This SUPPLY AGREEMENT (this "AGREEMENT") is made as of this 15th day of
December, 2000 (the "EFFECTIVE DATE"), by and among, Tag-It Pacific, Inc., a
Delaware Corporation with its corporate office at 0000 Xxxxx Xxxx Xxxxxx, Xxx
Xxxxxxx, XX 00000 ("TAG-IT") on the one hand, Xxxxxx Xxxx, Xxxx Xxxx and Azteca
Production International, Inc., AZT International SA D RL, Commerce Investment
Group, LLC (collectively, the "GUEZ GROUP") and all present and future apparel
affiliates of those entities (all present and future apparel companies which are
directly or indirectly majority owned or controlled by Xxxxxx Xxxx, including,
without limitation, those listed here, are collectively the "COVERED
COMPANIES").
RECITALS
A. Tag-It is a single-source provider of brand identity and trim programs
to manufacturers of apparel and licensed consumer products.
B. The Covered Companies are, among other things, manufacturers of
apparel products.
C. Tag-It and the Guez Group desire to enter into this Agreement, which
will expressly bind each of the Covered Companies whereby Tag-It will
be a supplier of trim products for certain customers of the Covered
Companies under the terms and conditions set forth in this Agreement.
NOW THEREFORE, and in consideration of the mutual promises, covenants,
representations and good and valuable consideration set forth herein, the
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. PRODUCTS, ORDERS AND PRICING.
1.1 SUPPLY. Tag-It shall manufacture and/or procure, and shall be the
supplier of the trim products (the "PRODUCTS"), as described in
SCHEDULE 1.1 attached hereto, to the following customers of Covered
Companies during the Term of this Agreement: *** and other customers
as mutually agreed (collectively, the "Customers"). Guez and Azteca
shall cause each of the Covered Companies to purchase trim services
(including trim procurement and inventory management services) from
Tag-It. Tag-It may perform its obligations hereunder directly, through
owned and/or controlled subsidiaries and through independent
contractors.
1.2 PRICING. The purchase price that the Covered Companies will pay Tag-It
for each of the Products is also listed in SCHEDULE 1.1, ***. Tag-It
and the Covered Companies will conduct a pricing review once annually
at such time as may be reasonably requested by the Covered Companies.
----------------------------
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
Request filed with the Securities and Exchange Commission ("SEC") and have been
filed separately with the SEC.
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1.3 MINIMUM OBLIGATION. The Guez Group shall cause the Covered Companies
to purchase during each successive Contract Year a minimum annual
aggregate total of Ten Million Dollars ($10,000,000) of Products from
Tag-It (the "MINIMUM Obligation"). Each member of the Guez Group
represents and warrants to Tag-It that the Minimum Obligation is an
amount which is at least equal to the aggregate trim purchases by the
Customers for the 12 month period ended November 30, 2000. For
purposes of this Agreement, the first "CONTRACT YEAR" shall commence
on the Effective Date and end on March 31, 2001 and successive
Contract Year's shall mean and refer to each period of twelve (12)
successive calendar months during the Term commencing on April l and
ending March 31.
1.4 DELIVERY SCHEDULES. The Covered Companies shall provide Tag-It with
reasonable lead time for all orders for purchase and Tag-It shall
timely fulfill all orders for purchases received from the Covered
Companies and shall deliver the Products to wherever so instructed by
the Covered Companies according to a reasonable delivery schedule. The
parties hereto shall in good faith negotiate delivery schedules.
1.5 RISK OF LOSS. Tag-It shall bear the risk of loss of, or damage to, the
Products, until delivery in accordance with instructions from the
Covered Companies, including common carriers.
1.6 PURCHASE OF COVERED COMPANIES' CURRENT INVENTORY. Tag-It shall
purchase $4,000,000 of the on-hand trim inventory of the Covered
Companies less any inventory which the parties mutually agree is
obsolete and in the event the parties cannot agree as to the quantity
of obsolete inventory such determination shall be made by an
arbitrator pursuant to the terms of Section 9.7 ("PURCHASED
INVENTORY"). SCHEDULE 1.6, attached hereto, sets forth a listing of
the Purchased Inventory. The Purchased Inventory shall be delivered to
Tag-It, F.O.B. Puebla, Mexico together with a schedule of the Covered
Companies' cost. The purchase price for the Inventory shall be the
Covered Companies' cost and shall be paid in common stock of Tag-It
based upon the closing market price of such common stock on December
l3, 2000 ($4.00 per share) (the "Shares"). The Shares issued shall be
"restricted stock" under federal securities law and the member of the
Guez Group which is the holder of the Shares shall be referred to
herein as the "Holder".
1.7 HOLD PERIOD. The Shares will be "restricted" stock and shall be
subject to other sale restrictions described in that certain Right of
First Refusal and Sale Agreement between the parties executed
concurrently with this Agreement.
2. PAYMENT FOR THE PRODUCTS.
2.1 INVOICES. Tag-It shall invoice the Covered Companies upon shipment,
and payments by the Covered Companies shall be made directly to Tag-It
net *** (***) days.
----------------------------
*** Terms represented by this symbol are considered confidential. These
confidential terms have been omitted pursuant to a Confidential Treatment
Request filed with the Securities and Exchange Commission ("SEC") and have been
filed separately with the SEC.
Page 2
3. PRODUCT QUALITY.
3.1 QUALITY SPECIFICATIONS. The quality of the Products, including, among
other things, the technical specifications in manufacturing the
products, shall meet the reasonable specifications and standards of
both parties, and shall be in accordance with the industry's
generally-accepted specifications and quality standards.
3.2 INSPECTION OF THE PRODUCTS. The Covered Companies and their
representatives may, from time to time, upon reasonable notice and
during regular business hours, inspect the manufacture of Products and
conduct related quality control. In connection therewith, Tag-It shall
provide reasonable assistance and access to Tag-It's facilities,
personnel and materials. Tag-It shall comply with the Covered
Companies' reasonable quality and inspection procedures during
production and after shipment.
3.3 PRODUCT QUALITY, PERFORMANCE AND PRICING DISPUTE RESOLUTION. If any
dispute should arise concerning the performance by Tag-It of its
obligations under Sections 1.2, 1.4, 1.5, and 3.1 and is not resolved
within 60 days following receipt by Tag-It of a written notice given
by the Covered Parties, such dispute shall be submitted to arbitration
pursuant to the provisions of Section 9.7 below. Further, if the
dispute is resolved, either as a result of agreement or the entry of a
final order by a court of competent jurisdiction or any arbitrator
empowered by the parties to finally resolve such dispute, in favor of
the Covered Companies, then Tag-It shall have an additional 30-day
period following such resolution in order to cure any failure to
perform its obligations under Sections 1.2, 1.4, 1.5, and 3.1 and
following such cure shall be fully reinstated of all rights hereunder
without prejudice.
4. TERM AND TERMINATION.
4.1 TERM. The term of this Agreement shall continue from the Effective
Date for a period of three (3) years ("TERM").
4.2 RENEWAL TERM. This Agreement will automatically renew for consecutive
three (3) year terms under the same terms and conditions set forth
herein ("RENEWAL TERM") unless terminated by either party upon
delivering written notice to the other party at least two hundred and
seventy (270) days prior to the end of the then existing term.
5. REPRESENTATIONS AND WARRANTIES.
5.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each party represents and
warrants to the other that:
5.1.1 it has the right and authority to enter into this Agreement and
to perform all of its respective obligations and undertakings
herein;
5.1.2 this Agreement is its valid and binding obligation, enforceable
in accordance with its terms and has been duly and validly
authorized by all necessary corporate or other action;
Page 3
5.1.3 the rights and privileges granted or to be granted hereunder are
and will at all times be free and clear of any liens, claims,
charges or encumbrances;
5.1.4 it has not done or omitted to do, nor will do or omit to do, any
act or thing that would or might impair, encumber, or diminish
the other party's full enjoyment of the rights and privileges
granted and to be granted under this Agreement; and
5.1.5 it is duly organized and existing in good standing under the
laws of the jurisdiction in which it is organized, is duly
qualified and in good standing as a foreign corporation in every
state in which the character of its business requires such
qualifications, and has the power to own its property and to
carry on its business as now being conducted.
5.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF GUEZ GROUP.
5.2.1 AS TO BINDING SUCCESSORS. Additionally, each member of the Guez
Group represents, warrants and agrees that each shall cause all
present and future Covered Companies and any successors of the
Covered Companies to be bound to the terms and conditions of this
Agreement, and each covenants and agrees to assume and perform
the Covered Companies' obligations hereunder. Failure of any such
successor company to assume the obligations of the Covered
Companies under this Agreement will constitute a breach of this
Agreement by the Guez Group.
5.2.2 IN CONNECTION WITH PURCHASE OF SHARES. Each member of the Guez
Group understands that the Shares have not been registered under
the Securities Act and that the Shares are being offered and sold
pursuant to an exemption from registration contained in the
Securities Act based in part upon the representations contained
in this Agreement. Each member of the Guez Group hereby
represents, warrants and covenants as follows:
(a) ECONOMIC RISK. Each have substantial experience in
evaluating and investing in private placement transactions
of securities in companies similar to Tag-It so that it is
capable of evaluating the merits and risks of its investment
in Tag-It and has the capacity to protect its own interests.
Holder must bear the economic risk of this investment
indefinitely unless the Shares are registered pursuant to
the Securities Act, or an exemption from registration is
available. Holder 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 Holder to transfer
all or any portion of the Shares under the circumstances, in
the amounts or at the times Holder might propose.
(b) ACQUISITION FOR OWN ACCOUNT. It is acquiring the Shares for
their own account for investment only, and not with a view
towards their distribution.
Page 4
(c) PROTECT THEIR INTEREST. Guez and Azteca represent that by
reason of their, or of their managements' business or
financial experience, Guez and Azteca have the capacity to
protect their own interests in connection with the
transactions contemplated in this Agreement. Further, Guez
and Azteca are aware of no publication of any advertisement
in connection with the transactions contemplated in this
Agreement.
(d) ACCREDITED INVESTOR. Each represents that it is an
accredited investor within the meaning of Regulation D under
the Securities Act.
(e) COMPANY INFORMATION. It has had an opportunity to discuss
Tag-It's business, management and financial affairs with
directors, officers and management of Tag-It and has had the
opportunity to ask questions of and receive answers from
Tag-It and its management regarding the terms and conditions
of this investment. The foregoing, however, does not limit
or modify the representations and warranties of Tag-It in
Section 5.1 of this Agreement or the right of Guez and
Azteca to rely thereon.
(f) RULE 144. Guez and Azteca acknowledge and agree that the
Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an
exemption from such registration is available. Each Guez and
Azteca 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
Tag-It, 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.
(g) LEGEND. The certificates representing the Shares will bear
the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH
REGISTRATION.
Page 5
6. NON-SOLICITATION.
6.1 Both during the Term of this Agreement and for the one (1) year
following termination for any reason of this Agreement, (i) each
member of the Guez Group and each of the Covered Companies agrees that
it shall not solicit, divert, take away, or attempt to solicit,
divert, or take away any of Tag-It's employees, except that if the
Agreement is terminated for reasons other than the breach of the Guez
Group, then the Guez Group may immediately hire any Tag-It employee
who was an employee of the Guez Group on the Effective Date and (ii)
Tag-It agrees that, except as approved by Xxxxxx Xxxx, it shall not
solicit, divert, take away, or attempt to solicit, divert, or take
away any of the Guez Group's employees.
7. CONFIDENTIAL INFORMATION.
7.1 Each party acknowledges and agrees that it may have access to
information, including, but not limited to, pricing information,
intellectual property, trade secrets, business information, ideas and
expressions, which are proprietary to and/or embody the substantial
creative efforts of the other party ("CONFIDENTIAL INFORMATION"). The
parties agree that Confidential Information will remain the sole and
exclusive property of the disclosing party ("DISCLOSING PARTY"), and
the receiving party ("RECEIVING PARTY") agrees to maintain and
preserve the confidentiality of such information, including, but
without limitation, taking such steps to protect and preserve the
confidentiality of the Confidential Information as it takes to
preserve and protect the confidentiality of its own confidential
information. All materials and information disclosed by either party
to the other will be presumed to be Confidential Information and will
be so regarded by the Receiving Party unless, the Receiving Party can
prove that the materials or information are not Confidential
Information. For the purposes of this section:
7.2 The parties agree that the Confidential Information will be disclosed
for use by the Receiving Party only for the limited and sole purpose
of carrying out the terms of this Agreement.
7.3 The Receiving Party agrees not to disclose or permit any other person
or entity access to the Confidential Information, except that such
disclosure will be permitted to an employee, agent, representative or
independent contractor of the Receiving Party requiring access to the
same.
7.4 The Receiving Party agrees (i) not to alter or remove any
identification of any copyright, trademark or other proprietary rights
notice which indicates the ownership of any part of the Confidential
Information, and (ii) to notify the Disclosing Party of the
circumstances surrounding any possession, use or knowledge of the
Confidential Information by any person or entity other than those
authorized by this Agreement.
7.5 Confidential Information will exclude any information that (i) has
been or is obtained by the Receiving Party from a source independent
of the Disclosing Party and not receiving such information from the
Disclosing Party, (ii) is or becomes
Page 6
generally available to the public other than as a result of an
unauthorized disclosure by the Disclosing Party or its personnel, or
(iii) is independently developed by the Receiving Party without
reliance in any way on the Confidential Information provided by the
Disclosing Party; or (iv) the Receiving Party is required to disclose
under judicial order, regulatory requirement, or statutory
requirement, provided that the Receiving Party provides written notice
and an opportunity for the Disclosing Party to take any available
protective action prior to such disclosure.
8. INDEMNIFICATION.
8.1 TAG-IT'S INDEMNIFICATION. Tag-It hereby agrees to indemnify, defend,
and hold the Covered Companies harmless from any claims, losses,
liabilities, causes of action and costs (including reasonable
attorneys' fees) arising from, or on account of, or related to the
material breach by Tag-It of its obligations, representations and
warranties hereunder.
8.2 THE GUEZ GROUP INDEMNIFICATION. Each member of the Guez Group hereby
agrees on their own behalf and to cause the Covered Companies to
jointly and severally indemnify, defend, and hold Tag-It harmless from
any claims, losses, liabilities, causes of action and costs (including
reasonable attorneys' fees) arising from, or on account of, or related
to any material breach by Guez Group or any Covered Company of its
obligations, representations and warranties hereunder.
9. GENERAL.
9.1 GOVERNING LAW. This Agreement shall be interpreted in accordance with
the laws of the State of California, without regard to the conflicts
of laws principles thereof. The parties agree and Guez specifically
agrees on behalf of each Covered Company that jurisdiction over and
venue in any legal proceeding arising out of or relating to this
Agreement will exclusively be in the state or federal courts located
in California.
9.2 ENTIRE AGREEMENT. This Agreement, including the Schedules attached
thereto, and the Voting Agreement, Investor Rights Agreement and Right
of First Refusal and Sale Agreement in the forms attached hereto as
exhibits constitute the entire agreement and understanding between the
parties and integrates all prior discussions between them related to
its subject matter. No modification of any of the terms of the
agreement will be valid unless in writing and signed by an authorized
representative of each party.
9.3 ASSIGNMENT. This Agreement may not be assigned by the Covered
Companies to any other person, firm, or entity without the express
written approval of Tag-It and any attempt at assignment in violation
of this section will be null and void.
9.4 NOTICES. All legal notices required or permitted hereunder will be
given in writing addressed to the respective parties as set forth
below and will either be (i) personally delivered, (ii) transmitted by
postage prepaid certified mail, return receipt requested, or (iii)
transmitted by nationally recognized private express courier, and will
be deemed to have been given on the date of receipt if delivered
personally, or three (3)
Page 7
days after deposit in mail or express courier. Either party may change
its address for purposes hereof by written notice to the other in
accordance with the provisions of this Section. The addresses for the
parties are as follows:
TAG-IT PACIFIC, INC. GUEZ GROUP X/X
0000 Xxxxx Xxxx Xx. XXXXXX PRODUCTION INTERNATIONAL, INC.
Xxx Xxxxxxx, XX 00000 0000 X. Xxxxxxx Xxx.
Attn: Xxxxx Xxxx Xxxxxxxx, XX 00000
Fax Number: (000) 000-0000 Attn: Xxxxxxx Xxxxxxx, Esq.
Fax Number:
WITH COPIES TO:
Troop Xxxxxxx Pasich Reddick & Xxxxx, LLP
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Attn: Xxxxxx Xxxxxxxx
Fax Number: (000) 000-0000
9.5 RIGHTS TO INJUNCTIVE RELIEF. All parties acknowledge that remedies at
law may be inadequate to provide full compensation in the event of a
material breach relating to either party's obligations,
representations, and warranties hereunder, and the non-breaching party
will therefore be entitled to seek injunctive relief in the event of
any such material breach.
9.6 FORCE MAJEURE. No party will be liable for, or will be considered to
be in breach of or default under this Agreement on account of, any
delay or failure to perform as required by this Agreement as a result
of any causes or conditions that are beyond such party's reasonable
control (such as war, riot, insurrection, rebellion, strike, lockout,
unavoidable casualty, or damage to personnel, material or equipment,
fire, flood, storm, earthquake, tornado, or any act of God) and that
such party is unable to overcome through the exercise of commercially
reasonable diligence. If any force majeure event occurs, the affected
party will give prompt written notice to the other party and will use
commercially reasonable efforts to minimize the impact of the event.
However, if a force majeure event detrimentally affects a party's
performance of a material covenant set forth herein, the other party
can immediately terminate this Agreement.
9.7 ARBITRATION. With the exception of the parties right to pursue
injunctive relief hereunder, the parties agree that any dispute or
claim in law or equity arising out of this Agreement shall be decided
by neutral, binding arbitration and not by court action, except as
provided by California law for judicial review of arbitration
proceedings. The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association
(AAA). The parties to an arbitration may agree in writing to use
different rules and/or arbitrator(s). In all other respects, the
arbitration shall be conducted in accordance with Part III, Title 9 of
the CALIFORNIA CODE OF CIVIL PROCEDURE. Judgment upon the award
rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. The parties shall have the right to discovery in
accordance with CODE OF CIVIL PROCEDURE ss.
Page 8
1283.05. There shall be three arbitrators, one to be chosen directly
by each party, and the third arbitrator to be selected by the two
arbitrators so chosen.
BY SIGNING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE
LITIGATED IN A COURT OR JURY TRIAL. YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY
INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO
SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE
COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF
CIVIL PROCEDURE.
9.8 WAIVER. The waiver, express or implied, by either party of any breach
of this Agreement by the other party will not waive any subsequent
breach by such party of the same or a different kind.
9.9 HEADINGS. The headings to the Sections and Schedules of this Agreement
are included merely for convenience of reference and will not affect
the meaning of the language included therein.
9.10 INDEPENDENT CONTRACTORS. The parties acknowledge and agree that they
are dealing with each other hereunder as independent contractors.
Nothing contained in this Agreement will be interpreted as
constituting either party the joint venturer, employee or partner of
the other party or as conferring upon either party the power of
authority to bind the other party in any transaction with third
parties.
9.11 SEVERABILITY. In the event any provision of this Agreement is held by
a court or other tribunal of competent jurisdiction to be
unenforceable, such provision will be reformed only to the extent
necessary to make it enforceable, and the other provisions of this
Agreement will remain in full force and effect.
9.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument. For
purposes hereof, a facsimile copy of this Agreement, including the
signature pages hereto, will be deemed to be an original.
Notwithstanding the foregoing, the parties will deliver original
execution copies of this Agreement to one another as soon as
practicable following execution thereof.
9.13 COOPERATION IN DRAFTING. All parties have cooperated in the drafting
and preparation of this Agreement, and it will not be construed more
favorably for or against any party.
9.14 ATTORNEY'S FEES. Should either party hereto initiate a legal or
administrative action or arbitration proceeding (an "ACTION") to
enforce any of the terms or conditions of
Page 9
this Agreement, the prevailing party (as determined by the court,
arbitrator or other fact-finder) will be entitled to recover from the
losing party all reasonable costs of the Action, including without
limitation attorneys' fees and costs.
9.15 SURVIVAL. Sections 5, 6, 7, 8 and 9 will survive termination or
expiration of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
TAG-IT PACIFIC, INC.
By: /S/ XXXXX XXXX
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
AZTECA PRODUCTION INTERNATIONAL, INC.
By: /S/ XXXXXX XXXX
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
XXXXXX XXXX
By: /S/ XXXXXX XXXX
-------------------------------------
XXXX XXXX
By: /S/ XXXX XXXX
-------------------------------------
Page 10
AZT INTERNATIONAL SA D RL
By: /S/ XXXXXX XXXX
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
COMMERCE INVESTMENT GROUP, LLC
By: /S/ XXXXXX XXXX
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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SCHEDULE 1.1
PRODUCTS AND PRICING
The Products to be sold by Tag-It shall be all trim items and packaging
items as may generally be offered by Tag-It to its customers from time to time.
The prices for the Products shall be as specified in writing by Tag-It to the
Covered Companies from time to time during the term.
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SCHEDULE 1.6
PURCHASED INVENTORY
$3,960,000 of inventory located as of the date hereof at the Covered
Companies' warehouse facilities in Commerce, CA as has been previously
identified in writing by the parties.
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