiles, LLP (the "ESCROW
AGENT") has been duly and validly executed and delivered by or on
behalf of the Company and constitutes a legal, valid, and binding
obligation of the Company enforceable in accordance with its terms,
except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium, or other laws of
general application relating to or affecting enforcement of creditors'
rights generally and (b) laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
(xii) No consent, approval, authorization, or order of any
court or governmental authority or agency is required for the
consummation by the Company of the transactions contemplated by this
Agreement, except such as may be required by the National Association
of Securities Dealers, Inc. ("NASD"), the Securities Act of 1933, as
amended (the "Act"), or the rules and regulations thereunder or state
securities or Blue Sky laws.
(xiii) Except as would not have a material adverse effect on
the business, assets, results of operation, or condition of the
Company, the Company has filed, or caused to be filed, on a timely
basis, all tax returns (including payroll, unemployment, and other
taxes related to its employees and independent contractors) required to
be filed with any Governmental Body and has paid or caused to be paid
all taxes, levies, assessments, tariffs, duties or other fees imposed,
assessed, or collected by any Governmental Body that may have become
due and payable pursuant to those tax returns or otherwise except taxes
being disputed by the Company in good faith. Except as disclosed on
SCHEDULE 2(xiii), no deficiency assessment with respect to or proposed
adjustment of any of the Company's Federal, state, municipal, or local
tax returns has occurred or is threatened. There has been no tax lien
imposed by any Governmental Body outstanding against the Company's
assets or properties, except the lien for current taxes not yet due.
The charges, accruals, and reserves on the books of the Company with
respect to taxes for all fiscal periods are adequate, in the opinion of
the Company, and the Company does not know of any actual or proposed
tax assessment for any fiscal period or of any basis therefor against
which adequate reserves have not been set up. Except as disclosed on
SCHEDULE 2(xiii), the Company has not been advised that any Federal
income tax return of the Company has been, or will be, examined or
audited by the Internal Revenue Service.
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(xiv) The Common Stock is registered pursuant to Section
12(b) of the Exchange Act and is listed for quotation with the symbol
"TAG" on the American Stock Exchange.
(xv) The Company has not during the past six months
offered or sold any security by or for the Company that is of the same
or a similar class as the Shares, other than offers of securities made
solely to accredited investors or otherwise under an employee benefit
plan as defined in Rule 405 under the Act, securities issued in
connection with acquisitions, or other securities that will not
invalidate the exemption from registration relied on to offer and sell
the Shares.
(xvi) Neither the Company nor any of its affiliates is or
has been subject to any order, judgment, or decree of any court of
competent jurisdiction temporarily, preliminarily, or permanently
enjoining such person for failure to comply with Rule 503 under
Regulation D.
(xvii) The execution, delivery, and performance by the
Company of this Agreement and the Related Agreements and offer and sale
of the Notes and Warrants, require no consent of, action by or in
respect of, or filing with, any person or Governmental Body other than
those consents that have been obtained and filings that have been made
pursuant to applicable state securities laws and post-sale filings
pursuant to applicable state and federal securities laws, which the
Company undertakes to file within the applicable time period.
3. REPRESENTATIONS AND WARRANTIES OF XXXXXXX XXXXXX XXXXXX INC.
You represent and warrant to, and agree with, the Company that:
(i) You have been duly organized and are validly existing
and in good standing as a corporation under the laws of the State of
Texas, with power and authority (corporate and other) to perform your
obligations under this Agreement and the Escrow Agreement; you are a
broker-dealer registered and in good standing under the Exchange Act
and under the securities or Blue Sky laws of each state in which the
Shares are being offered or sold by you, and you are a member in good
standing of the NASD; you are in possession of and operating in
compliance with all authorizations, licenses, permits, consents,
certificates, and orders required for the performance of your duties
under this Agreement and the Escrow Agreement, and your performance of
your duties hereunder and thereunder will be in compliance with all
applicable laws, including state securities and Blue Sky laws.
(ii) There are no legal or governmental proceedings
pending to which you are a party or of which any of your properties is
the subject or, to your knowledge, threatened, which, if determined
adversely to you, would individually or in the aggregate materially and
adversely affect your ability to perform your obligations under this
Agreement or the Escrow Agreement.
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(iii) No consent, approval, authorization or order of any
court or governmental authority or agency is required for the
performance by you of your obligations under this Agreement, except
such as may be required by the NASD or under Regulation D or state
securities or Blue Sky laws.
(iv) This Agreement has been duly and validly executed and
delivered by or on behalf of you and constitutes a legal, valid, and
binding obligation of you enforceable in accordance with its terms,
except to the extent that its enforceability is limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (b) laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies
and except as enforceability of the indemnity and contribution
provisions contained in Section 7 hereof may be limited by applicable
law or principles of public policy.
(v) The Escrow Agreement among the Company, you, and the
Escrow Agent has been duly and validly executed and delivered by or on
behalf of you and constitutes a legal, valid, and binding obligation of
you enforceable in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application
relating to or affecting enforcement of creditors' rights generally and
(b) laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
4. OFFERING AND SALE OF THE SECURITIES. (a) On the basis of the
representations, warranties, and covenants herein contained, but subject to the
terms and upon the conditions herein set forth, you are hereby appointed the
non-exclusive placement agent of the Company during the term herein specified
(the "Offering Period") for the purpose of finding subscribers for the Notes and
Warrants on a best-efforts basis for the account of the Company at the Offering
Price through a private offering (the "Offering") to an unlimited number of
"accredited investors" (as such term is defined in Rule 501 of Regulation
D)("Accredited Investors") pursuant to and in accordance with the Act. Subject
to the performance by the Company of all its obligations to be performed
hereunder, and to the completeness and accuracy of all the representations and
warranties contained herein, you hereby accept such agency and agree on the
terms and conditions herein set forth to use your best efforts during the
Offering Period to find subscribers for Notes and Warrants. Your agency
hereunder, which is terminable as provided in Section 11 hereof, shall terminate
at 11:59 p.m., Houston, Texas time, on November 15, 2004; provided that such
termination date (the "Termination Date") may be extended by mutual written
agreement of the parties until November 30, 2004.
(b) Each Investor desiring to purchase Notes and Warrants will be
required to: (i) complete, execute, and deliver to you an executed copy of (A) a
Subscription Agreement, (B) the Security Agreement, and (C) an Investor
Questionnaire, in the form attached as EXHIBIT F hereto, and (ii) deliver to you
payment for such subscription by wire transfer to the Escrow Agent of
immediately available funds in the principal amount of
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Notes that the Investor desires to purchase. Any payment you receive that does
not conform to this requirement will be returned to an Investor by the end of
the next business day following receipt. Upon receipt, you shall hold all such
Subscription Agreements, Security Agreement, and Investor Questionnaires for
safekeeping and immediately forward all funds delivered to you to the Escrow
Agent, if no sent directly to the Escrow Agent. The Escrow Agent, upon receipt
of such funds, will hold the funds in an escrow account pursuant to the Escrow
Agreement. You shall promptly forward each executed Subscription Agreement
received to the Company for acceptance or rejection together with a schedule
setting forth the name and address of each subscriber and the amount received
from each subscriber. The Company shall notify you of such acceptance or
rejection within 10 days of receipt of a Subscription Agreement.
(c) In the event that acceptable subscriptions for $8,000,000 in
principal amount of Notes (the "Minimum Amount") shall not have been received
and accepted by the Company by the Termination Date, all funds received from
subscribers (if any) shall be returned in full, and your agency and this
Agreement shall terminate without obligation on your part or on the part of the
Company.
(d) If, by the Termination Date or such earlier time as may be
agreed upon by you and the Company, you have received subscriptions for the
Minimum Amount and such subscriptions have been accepted by the Company (in its
sole discretion), you shall promptly notify the Company in writing of the
aggregate principal amount of Notes for which you have received subscriptions
(the "Notice Date"). Payment of the principal amount for the Notes for which you
have found subscribers, and delivery, with respect to each subscriber for Notes,
of a copy of a Subscription Agreement signed by such subscriber (the "Closing"),
shall then be made at such place and time as shall be agreed upon between you
and the Company, no later than the first full business day after the Notice Date
(the "Closing Date").
(e) As compensation for your services, a cash commission will be
paid to you with respect to subscriptions received by you as to which the
payments and deliveries provided for in this Section 4 are made at the Closing
Date equal to 5.5% of the principal amount of Notes purchased at the Closing.
Such commissions shall be paid to you on the Closing Date by bank wire transfer
payable in immediately available funds. In addition, the Company agrees to
reimburse you for your reasonable out-of-pocket expenses in accordance with
Section 6 hereof.
(f) Neither you, the Company, nor any Additional Agent (as
hereinafter defined) shall, directly or indirectly, pay or award any finder's
fees, commissions or other compensation to any person engaged by a potential
investor for investment advice as an inducement to such advisor to advise the
purchase of the Notes and Warrants; provided, however, that normal sales
commissions payable to a registered broker-dealer or other properly licensed
person for selling the Shares shall not be prohibited hereby.
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(g) You will prepare and file such statements and reports as are
or may be required to enable the Notes and Warrants to be qualified for sale
under the securities laws of such jurisdictions as you may designate.
(h) As additional compensation, the Company will issue to you on
the Closing Date a Common Stock purchase warrant (the "AGENT'S WARRANT") in
substantially the form attached hereto as EXHIBIT D granting you the right to
purchase from the Company for a period commencing on the date six months after
the Closing Date and ending five years after the Closing Date, a number of
shares of Common Stock equal to the sum of (x) a number determined by dividing
(A) six percent (6%) of the aggregate principal amount of Notes sold in the
Offering, by (B) $3.65, PLUS (y) six percent (6%) of the total number of shares
of Common Stock underlying the Warrants issued to the Purchasers, at an exercise
price equal to $3.65.
(i) In connection with the Offering you will, to the extent within
your control, conduct the Offering in accordance with the applicable provisions
of the Act and Regulation D so as to preserve for the Company the exemption
provided by Rule 506 of Regulation D. You agree not to offer or sell the Notes
and Warrants by means of (a) any means of general solicitation, including any
advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio or
(b) any seminar or meeting, whose attendees have been invited by any general
solicitation or general advertising. Prior to the sale of any of the Notes and
Warrants, you will have reasonable grounds to believe, and in fact believe, that
each subscriber for Notes and Warrants is an Accredited Investor. You agree not
to disclose any material nonpublic information regarding the Company to any
subscriber except as such disclosure may be permitted pursuant to Regulation FD
and is agreed to in advance by the Company.
(j) In connection with the performance of your obligations under
this Agreement, you may engage, for the account of the Company, the services of
one or more broker-dealers ("Additional Agents") who are members of the NASD and
who are acceptable to the Company, and, as compensation for their services,
shall pay to such Additional Agents an amount to be negotiated between you and
such Additional Agents. Such amount will be paid to the Additional Agents by you
only out of the commissions received by you in respect of sales of Notes and
Warrants as described in paragraph (e) of this Section 4, and the Company shall
have no obligation to any Additional Agents respecting any such payment. The
arrangements, if any, between the Company, you, and any Additional Agent shall
be set forth in an Additional Agent Agreement ("Additional Agent Agreement"),
which shall provide, among other things, that such Additional Agent shall be
deemed to have agreed to the matters set forth herein as if the Additional Agent
were a signatory hereof. Nothing contained in this Agreement or in the
Additional Agent Agreement shall be deemed to constitute the Additional Agents,
if any, as your agents, and you shall not be liable to the Company in respect of
the performance by the Additional Agents, if any, of any representations,
warranties or covenants of such Additional Agents contained herein or in the
Additional Agent Agreement.
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5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants
and agrees with you that:
(a) Except as contemplated or described in this Agreement or in a
public disclosure made prior to the date hereof, it will not, prior to the
Closing Date, incur any material liability or obligation, direct or contingent,
or enter into any material transaction, in each case, other than in the ordinary
course of business. It will not, prior to the Closing Date, declare or pay any
dividend on the Common Stock or make any distribution on the Common Stock
payable to shareholders of record on a date prior to the Closing Date.
(b) It will cooperate with you to enable the Notes and Warrants to
be qualified for sale under the securities laws of such jurisdictions as you may
designate, subject to approval by the Company, and at your request will make
such applications and furnish such information as may be required of it for that
purpose; provided, however, that you and the Company shall first determine
whether an exemption from registration other than the Uniform Limited Offering
Exemption (ULOE) or a similar exemption is available in each such jurisdiction
and the Company shall not be required to qualify to do business or to file a
general consent to service of process in any such jurisdiction or to subject
itself to taxation. It will, from time to time, prepare and file such statements
and reports as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for the distribution of the
Notes and Warrants.
(c) It will make available to you and each purchaser of Notes and
Warrants at a reasonable time prior to the Closing Date the opportunity to ask
questions and receive answers concerning the terms and conditions of the
Offering and to obtain any additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to verify
the accuracy of any information in the Exchange Act Documents or otherwise
furnished by the Company to you or any purchaser of Notes and Warrants;
provided, however, that the Company shall not be required to disclose any
material nonpublic information to any purchaser of Notes and Warrants.
(d) It will file all reports required by Regulation D with regard
to sales of the Notes and Warrants and use of the proceeds therefrom; provided
that you provide all relevant information to the Company in writing as to
purchasers of the Notes and Warrants required for such filings.
(e) It will not offer or sell any securities of the Company that
are of the same or a similar class as the Notes and Warrants for a period of six
months after the Closing Date, other than those offers or sales of securities
under an employee benefit plan as defined in Rule 405 under the Act, in
connection with options, warrants, or convertible securities outstanding as of
the Closing Date, or in connection with an acquisition of assets or another
business by the Company if such offering will be integrated with the Offering of
the Notes and Warrants pursuant to this Agreement for purposes of the exemptions
under Regulation D, so as to invalidate the exemption from registration relied
on to offer and sell the Notes and Warrants.
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(g) For a period of at least 18 months following the Closing Date,
the Company will maintain the registration of its Common Stock under Section 12
of the Exchange Act so long as the Exchange Act requires it to be so registered,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act unless required to do so by the Exchange Act.
(h) The Company shall prepare and file with the American Stock
Exchange an additional shares listing application covering the Conversion Shares
and Warrants Shares and take all steps necessary to cause such shares to be
approved for listing as soon as practicable thereafter.
(i) For a period of at least 18 months following the Closing Date,
the Company will use its commercially reasonable best efforts (i) to timely file
all reports required to be filed by the Company after the date hereof under the
Securities Act and the Exchange Act (including the reports pursuant to Section
13(a) or 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule
144) and the rules and regulations adopted by the Commission thereunder), (ii)
if the Company is not required to file reports pursuant to such sections, it
will prepare and furnish to the purchasers of Notes and Warrants and make
publicly available in accordance with Rule 144(c) such information as is
required for the purchasers to sell the Conversion Shares and Warrant Shares
under Rule 144, and (iii) to take such further action as any holder of
Conversion Shares and Warrant Shares may reasonably request, all to the extent
required from time to time to enable the purchasers to sell Conversion Shares
and Warrant Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144, including causing its
attorneys to issue and deliver any appropriate legal opinion required to permit
a purchaser to sell Conversion Shares and Warrant Shares under Rule 144 upon
receipt of appropriate documentation relating to such sale.
6. PAYMENT OF EXPENSES. If this Agreement becomes effective and
the transactions contemplated by this Agreement are consummated, the Company
will pay (a) all reasonable expenses incident to the performance of the
obligations of the Company under this Agreement, (b) all of your reasonable
out-of-pocket expenses (including fees and disbursements of your counsel,
travel, and related expenses incurred in connection with this Agreement and the
Offering) incurred in connection with this Agreement, preparing to market, and
marketing the Notes and Warrants, (c) the fees and expenses of the Escrow Agent,
and (d) the reasonable legal fees and expenses incurred by counsel to
subscribers for Notes and Warrants in connection with the negotiation,
execution, and delivery of subscription agreements and any related agreements;
provided that the aggregate expenses reimbursed pursuant to clauses (b) and (d)
shall not to exceed $20,000 in the aggregate.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless you, each Additional Agent, and each person, if any,
who controls you or such Additional Agent within the meaning of the Act, against
any losses, claims,
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damages, liabilities, or expenses (including, unless the Company elects to
assume the defense as hereinafter provided, the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which arise out of the Company's breach
of a representation or warranty or covenant or agreement contained in this
Agreement; provided that in no case is the Company to be liable with respect to
any claims made against you, such Additional Agent, or any such controlling
person unless you, such Additional Agent, or such controlling person shall have
notified the Company in writing promptly after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon you or such controlling person, but failure to notify the Company of any
such claim shall not relieve it from any liability that it may have to you, such
Additional Agent, or such controlling person otherwise than on account of the
indemnity agreement contained in this paragraph. The Company will be entitled to
participate at its own expense in the defense, or if it so elects, to assume the
defense of any suit brought to enforce any such liability, but, if the Company
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and reasonably acceptable to you. In the event the Company elects to
assume the defense of any such suit and retain such counsel, you, such
Additional Agent, or such controlling person or persons, defendant or defendants
in the suit, may retain additional counsel but shall bear the fees and expenses
of such counsel unless (i) the Company shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include you, such
Additional Agent, or such controlling person or persons, and the Company and
you, such Additional Agent, or such controlling person or persons have been
advised by counsel that one or more material legal defenses may be available to
you, such Additional Agent, or them that may not be available to the Company in
which case the Company shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the reasonable fees and expenses of such
counsel. In no event shall the Company be liable for the fees and expenses of
more than one counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. The Company shall
not be required to indemnify any person for any settlement of any such claim
effected without the Company's consent, which shall not be unreasonably
withheld. The Company shall not, without your consent, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof, the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. This indemnification obligation will be in addition to any primary
liability that the Company might otherwise have. The foregoing obligation of
indemnification of the Company shall be limited to the net proceeds of the
Offering.
(b) You and each Additional Agent agree to indemnify and hold
harmless the Company, each of the Company's officers, directors, and each other
person, if any, who controls the Company within the meaning of the Act, against
any losses, claims, damages, liabilities, or expenses (including, unless you or
such Additional Agent elect to assume the defense, the reasonable cost of
investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which (i) arise of any
untrue statement of a material fact with respect to the Company made by you
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or such Additional Agent to any purchaser of Notes and Warrants not contained in
an Exchange Act Document or other written material provided to you or such
Additional Agent by the Company, (ii) arise out of any acts or omissions by you,
any Additional Agent, or any purchaser of Notes and Warrants that cause the
offering to involve a public offering under the Act or your failure to be
properly licensed to sell the Notes and Warrants or (iii) arise out of your
breach of a representation or warranty or covenant or agreement contained in
this Agreement; provided, however, that in no case are you or any Additional
Agent to be liable with respect to any claims made against the Company or any
such person against whom the action is brought unless the Company or such person
shall have notified you or such Additional Agent in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Company or such person, but
failure to notify you or such Additional Agent of such claim shall not relieve
you or such Additional Agent from any liability that you or such Additional
Agent may have to the Company or such person otherwise than on account of the
indemnity agreement contained in this paragraph. You or such Additional Agent
shall be entitled to participate at your or its expense in the defense, or if
you or such Additional Agent so elect, to assume the defense of any suit brought
to enforce any such liability, but, if you or such Additional Agent elect to
assume the defense, counsel chosen by you or such Additional Agent and
reasonably acceptable to the Company shall conduct such defense. In the event
that you or such Additional Agent elect to assume the defense of any such suit
and retain such counsel, the Company, said officers and directors and any person
or persons, defendant or defendants in the suit, may retain additional counsel
but shall bear the fees and expenses of such counsel unless (i) you shall have
specifically authorized the retaining of such counsel or (ii) the parties to
such suit include you, such Additional agent, or such controlling person or
persons, and the Company and you, such Additional Agent, or such controlling
person or persons have been advised by counsel that one or more material legal
defenses may be available to the Company that may not be available to you or
them in which case you shall not be entitled to assume the defense of such suit
notwithstanding your obligation to bear the reasonable fees and expenses of such
counsel. You or such Additional Agent shall not be liable to indemnify any
person for any settlement of any such claim effected without your or its consent
which consent shall not be unreasonably withheld. You shall not, without the
consent of the Company, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof, the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. This indemnification
obligation will be in addition to any primary liability that you or any
Additional Agent might otherwise have.
(c) If the indemnification provided for in this Section 7 is
unavailable, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect not only the relative benefits received by the Company on
one hand and you and the Additional Agents, if any, on the other from the
offering, but also the relative fault of the Company on the one hand and you and
the Additional Agents, if any, on the other in connection with the statements or
omissions which resulted in such losses, claims, damages,
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liabilities, or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and you and the Additional Agents, if any, on the other, shall
be deemed to be in the same proportion as the total net proceeds from the
Offering (before deducting expenses) received by the Company, bear to the total
selling commissions received by you and the value of the Agent's Warrant issued
to you pursuant to Section 4(h). The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, you, or an Additional Agent, the
party's relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and whether a party breached a
representation or warranty or covenant or agreement contained in this Agreement.
The Company and you agree that it would not be just and equitable if
contribution were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
referred to above shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective representations and warranties of you and the Company as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of you, the Company, or any of the officers or directors of the Company
or any controlling person, and shall survive delivery of and payment for the
Notes and Warrants for a period ending on the date two years subsequent to the
Closing Date.
9. CONDITIONS OF YOUR OBLIGATIONS. Your obligations hereunder are
subject to the accuracy in all material respects at and (except as otherwise
stated herein) as of the date hereof and at and as of the Closing Date, of the
representations and warranties made herein by the Company, to the compliance in
all material respects at and as of the Closing Date by the Company with its
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to the Closing Date and to the following additional
conditions:
(a) You shall not have stated in writing prior to the Closing Date
to the Company that any Exchange Act Document, or any amendment or supplement
thereto contains an untrue statement of fact which, in your reasonable opinion,
is material, or omits to state a fact which, in your reasonable opinion, is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
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(b) You shall have received a certificate, dated the Closing Date,
on behalf of the Company by the Chief Executive Officer or the President and the
chief financial or accounting officer of the Company to the effect that:
(i) To the best of the knowledge of the signers, the
representations and warranties of the Company in this Agreement are
true and correct in all material respects at and as of the Closing
Date, and the Company has complied in all material respects with all
the agreements and satisfied in all material respects all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) Between the date of this Agreement and the Closing
Date, no litigation has been instituted or, to the knowledge of the
Company, threatened against the Company of a character required to be
disclosed in an Exchange Act Document under Item 103 of Regulation S-K
that has not been so disclosed to you; and
(iii) Between the date of this Agreement and the Closing
Date, there has not been any material adverse change in the financial
condition, business, or results of operations of the Company.
(d) The Company shall have entered into the Registration Rights
Agreement with the Purchasers in the form attached hereto as EXHIBIT E.
(e) The Company shall have entered into the Security Agreement
with the Purchasers in the form attached hereto as EXHIBIT C.
If any of the conditions provided for in this Section 9 shall not have
been satisfied when and as required by this Agreement, this Agreement may be
terminated by you by notifying the Company of such termination in writing at or
prior to the Closing Date, but you shall be entitled to waive any of such
conditions.
10. EFFECTIVE DATE. This Agreement shall become effective at 11:00
A.M., Houston time, on the date hereof (the "Effective Time").
11. TERMINATION. In the event of any termination of this Agreement
under this or any other provision of this Agreement, there shall be no liability
of any party to this Agreement to any other party, other than as provided in
Sections 6, 7, and 8 and this Section 11.
This Agreement may be terminated after the Effective Time by (a) the
Company for any reason by notice to you and (b) you by notice to the Company (i)
if at or prior to the Closing Date trading in securities on the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq Stock Market (collectively,
the "Exchanges") shall have been suspended for longer than four consecutive
hours or minimum or maximum prices shall have been established on either such
exchange or stock market, or a banking
-15-
moratorium shall have been declared by Texas or United States authorities
(unless such suspension is made pending completion of the sale of the Shares, at
which time, such suspension will be lifted); (ii) if at or prior to the Closing
Date there shall have been a material escalation of hostilities between the
United States and any foreign country (other than Iraq), or any other material
insurrection or armed conflict involving the United States which, in your
reasonable judgment, after consultation with the Company, makes it impracticable
or inadvisable to offer or sell the Notes and Warrants; or (iii) if there shall
be any material litigation or regulatory action, pending or threatened against
or involving the Company, which, in your reasonable judgment, after consultation
with the Company, makes it impracticable or inadvisable to offer or deliver the
Notes and Warrants on the terms contemplated by this Agreement.
If, and only if, the Company terminates this Agreement after it becomes
effective for any reason (other than your material failure to comply with your
obligations under this Agreement or material breach of your representations and
warranties) or the Offering fails to close because of the Company's breach of
any representations or warranties contained in this Agreement or the Company's
failure to fulfill its covenants and agreements contained in this Agreement, the
Company shall pay you your actual out-of-pocket expenses incurred as provided in
Section 6 hereof.
12. AGREEMENT CONCERNING DISCLOSURE OF INFORMATION. You agree to
treat confidentially any material nonpublic information that is furnished to you
(or to parties acting on your behalf) by or on behalf of the Company (the
"Information"). You agree that you will use the Information only for the
purposes related to a determination of your willingness to act as non-exclusive
selling agent pursuant to this Agreement, and that the Information will be kept
confidential by you and your partners, members, managers, officers, directors,
employees, agents, and other affiliates (collectively, the "Affiliates"), and
your attorneys and accountants (collectively, the "Professionals"), and that
you, such Affiliates, or Professionals will not disclose the Information to any
investor or other person; provided, however, that the Information may be
disclosed to (a) Affiliates and Professionals who need to know such Information
for the purpose of evaluating or providing services in connection with the your
and your clients' investment in the Company; provided such parties agree to be
bound by this undertaking, (b) to any federal or state regulatory agency and
their employees, agents, and attorneys (collectively, "Regulators") for the
purpose of making any filings with Regulators if disclosure of such Information
is required by law (provided that you advise the Company in writing of the
Information to be so disclosed within a reasonable time prior to such filing),
and (c) any other person to which the Company consents in writing prior to any
such disclosure.
In the event that you are requested or required (by oral questions,
documents, subpoena, civil investigation, demand, interrogatories, request for
information, or other similar process) to disclose to any person or entity any
information supplied to you, your Affiliates, or your Professionals in the
course of their dealings with the Company or their respective representatives,
you agree that you will provide the Company with prompt notice of such
request(s) within a reasonable time prior to such disclosure so that the Company
may seek an appropriate protective order and/or waiver of compliance with the
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provisions of this Agreement. It is further agreed that, if a protective order
is not obtained, or a waiver is not granted hereunder, and you are nonetheless,
in the written opinion of counsel, compelled to disclose information concerning
the Company to any tribunal or else stand liable for contempt or suffer the
censure or penalty, you may disclose such information to such tribunal without
liability hereunder. Prior to making such disclosure, you shall deliver a
written opinion of your counsel to the Company's counsel that disclosure is
compelled by law. You will exercise your best efforts to obtain a protective
order or other reliable assurance that confidential treatment will be accorded
the Information.
13. NOTICES. All notices or other communications that are required
or permitted under this Agreement shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or certified mail,
postage pre-paid, by electronic mail, or by courier or overnight carrier, to the
persons at the addresses set forth below (or at such other address as may be
provided hereunder), and shall be deemed to have been delivered as of the date
so delivered:
If to the Company: Tag-It Pacific, Inc.
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
e-mail: xxxxx.xxxx@xxxxxxxxxxxx.xxx
If to you: Xxxxxxx Xxxxxx Xxxxxx Inc.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: President
Facsimile: (000) 000-0000
e-mail: xxx.xxxxxx@xxxxxx.xxx
or at such other address as any party shall have furnished to the other parties
in writing.
14. SUCCESSORS. This Agreement shall inure to the benefit of and
be binding upon you, and Additional Agents, the Company, and their respective
successors and legal representatives, except that neither the Company nor you
may assign or transfer any of its or your rights or obligations under this
Agreement without the prior written consent of the other. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company contained in
this Agreement shall also be for the benefit of the person or persons, if any,
who control you or any Additional Agents within the meaning of Section 15 of the
Act, and your and any Additional Agent's
-17-
indemnities shall also be for the benefit of each officer and director of the
Company and the person or persons, if any, who control the Company within the
meaning of Section 15 of the Act.
15. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. Any judicial
proceeding brought against either of the parties to this agreement or any
dispute arising out of this Agreement or any matter related hereto may be
brought in the courts of the State of California or the State of Texas or in the
United States District Court for the Central District of California or the
Southern District of Texas and, by its execution and delivery of this agreement,
each party to this Agreement accepts the jurisdiction of such courts. The
foregoing consent to jurisdiction shall not be deemed to confer rights on any
person other than the parties to this Agreement. The prevailing party in any
such litigation shall be entitled to receive from the losing party or parties
all costs and expenses, including reasonable attorney fees, incurred by the
prevailing party.
[Signatures on the following page]
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If the foregoing correctly sets forth our understanding please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
TAG-IT PACIFIC, INC.
By /s/ Xxxxx Xxxx
----------------------------
Name: Xxxxx Xxxx
Title: Chief Executive Officer
Accepted and delivered in Houston,
Texas as of the date first above written
XXXXXXX XXXXXX XXXXXX INC.
By: /s/ Xxxxx Xxxxx
------------------------
Name: Xxxxx X. Xxxxx
Title Vice President
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