TAG-IT PACIFIC, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is
entered into as of May __, 2000, by and among TAG-IT PACIFIC, INC., a Delaware
corporation (the "Company"), and GRUPO INDUSTRIAL CIERRES IDEAL, S.A. de C.V., a
corporation organized under the laws of Mexico ("GICISA" or "Purchaser").
RECITALS
WHEREAS, the Company, Purchaser and Talon have entered into that
certain letter agreement, dated as of March 24, 2000, and fully executed as of
April ___, 2000, relating to distribution rights granted to the Company by Talon
and Purchaser (the "Letter Agreement");
WHEREAS, pursuant to the terms of the Letter Agreement and in
connection with the grant of the rights described therein, the Company has
agreed to issue 850,000 shares (the "Shares") of Series B Convertible Preferred
Stock of the Company, par value $0.001 (the "Series B Preferred Stock") to
GICISA upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined
in Section 2 below), the Company shall have authorized (i) the issuance of the
Shares to Purchaser and (ii) the issuance of such shares of Common Stock of the
Company, par value $0.001 per share ("Common Stock"), to be issued upon
conversion of the Shares (the "Conversion Shares"). The Shares and the
Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Series B Preferred Certificate of Designations of
the Company in the form attached hereto as Exhibit A (the "Certificate of
Designations").
1.2 ISSUANCE. Subject to the terms and conditions hereof, at the
Closing (as hereinafter defined) the Company hereby agrees to issue to the
Purchaser the Shares.
2. CLOSING AND DELIVERY.
2.1 CLOSING. The closing of the issuance of the Shares under this Agreement (the
"Closing") shall take place at 5:00 p.m. on May __, 2000, at the offices of
Troop Xxxxxxx Xxxxxx Xxxxxxx & Xxxxx, LLP, 0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx,
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000 or at such
other time or place as the Company and Purchaser may mutually agree (such date
is hereinafter referred to as the "Closing Date")
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser a certificate representing the
Shares to be issued to the Purchaser at the Closing by such Purchaser, against
satisfaction of the conditions to closing described herein.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on a Schedule of Exceptions set forth as
Exhibit B and delivered by the Company to Purchaser at the Closing, the Company
hereby represents and warrants to Purchaser as of the date of this Agreement as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Investor Rights Agreement in the form attached hereto as
Exhibit C (the "INVESTOR RIGHTS Agreement"), the Co-Sale Agreement in the form
attached hereto as Exhibit D (the "CO-SALE AGREEMENT" and together with the
Investor Rights Agreement, the "RELATED AGREEMENTS"), to issue and sell the
Shares and the Conversion Shares, and to carry out the provisions of this
Agreement, the Related Agreements and the Certificate of Designations and to
carry on its business as presently conducted and as presently proposed to be
conducted. The Company is duly qualified and is authorized to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so would not have a Material Adverse Effect (as hereinafter defined) on the
Company or its business. "Material Adverse Effect" means any material adverse
effect on the assets, liabilities, business, operations, properties or financial
condition of the Company.
3.3 CAPITALIZATION; VOTING RIGHTS. (A) The authorized capital stock
of the Company immediately prior to the closing is as set forth in the Company's
most recent filings with the Securities and Exchange Commission in accordance
with the rules and regulations of the Securities and Exchange Act of 1934. All
issued and outstanding shares of the Company's Common Stock (a) have been duly
authorized and validly issued and (b) are fully paid and nonassessable. The
rights, preferences, privileges and restrictions of the Series B Preferred Stock
are as stated in the Certificate of Designations.
(B) When issued in compliance with the provisions of this
Agreement and the Certificate of Designations, the Shares and the Conversion
Shares will be validly issued, fully paid and nonassessable, and will have been
issued in compliance with all applicable state and Federal laws concerning the
issuance of securities, and will be free of any liens or encumbrances other than
liens and encumbrances created by or imposed upon them by Purchaser; PROVIDED,
HOWEVER, that the Shares and the Conversion Shares may be subject to
restrictions on
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transfer (i) under state and/or Federal securities laws as set forth herein, or
as otherwise required by such laws at the time a transfer is proposed and (ii)
pursuant to the terms of the Related Agreements.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. The Company has all
requisite corporate power and authority to execute, deliver and perform its
obligations under the Related Agreements. All corporate action on the part of
the Company, its officers, directors and shareholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder and thereunder at the Closing and the
authorization, issuance and delivery of the Shares pursuant hereto and the
Conversion Shares pursuant to the Certificate of Designations has been taken or
will be taken prior to the Closing. This Agreement and the Related Agreements,
when executed and delivered, will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights; (ii) general
principles of equity that restrict the availability of equitable remedies; and
(iii) to the extent that the enforceability of the indemnification provisions in
Section 2.7 of the Investor Rights Agreement may be limited by applicable laws.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER; COVENANTS OF
PURCHASER.
Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement, the Letter Agreement and the Related Agreements and to
carry out their provisions. All action on such Purchaser's part required for the
lawful execution and delivery of this Agreement, the Letter Agreement and the
Related Agreements have been or will be effectively taken prior to the Closing.
Upon their execution and delivery, this Agreement, the Letter Agreement and the
Related Agreements will be valid and binding obligations of such Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (b) general principles
of equity that restrict the availability of equitable remedies, and (c) to the
extent that the enforceability of the indemnification provisions of Section 2.7
of the Investor Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither
the Shares nor the Conversion Shares have been registered under the Securities
Act. Purchaser also understands that the Shares are being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon such Purchaser's representations contained in this Agreement.
Purchaser hereby represents and warrants as follows:
Page 3
(A) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser understands that the Company has no present intention of
registering the Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow such Purchaser to transfer all or any
portion of the Shares or the Conversion Shares under the circumstances, in the
amounts or at the times such Purchaser might propose.
(B) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(C) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement, the Letter Agreement and the
Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in this
Agreement.
(D) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(E) COMPANY INFORMATION. Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs with directors,
officers and management of the Company. Purchaser has also had the opportunity
to ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 3 of this Agreement or the right of such Purchaser to rely thereon.
(F) RULE 144. Purchaser acknowledges and agrees that the
Shares, and, if issued, the Conversion Shares must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act as in effect from
time to time, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things: the availability of certain current public information about the
Company, the resale occurring following the required holding period under Rule
144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
Page 4
(G) RESIDENCE. The office or offices of such Purchaser in
which its investment decision was made is located at the address or addresses of
such Purchaser set forth on the signature page hereto.
(H) FURTHER REPRESENTATIONS BY FOREIGN INVESTORS. Purchaser
hereby represents that it has satisfied itself as to the full observance of the
laws of its jurisdiction in connection with any invitation to subscribe for the
Shares or any use of this Agreement, including (i) the legal requirements within
its jurisdiction for the purchase of the Shares, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Shares. Purchaser's subscription and payment for, and
its continued beneficial ownership of the Shares, will not violate any
applicable securities or other laws of its jurisdiction.
(I) LEGENDS. Purchaser understands that the certificates
evidencing the Shares may bear the following legend:
"These securities have not been registered under the
Securities Act of 1933, as amended. The may not be sold, offered for
sale, pledged, or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Act or an
opinion of counsel satisfactory to the Company that such registration
is not required or unless sold pursuant to Rule 144 of such Act."
4.3 TRANSFER RESTRICTIONS. Purchaser acknowledges and agrees that
the Shares and, if issued, the Conversion Shares are subject to restrictions on
transfer as set forth in the Investor Rights Agreement.
4.4 COVENANTS OF PURCHASER.
(a) COMPLIANCE WITH LAW. The Purchaser's trading activities
with respect to shares of the Company's Common Stock will be in compliance with
all applicable state and federal securities laws, rules and regulations as well
as the rules and regulations of the American Stock Exchange or such other public
market on which the Company's Stock is listed.
(b) NO SHORT SALES. The Purchaser and its affiliates shall
not engage in short sales of the Company's Common Stock (as defined in SEC and
NASD rules) so long as the Purchaser holds any unconverted shares of Series B
Preferred Stock.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. The
Purchaser's obligations at the Closing are subject to the satisfaction, at or
prior to the Closing Date, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall
Page 5
be true and correct in all material respects as of the Closing Date
with the same force and effect as if they had been made as of the Closing Date,
and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing.
(B) LEGAL INVESTMENT. On the Closing Date, the issuance of
the Shares and the proposed issuance of the Conversion Shares shall be legally
permitted by all laws and regulations to which Purchaser and the Company are
subject.
(C) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
(D) FILING OF CERTIFICATE. The Certificate of Designations
shall have been filed with the Secretary of State of the State of Delaware and
shall continue to be in full force and effect as of the Closing Date.
(E) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(F) COMPLIANCE CERTIFICATE. The Company shall have delivered
to Purchaser a Compliance Certificate, executed by the President of the Company,
dated the Closing Date, to the effect that the conditions specified in
subsections (a), (c), (d) and (f) of this Section 5.1 have been satisfied.
(G) INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement
shall have been executed and delivered by each of the parties thereto.
(H) CO-SALE AGREEMENT. The Co-Sale Agreement shall have been
executed and delivered by each of the parties thereto. The stock certificates
representing the shares subject to the Co-Sale Agreement shall have been
delivered to the Secretary of the Company and shall have had appropriate legends
placed upon them to reflect the restrictions on transfer set forth on the
Co-Sale Agreement.
(I) LETTER AGREEMENT. The Letter Agreement shall have been
executed and delivered by each of the parties thereto.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue the Shares at the Closing is subject to the satisfaction, on
or prior to such Closing, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties in Section 4 made by Purchaser shall be true and correct at the
date of the Closing with the same force and effect as if they had been made on
and as of said date.
Page 6
(B) PERFORMANCE OF OBLIGATIONS. Purchaser shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by Purchaser on or before the Closing.
(C) FILING OF CERTIFICATE OF DESIGNATIONS. The Certificate
of Designations shall have been filed with the Secretary of State of the State
of Delaware.
(D) INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement
shall have been executed and delivered by each of the parties thereto.
(E) CO-SALE AGREEMENT. The Co-Sale Agreement shall have been
executed and delivered by each of the parties thereto. The stock certificates
representing the shares subject to the Co-Sale Agreement shall have been
delivered to the Secretary of the Company and shall have had appropriate legends
placed upon them to reflect the restrictions on transfer set forth on the
Co-Sale Agreement.
(F) LETTER AGREEMENT. The Letter Agreement shall have been
executed and delivered by each of the parties thereto.
(G) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
6. MISCELLANEOUS.
6.1 GOVERNING LAW; CONSENT TO JURISDICTION; DISPUTES. 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. Each party hereto irrevocably and
unconditionally (i) agrees that any action, suit or claim brought hereunder must
be brought in the courts of the United States or the State of California and
occur in the county of Los Angeles in the State of California which shall serve
as the exclusive jurisdiction and venue for any and all disputes arising out of
and/or relating to this Agreement; (ii) consents to the jurisdiction of any such
court in any such suit, action or proceeding; and (iii) waives any objection
which such party may have to the laying of venue of any such suit, action or
proceeding in any such court.
6.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Purchaser and the
closing of the transactions contemplated hereby until the date which is six
months from the date of this Agreement. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
Page 7
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by the
Company and each person who shall be a holder of the Shares from time to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Letter Agreement, the
Exhibits and Schedules hereto, the Related Agreements and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof 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.
6.5 SEVERABILITY. In 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.
6.6 AMENDMENT AND WAIVER. This Agreement may be amended or modified
only upon the written consent of the Company and Purchaser.
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Certificate of Designations, shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach,
default or noncompliance, or any acquiescence therein, or of or in any similar
breach, default or noncompliance thereafter occurring. It is further agreed that
any waiver, permit, consent or approval of any kind or character on Purchaser's
part of any breach, default or noncompliance under this Agreement, the Related
Agreements or under the Certificate of Designations or any waiver on such
party's part of any provisions or conditions of this Agreement, the Related
Agreements, or the Certificate of Designations must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Related Agreements, the Certificate
of Designations, by law, or otherwise afforded to any party, shall be cumulative
and not alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) 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 Company
and the Purchaser at the addresses set forth on the signature pages hereof or at
such other address as the Company or Purchaser may designate by ten (10) days
advance written notice to the other parties hereto.
6.9 EXPENSES. Each party shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement.
Page 8
6.10 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.
6.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
6.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.13 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 6.13 being untrue.
6.14 CONFIDENTIALITY. Except where required by law or applicable
regulation or stock exchange rule, each party hereto agrees that, except with
the prior written consent of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, or the Related Agreements,
discussions or negotiations relating to this Agreement or the Related
Agreements, the performance of its obligations hereunder or the ownership of the
Shares purchased hereunder. The provisions of this Section 6.14 shall be in
addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by the parties hereto.
6.15 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as the identity of the parties hereto may require.
6.17 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS
Page 9
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN
EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE.
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IN WITNESS WHEREOF, the parties hereto have executed the SERIES B
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASER:
TAG-IT PACIFIC, INC. GRUPO INDUSTRIAL CIERRES
IDEAL, S.A. DE C.V.
By: By:
------------------------------------ -----------------------------------
Name: Name:
Title: Title:
LIST OF EXHIBITS
(CONTINUED)
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
EXHIBIT B
SCHEDULE OF EXCEPTIONS
EXHIBIT C
INVESTOR RIGHTS AGREEMENT
EXHIBIT D
CO-SALE AGREEMENT
