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EXHIBIT 99.1
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.
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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.
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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,
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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:_________________________________
Agreed to and Accepted:
October __, 1998
__________________________________
Xxxxxx Xxxx
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