Exhibit 99.3
TAG-IT PACIFIC
October 14, 1998
Xxxxxx Xxxx
RE: Binding Letter of Understanding
Dear Xxxxxx:
This letter sets forth the agreement by you to invest in Tag-It
Pacific, Inc. (the "Company").
Xxxxxx Xxxx, or if this agreement is assigned to and agreed to in
writing by Xxxx Xxx and/or Tarrant Apparel Group, Tarrant Apparel Group and/or
Xxxx Xxx, as applicable (in any case, the "Investor"), agrees to purchase
2,390,000 newly issued shares of the Company's common stock at a per share price
of $1 1/8. The closing of the purchase of the shares hereunder shall occur on
October 16, 1998. Both parties agree to make no public disclosures regarding the
transaction documented by this agreement prior to October 23, 1998, except that
the Company can issue a press release disclosing the number of shares sold and
the sales price. The Investor agrees that:
1. Prior to the termination of the Non-Transfer Period (as defined
below), the Investor shall not be permitted to sell or transfer any of
its shares, except for bona fide pledges as security for indebtedness,
unless the transfer (i) is approved by the Company in its sole
discretion, (ii) is to the Company, (iii) is to any trust or other
entity controlled by the Investor for personal tax or estate reasons
and the transferee agrees in writing to be bound by each of the terms
of this Agreement and that certain letter agreement (the "Side
Agreement") of even date herewith among the Dyne Shareholders (as
defined below) and the Investor to the same extent as if such
transferee were the "Investor" hereunder, (iv) to a limited liability
company which is and at all times remains wholly owned (beneficially
and of record) and controlled by Xxxxxx Xxxx, Xxxx Xxx and the Tarrant
Apparel Group and which agrees in writing to be bound by each of the
terms of this Agreement and the Side Agreement to the same extent as
if such transferee were the "Investor" hereunder, or (v) to Tarrant
Apparel Group, provided Tarrant Apparel Group agrees in writing to be
bound by each of the terms of this Agreement and the Side Agreement to
the same extent as if such transferee were the "Investor" hereunder.
Any approvals granted by the Board shall be in its sole and absolute
discretion. The "Non-Transfer Period" is defined as two years from the
date of acquisition of the Company shares pursuant to this agreement.
2. Following the Non-Transfer Period, the Investor may sell or transfer
any of such shares provided that any such sale (i) is in accordance
with the volume restrictions set forth in Rule 144, or (ii) is part of
a secondary offering initiated by the Company, or (iii) is a block
sale in a bona fide private transaction to a third party financial or
strategic investor. To the extent that a block sale or any other sale
not contemplated by the preceding clauses (i) or (ii) is executed, the
Company shall have the right of first refusal, which right will be
assignable, to purchase such shares upon the same (or economically
equivalent) terms and conditions as are set forth in the proposed
block sale.
3. During the Non-Transfer Period, the Investor shall agree to not vote
in favor of any merger, asset sale or other extraordinary transaction
involving the Company, if such transaction is not approved by the
majority of the Board of Directors; provided, however, in the event
that the price to be paid per share pursuant to such transaction is at
least $8.00 per share, the Investor shall not be prohibited from
voting in favor of such transaction. The value of any non-cash
consideration shall be determined by the Board, with the advice of its
outside investment banker.
4. During the Non-Transfer Period, neither the Investor, nor any person
or entity affiliated with or controlled by the Investor, shall
purchase any additional shares of the Company's common stock, without
the Company's consent, in its sole and absolute discretion (except as
provided in the Side Agreement). The Company will prior to the closing
procure from the Dyne Shareholders (Xxxxxx Xxxx, Xxxxx Xxxx, Xxxx
Xxxx, Xxxxx Xxxx and Xxxxxxxx Xxxxxxxx) an agreement that during the
Non-Transfer Period, none of the Dyne Shareholders, nor any person or
entity affiliated with or controlled by the Dyne Shareholders, shall
purchase any additional shares of Company common stock, other than
from each other or the Company, without the Investors consent, in its
sole and absolute discretion (except as provided in the Side
Agreement).
5. Of the shares purchased hereunder by Xxxxxxxx, 386,778 of such shares,
as adjusted for stock splits, stock dividends and other similar
transactions, shall be referred to herein as the "Neutral Shares." So
long as the Dyne Shareholders hold more than 1,000,000 shares of the
Company's common stock, the Neutral Shares shall be voted in the same
proportion as all other outstanding shares of the Company are voted on
all matters presented to the Company's shareholders. A legend shall be
placed on the certificate(s) representing the Neutral Shares to
reflect these restrictions and Investor agrees to cause any and all
transferee to sign an agreement to be subject to such restrictions.
The number of Neutral Shares shall be reduced share by share by any
shares of Company common stock purchased by the Dyne Shareholders from
the Company. The specific shares that will cease to be Neutral Shares
shall be designated by the Investor.
6. During the Non-Transfer Period, the Investor shall have the right to
vote its shares, other than the Neutral Shares, in accordance with its
own objectives; provided, that neither the Investor, nor an entity
affiliated with or controlled by the Investor, shall promote or
initiate, or encourage another party to promote or initiate, a proxy
solicitation or vote contest in opposition to the management or the
Board of the Company, nor shall the Investor, nor any entity
affiliated with or controlled by the Investor, solicit proxies against
the management or the Board of the Company.
7. The Investor agrees that until after the Annual Meeting of
Stockholders of the Company held in 2000, the Investor shall vote its
shares in the same proportion as all other outstanding shares voted
with respect to the election of directors by the Company; provided,
however, that, except as set forth above, the Investor shall be
entitled to cast its votes with respect to shares, other than the
Neutral Shares, on other matters raised before the shareholders in its
sole and absolute discretion. Notwithstanding the foregoing, Investor
agrees to vote its shares to approve any amendment increasing the
number of shares of Company common stock reserved for issuance under
the Company's stock incentive plan, up to a maximum 900,000 shares, as
adjusted for stock splits, stock dividends and other similar
transactions.
8. Until after the Annual Meeting of Stockholders of the Company held in
2000, the Investor agrees not to nominate, or cause to be nominated,
any directors for election at any annual meeting.
9. The Investor shall be granted piggyback registration rights in order
to sell shares through a secondary offering pari passu with those
rights granted to the Dyne Shareholders. The Investor shall have the
right to sell the same proportion of Company shares held by it as any
shares being sold by the Dyne Shareholders, subject to any
restrictions imposed on each of these groups by the underwriter as
well as general market conditions. All expenses incurred in effecting
any such registration, including, without limitation, all registration
and filing fees, printing expenses, expenses of compliance with Blue
Sky laws, fees and disbursements of counsel for the Company, and
expenses of any audits incidental to or required by such registration
shall be borne by the Company; provided, however, that the Investor
shall bear its own legal expenses (if it retains separate counsel) and
all underwriting discounts or brokerage fees or commissions relating
to the sale of its shares pursuant to such registration.
10. The Company's shareholder rights plan will be amended to allow the
Investor to acquire the shares purchased hereunder without triggering
such plan.
11. The parties intend that the principal terms and conditions will be set
forth in a definitive agreement which shall be executed by all
parties, however if a definitive purchase and shareholder agreement is
not executed prior to the closing date, this Agreement shall be
binding. The shares issuable hereunder shall be restricted securities
under the Securities Act of 1933, as amended, and will contain
appropriate securities legends and legends referencing this agreement.
The Investor represents that it is an accredited investor as that term
is defined by Rule 501 under the Securities Act of 1933, as amended.
The Investor will make no public announcement of the matters
contemplated hereby until such time as the Investor is required to
make such disclosure under Section 13 or 16 of the Securities Exchange
Act of 1934, as amended. The Company represents and warrants that its
Annual Report on Form 10-K for the year ended December 31, 1997,
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998
and June 30, 1998, and Proxy Statement for the 1998 Annual Meeting of
Stockholders, as of the date each was filed with the Securities and
Exchange Commission, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements, in light of the
circumstances under which they were made, not misleading.
12. This letter represents the entire agreement between us pertaining to
the subject matter hereof. There are no warranties, representations or
other agreements between us in connection with the subject matter
hereof except as set forth or referred to herein. The agreement
contained herein shall bind and inure to the benefit of the
successors, assigns, personal representatives, heirs and legatees of
the respective parties. The agreement contained herein may be amended
or modified only by the written agreement of each of us. You and we
agree that this document has been executed and delivered in the State
of California and shall be construed, enforced and governed by the
laws thereof. In the event of any action, suit or proceeding brought
under or in connection with this agreement exclusive venue and
jurisdiction shall lie with the state and federal courts sitting in
the County of Los Angeles, City of Los Angeles, State of California,
and the prevailing party therein shall be entitled to recover, and the
other party hereto agrees to pay, the prevailing party's costs and
expenses in connection therewith, including reasonable attorneys fees.
If the foregoing accurately sets forth our agreement and understanding,
please countersign this letter where indicated.
Very truly yours,
TAG-IT PACIFIC, INC.
By: /s/ Xxxxx Xxxx
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Agreed to and Accepted:
October __, 1998
/s/ Xxxxxx Xxxx
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Xxxxxx Xxxx
