RIGHT OF FIRST REFUSAL AND SALE AGREEMENT
THIS RIGHT OF FIRST REFUSAL AND SALE AGREEMENT (this "AGREEMENT") is made
and entered into as of this 15th day of December, 2000, by and among TAG-IT
PACIFIC, INC., a Delaware corporation (the "Company"), Xxxxxx Xxxx, Xxxx Xxxx,
Commerce Investment Group, LLC, Azteca Production International, Inc., AZT
International SA D RL and all other affiliates of these entities (collectively
the "Investor") and Xxxxx Xxxx ("PRINCIPAL STOCKHOLDER").
RECITALS
WHEREAS, the Principal Stockholder is the beneficial owner of an aggregate
of 648,230 shares of the Common Stock of the Company par value $.001 per
share;
WHEREAS, in connection with the Company's purchase of inventory under that
certain Supply Agreement, between the Company and the Investor (the "SUPPLY
AGREEMENT"), the Company has agreed to issue to Investor 1,000,000 shares of the
Company's Common Stock; and
WHEREAS, the parties desire to enter into this Agreement in order to grant
a right of first refusal sale rights to the Investor.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree hereto as follows:
1. DEFINITIONS.
1.1 "PRINCIPAL STOCKHOLDER STOCK" shall mean shares of the Company's Common
Stock now owned or subsequently acquired by the Principal Stockholder by gift,
purchase, dividend, option exercise or any other means whether or not such
securities are only registered in Principal Stockholder's name or beneficially
or legally owned by such Principal Stockholder, including any interest of a
spouse in any of the Principal Stockholder Stock, whether that interest is
asserted pursuant to marital property laws or otherwise. The number of shares of
Principal Stockholder Stock owned by the Principal Stockholder as of the date
hereof is set forth on Exhibit B, which Exhibit may be amended from time to time
by the Company to reflect changes in the number of shares owned by the Principal
Stockholder, but the failure to so amend shall have no effect on such Principal
Stockholder Stock being subject to this Agreement.
1.2 "INVESTOR STOCK" shall mean the shares of the Company's Common Stock
now owned or subsequently acquired by the Investor whether or not such
securities are only registered in Investor's name or beneficiary or otherwise
legally owned by Investor. The number of shares of Investor Stock owned by the
Investor as of the date hereof is set forth on Exhibit A, which Exhibit may be
amended from time to time by the Company to reflect changes in the number of
shares owned by the Investor but the failure to do so will have no effect on
such Investor Stock being subject to this Agreement.
1.3 "COMMON STOCK" shall mean the Company's Common Stock and shares of
Common Stock issued or issuable upon conversion of the Company's outstanding
preferred stock or exercise of any option, warrant or other security or right of
any kind convertible into or exchangeable for Common Stock.
1.4 For purposes of this Agreement, the term "TRANSFER" shall include any
sale, assignment, encumbrance, hypothecation, pledge, conveyance in trust, gift,
transfer by request, devise or descent, or other transfer or disposition of any
kind, including, but not limited to, transfers to receivers, levying creditors,
trustees or receivers in bankruptcy proceedings or general assignees for the
benefit of creditors, whether voluntary or by operation of law, directly or
indirectly, of any of the Principal Stockholder Stock or Investor Stock.
1.5 "AFFILIATE" means, with respect to the Investor, any other Investor
that, directly or indirectly, controls, is controlled by or is under common
control with, such Investor in question. For purposes of this definition,
"CONTROL" (including, with correlative meanings, the terms "CONTROLLED BY" and
"UNDER COMMON CONTROL WITH"), as used with respect to any Investor, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Investor, whether through the
ownership of voting securities or by contract or otherwise.
2. TRANSFERS BY INVESTOR.
2.1 NOTICE OF TRANSFER. If an Investor proposes to Transfer Investor Stock
in any transaction or series of related transactions, and Investor has received
an offer for such Transfer, then Investor, shall promptly give written notice
(the "NOTICE") to the Company and to Principal Stockholder at least forty-five
(45) days prior to the closing of such Transfer. The Notice shall describe in
reasonable detail the proposed Transfer including, without limitation, the
number of shares of Investor Stock to be transferred, the nature of such
Transfer, the consideration to be paid, and the name and address of each
prospective purchaser or transferee. In the event that the Transfer is being
made pursuant to the provisions of Section 3.1, the Notice shall state under
which section the Transfer is being made. Such Notice must only be given during
the first forty- eight months of this Agreement.
At any time during the first twenty four months of the term of this
Agreement, following receipt of any Notice described in Section 2.1, the Company
shall have 30 days during which to exercise the right to purchase all the
Investor Stock subject to such Notice on the same terms and conditions as set
forth therein. The Company's purchase right shall be exercised by written notice
signed by an officer of the Company (the "COMPANY NOTICE") and delivered to the
Investor. Any Investor Stock so purchased shall thereupon be cancelled and cease
to be issued and outstanding shares of the Company's Common Stock
2.2 PROHIBITION ON SALE; COMPANY RIGHT OF FIRST REFUSAL.
(a) During the first 24 months of the term of this Agreement (the "HOLDING
PERIOD"), other than pursuant to a Transfer in accordance with Section 3.1 or
Section 2.3 below, Investor shall not make any Transfer of Investor Stock.
During the following two successive twelve
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month periods (i.e. 24 months to 36 months and 36 to 48 months) following
issuance of the Investor Stock, each Holder shall be entitled to sell one-half
of its shares of Investor Stock per l2 month period.
(b) Notwithstanding anything set forth herein, to the extent Investor Stock
is transferable pursuant to Section 2.2(a), 2.3 or 3.1 hereof, (i) the Investor
Stock shall remain subject to "restricted" stock requirements of Section 4(1) of
the Securities Act of 1933, as amended and (ii) any such Transfer shall be
conditioned upon the Company's receipt from such transferee of a written
agreement to be bound by the terms of this Agreement and the terms of the Voting
Agreement (the "Voting Agreement"), dated as of the date hereof (Investor and
any such transferee shall be referred to as "HOLDER"), PROVIDED, HOWEVER, that
subsequent to the Holding Period, any purchaser receiving Investor Stock
pursuant to an unsolicited broker assisted public sale of such Investor Stock
shall not be required to become a party to the Voting Agreement or subject to
the terms of this Agreement.
2.3 INVESTOR DRAG ALONG. In the event that Principal Stockholder desires to
sell Principal Stockholder Stock in connection with any transaction involving a
sale of stock or assets of the Company or a merger, consolidation, share
exchange or reorganization of the Company as a consequence of which the
stockholders of the Corporation before such transaction own less than 50% of the
equity interests in the Company, Principal Stockholder shall have the right,
exercisable upon written notice to Investor (a "DRAG ALONG NOTICE") to cause
Investor to sell the Investor Stock on the same terms and conditions as the
Principal Stockholder to the proposed transferee concurrently with, the sale of
the Principal Stockholder Stock. Upon receipt of the Drag Along Notice, Investor
shall provide Principal Stockholder with such documents as shall be reasonably
required to Transfer the Investor Stock.
3. EXEMPT TRANSFERS.
3.1 Notwithstanding the foregoing, the first refusal rights of the Company
shall not apply to (i) any transfer to the ancestors, descendants or spouse or
to trusts for the benefit of such persons or the Investor, or to any Affiliate
of Investor and (ii) any pledge of Investor Stock made pursuant to a BONA FIDE
loan transaction that creates a mere security interest; PROVIDED that in the
event of any transfer made pursuant to one of the exemptions provided by clauses
(i), and (ii), (A) the Investor, as the case may be, shall inform the Company of
such pledge, transfer or gift prior to effecting it and (B) the pledgee,
transferee or donee shall furnish the Company with a written agreement to be
bound by and comply with all provisions of Section 2 and in the case of clause
(i) only, the Voting Agreement. Such transferred Investor Stock shall remain
"INVESTOR STOCK," as the case may be, hereunder, and such pledgee, transferee or
donee shall be treated as "INVESTOR," as the case may be, for purposes of this
Agreement. Notwithstanding the provisions of Section 3.1(ii) in connection with
a sale following a foreclosure on the entire business of one of the principal
entities of the Guez Group, such Investor Stock shall still be subject to the
right of first refusal requirements of 2.1 hereof provided that the notice
period in such event shall be thirty (30) days (a "BANK FORECLOSURE").
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4. CALL OPTION.
4.1 CALL OPTION. In the event of a Prohibited Transfer that violates the
first refusal right described in Section 2, the Company shall have the right to
repurchase from the transferee any or all of the Investor Stock sold to such
person by the Investor. Such option shall be exercisable in accordance with the
following provisions:
(A) The option price shall be equal to the purchase price per share which
the transferee paid to the transferring Investor for the acquisition of such
shares.
(B) The option shall be exercisable by written notice delivered to the
transferee within thirty (30) calendar days after the Company is notified of the
sale in contravention of its rights. The notice shall specify the number of
shares for which the option is being exercised and the payment of the option
price for such shares shall be made to the transferee within thirty (30) days
after delivery.
(C) Upon payment of the option price, the transferee shall deliver the
Company one or more certificates, properly endorsed for transfer, representing
the number of shares of Investor Stock for which the Company has exercised such
option.
5. LEGEND.
5.1 Each certificate representing shares of Investor Stock now or hereafter
owned by Investor or issued to any person in connection with a transfer pursuant
to Section 3.1 hereof shall be endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN RIGHT OF FIRST REFUSAL AND
CO-SALE AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE
COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES
OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO
THE SECRETARY OF THE COMPANY."
5.2 Investor agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares represented by certificates bearing
the legend referred to in Section 5.1 above to enforce the provisions of this
Agreement and the Company agrees to promptly do so. The legend shall be removed
upon termination of this Agreement.
6. MISCELLANEOUS.
6.1 CONDITIONS TO EXERCISE OF RIGHTS. Exercise of each of the parties'
rights under this Agreement shall be subject to and conditioned upon compliance
with applicable laws.
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6.2 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
6.3 AMENDMENT. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only by the written consent of each
of the parties hereto and their assignees, pursuant to Section 6.4 hereof.
6.4 ASSIGNMENT OF RIGHTS. This Agreement constitutes the entire
agreement between the parties relative to the specific subject matter hereof.
Any previous agreement among the parties relative to the specific subject matter
hereof is superseded by this Agreement. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
6.5 TERM. This Agreement shall continue in full force and effect from
the date hereof until the date of the closing of a sale, lease, or other
disposition of all or substantially all of the Company's assets or the Company's
merger into or consolidation with any other corporation or other entity, or any
other corporate reorganization, in which the holders of the Company's
outstanding voting stock immediately prior to such transaction own, immediately
after such transaction, securities representing less than fifty percent (50%) of
the voting power of the corporation or other entity surviving such transaction,
PROVIDED that this Section 6.5 shall not apply to a merger effected exclusively
for the purpose of changing the domicile of the Company .
6.6 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature page hereof or
at such other address as such party may designate by ten (10) days advance
written notice to the other parties hereto.
6.8 SEVERABILITY. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
6.9 ATTORNEYS' FEES. In the event that any suit or action is instituted
to enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all
reasonable fees, costs and expenses of appeals.
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6.10 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, along
with the Supply Agreement and each of the Exhibits thereto, constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof and no party shall be liable or bound to any other
in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
6.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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The foregoing RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT is hereby
executed as of the date first above written.
COMPANY:
TAG-IT PACIFIC, INC.
/S/ XXXXX XXXX
--------------------------------
By::
Title:
PRINCIPAL STOCKHOLDER:
/S/ XXXXX XXXX
--------------------------------
Xxxxx Xxxx
INVESTOR:
AZTECA PRODUCTION INTERNATIONAL, INC.
/S/ XXXXXX XXXX
--------------------------------
By:
Title:
XXXXXX XXXX
/S/ XXXXXX XXXX
--------------------------------
XXXX XXXX
/S/ XXXX XXXX
--------------------------------
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COMMERCE INVESTMENT GROUP, LLC
/S/ XXXXXX XXXX
--------------------------------
By:
Title:
AZT INTERNATIONAL SA D RL
/S/ XXXXXX XXXX
--------------------------------
By:
Title:
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EXHIBIT A
LIST OF INVESTORS
SHARES OF INVESTOR
NAME OF INVESTOR STOCK
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EXHIBIT B
LIST OF PRINCIPAL STOCKHOLDERS
SHARES OF PRINCIPAL
NAME OF PRINCIPAL STOCKHOLDERS STOCKHOLDER STOCK
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SPOUSAL CONSENT
[PLEASE PROVIDE TO COVER CALIFORNIA COMMUNITY PROPERTY INTERESTS]
