-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CHMei/K/RTIwiShOAP+3uqsIi7CzRlId/82I+rH/cOvoag1rS/WoCR53Kyv3iXQE pyODH6gKzDmWX/QnskZvlA== 0001011438-02-000037.txt : 20020414 0001011438-02-000037.hdr.sgml : 20020413 ACCESSION NUMBER: 0001011438-02-000037 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020108 ITEM INFORMATION: Other events FILED AS OF DATE: 20020123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAG IT PACIFIC INC CENTRAL INDEX KEY: 0001047881 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 954654481 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13669 FILM NUMBER: 02515411 BUSINESS ADDRESS: STREET 1: 3820 SOUTH HILL STREET CITY: LOS ANGELES STATE: CA ZIP: 90037 BUSINESS PHONE: 2132349606 MAIL ADDRESS: STREET 1: 3820 SOUTH HILL STREET CITY: LOS ANGELES STATE: CA ZIP: 90037 8-K 1 form8-k.txt Securities and Exchange Commission Washington, D.C. 20549 - - - - - - - - - - - - - - Form 8-K Current Report Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 8, 2002 TAG-IT PACIFIC, INC. (exact name of registrant as specified in charter) Delaware 1-12669 95-4654481 (state of (Commission (IRS Employer Incorporation) File Number) Identification no.) 21900 Burbank Boulevard, Suite 270 Woodland Hills, California 91367 (Address of principal executive offices) 818-444-4100 (Registrant's telephone number) ITEM 5. OTHER EVENTS In a series of sales on December 28, 2001, January 7, 2002 and January 8, 2002, we entered into Stock and Warrant Purchase Agreements with three private investors, including Mark Dyne, the chairman of our board of directors. Pursuant to the Stock and Warrant Purchase Agreements, we issued an aggregate of 516,665 shares of our common stock at price per share of $3.00 for aggregate proceeds of $1,549,995. The Stock and Warrant Purchase Agreements also include a commitment by one of the two non-related investors to purchase an additional 400,000 shares of our common stock at a price per share of $3.00 at a second closing (subject of certain conditions) on or prior to October 1, 2002 for additional proceeds of $1,200,000. Pursuant to the Stock and Warrant purchase agreements, 258,332 warrants to purchase common stock were issued at the first closing of the transactions and 200,000 warrants are to be issued at the second closing. The warrants are exercisable immediately after closing, one half of the warrants at 110% and the second half at an exercise price of 120% of the market value of our common stock on the date of closing. The exercise price for the warrants shall be adjusted upward by 25% of the amount, if any, that the market price of our common stock on the exercise date exceeds the initial exercise price (as adjusted) up to a maximum exercise price of $5.25. The warrants have a term of four years. The shares contain restrictions related to the sale or transfer of the shares, registration and voting rights. A form of the Stock and Warrant Purchase Agreement, form of Warrant to Purchase Common Stock, form of Stockholders Agreements and form of Investor Rights Agreement which were entered into by us and each of the investors on December 28, 2001, January 7, 2002 and January 8, 2002, are attached as Exhibit 99.1, Exhibit 99.2, Exhibit 99.3, and Exhibit 99.4, respectively, to this Form 8-K. Exhibits 99.1, 99.2, 99.3 and 99.4 are incorporated herein by this reference. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on behalf of the undersigned hereunto duly authorized. January 23, 2002 Tag-It Pacific, Inc. By: /S/RONDA SALLMEN ----------------------------- Ronda Sallmen Chief Financial Officer EXHIBIT LIST Exhibit 99.1 Form of Stock and Warrant Purchase Agreement. Exhibit 99.2 Form of Warrant to Purchase Common Stock Agreements. Exhibit 99.3 Form of Stockholders Agreement. Exhibit 99.4 Form of Investor Rights Agreement EX-99 3 exhibit99-1.txt STOCK AND WARRANT PURCH AGT EXHIBIT 99.1 FORM OF TAG-IT PACIFIC, INC. STOCK AND WARRANT PURCHASE AGREEMENT This Stock and Warrant Purchase Agreement (this "Agreement") is made and entered into this [ ], 200_, by and between Tag-It Pacific, Inc., a Delaware corporation (the "COMPANY"), and those certain investors who are signatories hereto (each an "INVESTOR" and collectively, the "INVESTORS"). Additional persons may become parties hereto by execution of additional signature pages to this Agreement on or prior to January 9, 2002, and for purposes hereof will be included as "Investors" hereunder. In consideration of the mutual covenants and agreements hereinafter set forth, the parties to this Agreement agree as follows: 1. PURCHASE AND SALE OF SHARES. 1.1. On and subject to the terms and conditions of this Agreement, at the Initial Closings (defined below) each Investors severally agrees to purchase, and the Company agrees to sell and issue to each Investor: 1.1.1. that number of shares indicated on that Investor's signature page to this Agreement as first closing shares (the "FIRST CLOSING SHARES") of the Company's Common Stock, par value $0.001 per share (the "COMMON STOCK"), at a purchase price of $3.00 per share, and 1.1.2. a warrant in the Form of EXHIBIT "A" hereto (a "A WARRANT") to purchase such number of additional shares of Common Stock as set forth on that Investor's signature page to this Agreement at an adjustable exercise price commencing at $4.34 per share, and 1.1.3. a warrant in the Form of EXHIBIT "B" hereto (a "B WARRANT") to purchase such number of additional shares of Common Stock as set forth on that Investor's signature page to this Agreement at an adjustable exercise price commencing at $4.73 per share (the A Warrants and B Warrants issuable to Investors at the Initial Closing are collectively referred to as the "FIRST CLOSING WARRANTS"). 1.2. In addition, on and subject to the terms of this Agreement, at the Second Closing (as defined below), certain of the Investors agree to purchase, and the Company agrees to sell and issue to each such Investor: 1.2.1. that number of shares indicated on that Investor's signature page to this Agreement as "second closing shares" (referred to collectively as the "SECOND CLOSING SHARES" and, together with all First Closing Shares issuable to all Investors, the "SHARES") of the Company's Common Stock, at a purchase price of $3.00 per share, and 1.2.2. an A Warrant to purchase such number of additional shares of Common Stock as indicated on that Investor's signature page to this Agreement at an adjustable exercise price commencing at $4.34 per share, and 1.2.3. a B Warrant to purchase such number of additional shares of Common Stock as set forth on that Investor's signature page to this Agreement at an adjustable exercise price commencing at $4.73 per share (A Warrants and B Warrants issuable at the Second Closing are referred to collectively as the "SECOND CLOSING WARRANTS" and, together with the First Closing Warrants issuable to all Investors, the "WARRANTS") all on identical terms and conditions, except as to the expiration of the Second Closing Warrants, to the terms of the issuance and sale of the First Closing Shares and the First Closing Warrants (the "ADDITIONAL Investment"). 1.3. The Additional Investment at the Second Closing shall be subject only to the terms and conditions set forth in Section 1.4.3. 1.4. CLOSING. 1.4.1. INITIAL CLOSING. The Initial Closings of the transactions set forth in SECTION 1.1 above shall take place at the offices of Akin Gump Strauss Hauer & Feld, L.L.P., 2029 Century Park East, Los Angeles, California 90067, concurrently with the execution and delivery of this Agreement in the case of the investment to be made by Harris Toibb, and at such other time and place as the Company and each other Investor mutually agrees upon, but in any event no later than January 9, 2002 with respect to any of the other of the Investors (which times and places are designated the "INITIAL CLOSING" with respect to each Investor, and collectively, as the "INITIAL CLOSINGS"). At or promptly following the Initial Closing for each Investor, the Company shall deliver to or cause its transfer agent to deliver to that Investor a share certificate registered in such Investor's name representing the Shares that such Investor is to receive from the Company at the applicable Initial Closing, the Investor Rights Agreement in the form attached as EXHIBIT "C" hereto (the "INVESTOR RIGHTS AGREEMENT") duly executed by the Company, the Stockholders Agreement in the form attached as EXHIBIT "D" hereto (the "STOCKHOLDERS AGREEMENT") duly executed by the Company, and that Investor's First Closing Warrants, against payment of the purchase price therefor by check or wire transfer and execution and delivery to the Company by the Investor of the Investor Rights Agreement and Stockholders Agreement. 1.4.2. SECOND CLOSING. Subject to the provisions below, a second Closing (the "SECOND CLOSING"), effected in the manner set forth in SECTION 1.4.1, shall occur on such date as the Company and the Investors shall mutually agree, but no later than October 1, 2002, which shall be the date of the Second Closing in the absence of a different mutually agreed date for the Second Closing, unless the funding condition set forth in SECTION 1.4.3 below is not satisfied as of such time. 1.4.3. SECOND CLOSING CONDITION. As of the Date of the Second Closing, (i) each of the representations and warranties of the Company set forth in Sections 2.1.1, 2.1.2, 2.1.3, 2.14, 2.1.5 and 2.1.7 shall be true and correct as of such date, (ii) each of the representations and warranties of the Company set forth in Sections 2.1.6, 2.1.8 and 2.1.10 shall be true and correct in all material respects as of such date provided that all references to SEC Documents shall include all reports and filings with the SEC (as defined below) through the date of the Second Closing, (iii) the representation and warranty of the Company set forth in Section 2.1.9 shall be true and correct in all material respects as of the date of the Company's then most recently filed Quarterly Report on Form 10-Q filed with the SEC, (iv) no "Material Adverse Change" (as defined below) with respect to the business of the Company shall have occurred after the date of this Agreement and be continuing, and (v) no Force Majeure Event shall have occurred after the date of this Agreement and be continuing. For purposes of Page 2 this Agreement, "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means any material adverse effect on the business, financial condition or operations of the Company and its subsidiaries on a consolidated basis. For purposes of this Agreement, "FORCE MAJEURE EVENT" shall mean (i) any suspension of trading, disruption or material adverse change, or any development involving a prospective material adverse change, in or affecting the capital markets generally or any of the corporate bond, interest rate swaps or commercial mortgage backed securities markets in particular; (ii) any suspension or limitation of trading in securities generally on the New York Stock Exchange, NASDAQ, the American Stock Exchange or any setting of minimum prices for trading on any such exchange; (iii) any banking moratorium declared by Federal, New York or Delaware authorities; or (iv) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency, PROVIDED, HOWEVER, that this item (iv) shall not include the current military activities of the United States of America in the country of Afghanistan. If Investor disagrees with the Company's assertion that no Material Adverse Change or no Force Majeure event has occurred in the relevant period, Investor and the Company, shall immediately take the dispute to arbitration in accordance with SECTION 4.6 hereto ("ARBITRATION"). 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND EACH INVESTOR. 2.1. BY THE COMPANY. The Company hereby represents and warrants to each Investor as follows: 2.1.1. STATUS. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the corporate power to own and operate its properties and assets, to carry on its business as now conducted and to enter into and to perform its obligations under this Agreement, the Warrants, Stockholders Agreement and the Investor Rights Agreement (collectively, the "TRANSACTION DOCUMENTS"). The Company is duly qualified to do business and is in good standing in California and in each other state in which a failure to be so qualified would have a material adverse effect on the Company's financial condition or its ability to own and operate its properties and assets and conduct its business in the manner now conducted. 2.1.2. AUTHORIZATION. The Company has full legal right, power and authority to conduct its business and affairs. The Company has full legal right, power and authority to enter into and perform its obligations under the Transaction Documents, including the issuance of the Securities (as defined below). The execution and delivery of this Agreement, the execution and delivery of the other Transaction Documents, and the performance by the Company of its obligations thereunder, including the issuance of the Securities (as defined below), are within the corporate powers of the Company and have been duly authorized by all necessary corporate action properly taken and the Company has received all necessary governmental approvals, if any, that are required. The officer(s) executing this Agreement and all of the other Transaction Documents are duly authorized to act on behalf of the Company. 2.1.3. VALIDITY AND BINDING EFFECT. This Agreement and the other Transaction Documents are the legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, subject to limitations imposed by bankruptcy, Page 3 insolvency, moratorium or other similar laws affecting the rights of creditors generally or the application of general equitable principles. 2.1.4. NO CONFLICTS. Consummation of the transactions contemplated hereby and the performance of the obligations of the Company under and by virtue of the Transaction Documents, including the issuance of the Shares, the Warrants, and the shares of Common Stock issuable upon exercise of the Warrants (collectively, the "SECURITIES"), do not conflict with, and will not result in any breach of, or constitute a default or trigger a lien under, any mortgage, security deed or agreement, deed of trust, lease, bank loan or credit agreement, corporate charter or bylaws, agreement or certificate of limited partnership, partnership agreement, license, franchise or any other instrument or agreement to which the Company is a party or by which the Company or its respective properties may be bound or affected or to which the Company has not obtained an effective waiver. 2.1.5. EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to the accuracy at each Closing of each Investor's representations in SECTION 2.2, the sale of the Shares and Warrants will not require registration under the Securities Act and/or any applicable state securities law. The issuance of the shares of Common Stock issuable by the Company upon exercise of the Warrant (the "WARRANT SHARES") shall, if and when the Warrants are exercised in accordance with their respective terms, be duly and validly issued, fully-paid and non-assessable shares of Common Stock, free of all liens, claims, encumbrances, preemptive rights, rights of first refusal and restrictions on transfer, except as imposed by applicable securities laws. 2.1.6. SEC DOCUMENTS. The Company has made available to the Investor true and complete copies of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and each report, proxy statement or registration statement filed by the Company with the Securities and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") or the Securities Act since the filing of such Annual Report through the date hereof (collectively such documents are referred to as the "SEC DOCUMENTS"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act, and rules and regulations of the SEC promulgated thereunder and the SEC Documents did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto at the time of such inclusion. Such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited interim statements, to normal year-end audit adjustments). Neither the Company nor Page 4 any of its subsidiaries has any material indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due) that would have been required to be reflected in, reserved against or otherwise described in the financial statements or in the notes thereto in accordance with GAAP, which was not fully reflected in, reserved against or otherwise described in the financial statements or the notes thereto included in the SEC Documents. 2.1.7. NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS TRANSACTION. Neither the Company nor any of its affiliates nor any person acting on its or their behalf (i) has conducted or will conduct any general solicitation (as that term is used in Rule 502(c) of Regulation D) or general advertising with respect to the Securities or (ii) made any offers or sales of any Security or solicited any offers to buy any Security under any circumstances that would require registration of the Securities under the Securities Act; PROVIDED, that the Company makes no representation or warranty with respect to the Investor. 2.1.8. NO MATERIAL ADVERSE EFFECT. Since September 30, 2001, no Material Adverse Change has occurred or exists with respect to the Company, except as disclosed in the SEC Documents. 2.1.9. NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since September 30, 2001, except as have been disclosed in filings by the Company with the SEC, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, prospects, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the SEC Documents. 2.1.10. LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the SEC Documents, there are no lawsuits or proceedings pending or, to the knowledge of the Company, threatened, against the Company, nor has the Company received any written or oral notice of any such action, suit, proceeding or investigation, which could reasonably be expected to have a Material Adverse Effect. Except as set forth in the SEC Documents, no judgment, order, writ, injunction or decree or award has been issued by or, to the knowledge of the Company, requested of any court, arbitrator or governmental agency which could result in a Material Adverse Effect. 2.2. BY EACH INVESTOR. Each Investor severally, but not jointly, hereby represents and warrants to the Company as follows: 2.2.1. AUTHORIZATION. Investor has the full legal right, power and authority to enter into and perform its obligations under the Transaction Documents. The execution and delivery of this Agreement, the execution and delivery of each Transaction Document to which the Investor is a party, and the performance by the Investor of its obligations hereunder and thereunder are within the powers of the Investor and have been duly authorized by all necessary action properly taken and the Investor has received all necessary governmental approvals, if any, that are required. The person executing this Agreement and all of the other Transaction Documents to which the Investor is a party is duly authorized to act on behalf of the Investor. Page 5 2.2.2. VALIDITY AND BINDING EFFECT. This Agreement and the other Transaction Documents are the legal, valid and binding obligations of Investor, enforceable in accordance with their respective terms, subject to limitations imposed by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally or the application of general equitable principles. 2.2.3. INVESTMENT REPRESENTATIONS. 2.2.3.1. Investor has such knowledge and experience in financial and business matters, including investments of the type represented by the Securities as to be capable of evaluating the merits of investment in the Company and can bear the economic risk of an investment in the Securities; 2.2.3.2. Investor is an "accredited investor" as such term is defined in Rule 501 of Regulation D under the Securities Act; and 2.2.3.3. Investor is acquiring or, as applicable, will acquire, the Securities for investment purposes only, for its own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof in contravention of the Securities Act or any state securities law, without prejudice, however, to Investor's right at all times to sell or otherwise dispose of all or any part of the Securities pursuant to an effective registration statement under the Securities Act and applicable state securities laws, or under an exemption from such registration available under the Securities Act and other applicable state securities laws. 2.2.3.4. ABSENCE OF CONFLICTS. The execution and delivery of this Agreement and the other Transaction Documents to with Investor is a party, and the consummation of the transactions contemplated thereby, and compliance with the requirements thereof, will not violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Investor or (a) violate any provision of any indenture, instrument or agreement to which Investor is a party or is subject, or by which Investor or any of its assets is bound; (b) conflict with or constitute a material default thereunder; (c) result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or constitute a breach of any fiduciary duty owed by Investor to any third party; or (d) require the approval of any third-party (which has not been obtained) pursuant to any material contract, agreement, instrument, relationship or legal obligation to which Investor is subject or to which any of its assets, operations or management may be subject. 2.2.3.5. DISCLOSURE; ACCESS TO INFORMATION. Investor has received all documents, records, books and other publicly available information pertaining to Investor's investment in the Company that have been requested by Investor. The Company is subject to the periodic reporting requirements of the Exchange Act, and the Investor has reviewed or received copies of all SEC Documents that have been requested by it. 2.2.3.6. TRANSFER RESTRICTIONS. Investor understands the restrictions on resale and transfer of the Securities imposed upon Investor pursuant to Section 3 of this Agreement, and will abide by such resale and transfer restrictions. Page 6 2.2.3.7. LEGEND. Investor understands that, in addition to such legends as are required by the Stockholders Agreement and the Investor Rights Agreement a legend in substantially the following form will be placed on the certificates representing the Shares: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, HAVE BEEN TAKEN FOR INVESTMENT, AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED." 3. RESTRICTIONS ON TRANSFER. Investor hereby agrees that none of the Securities shall be sold, transferred, assigned, pledged, hypothecated or otherwise disposed of unless and until one of the following events shall have occurred: 3.1. Such Securities are disposed of pursuant to and in conformity with an effective registration statement filed with the Commission pursuant to the Securities Act or pursuant to Rule 144 of the Commission thereunder; or 3.2. The Company shall have received a written opinion of counsel reasonably acceptable to the Company (which may be counsel for the Company) to the effect that the proposed transfer is exempt from the registration and prospectus delivery requirements of the Securities Act. 3.3. As a further condition to any such disposition and to the Company's obligation to register any such disposition, so long as the legend set forth above will appear on the stock certificate resulting from such transfer, the Company may require, as a condition to such transfer, that the contemplated transferee furnish the Company with an investment letter in form and substance reasonably satisfactory to the Company and its counsel. 4. MISCELLANEOUS. 4.1. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed as original but all of which together shall constitute one and the same instrument. 4.2. SEVERABILITY. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement and shall be interpreted so as to be effective and valid. 4.3. NOTICES. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited in the mail, registered or certified, Page 7 return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the first business day following the date of sending by reputable courier service, fully prepaid, addressed to such address, or (c) upon actual receipt of such mailing, if mailed. The addresses for such communications shall be, if to the Investors, to such addresses set forth on the signature page for such Investor and if to the Company: If to the Company: Tag-It Pacific, Inc. 21900 Burbank Boulevard Woodland Hills, CA 91367 Suite 270 Attn: Colin Dyne and Ronda Sallmen Fax Number: (818) 444-4106 WITH COPIES TO: -------------- Akin, Gump, Strauss, Hauer & Feld 2029 Century Park East, 24th Floor Los Angeles, CA 90067-3010 Attn: Murray Markiles Fax Number: (310) 728-2233 Or at such address as an Investor or permitted assignee shall have furnished to the Company in writing. The parties hereto may from time to time change their address or facsimile number for notices under this Section 4.3 by giving written notice of such changed address or facsimile number to the other parties hereto as provided in this Section 4.3. 4.4. CONSTRUCTION AND INTERPRETATION. Should any provision of this Agreement require judicial interpretation, the parties hereto agree that the court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be more strictly construed against the party that itself or through its agent prepared the same, it being agreed that the Company, the Investor and their respective agents have participated in the preparation hereof. 4.5. ENTIRE AGREEMENT. This Agreement and the other written agreements between the Company and Investor represent the entire agreement between the parties concerning the subject matter hereof, and all oral discussions and prior agreements are merged herein; PROVIDED, if there is a conflict between this Agreement and any other document executed Page 8 contemporaneously herewith with respect to the obligations described herein, the provision of this Agreement shall control. 4.6. ARBITRATION. Any dispute or controversy arising under, out of, or in connection with or in relation to this Agreement, and any amendments thereto or the breach thereof, shall be determined and settled by arbitration to be held in County of Los Angeles, State of California, in accordance with the rules of the American Arbitration Association. Any award rendered therein shall be final and binding on each and all of the Parties and judgment may be entered thereon in any court of competent jurisdiction. 4.7. COSTS AND ATTORNEYS' FEES. If any action, suit, arbitration or other proceeding is instituted to remedy, prevent or obtain relief from a default in the performance by any party to this Agreement of its obligations under this Agreement, the prevailing party (as determined by the court or other fact-finder) will be entitled to recover from the losing party all actual costs incurred in each and every such action, suit, arbitration or other proceeding, including any and all appeals or petitions therefrom, including, without limitation, reasonable attorneys' fees and disbursements. 4.8. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH 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 IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 4.9. GOVERNING LAW. THIS AGREMEENT IS MADE AND ENTERED INTO IN THE STATE OF CALIFORNIA AND THE LAWS OF SAID STATE SHALL GOVERN THE VALIDITY AND INTERPRETATION HEREOF AND THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE DUTIES AND OBLIGATIONS HEREUNDER. Page 9 IN WITNESS WHEREOF, this Agreement has been executed by the parties with the intent that it be effective as of the date first above written. TAG-IT PACIFIC, INC. a Delaware corporation By: ------------------------------- Ronda Sallmen Its: Chief Financial Officer Page 10 TAG-IT PACIFIC, INC. STOCK AND WARRANT PURCHASE AGREEMENT INVESTOR SIGNATURE PAGE The undersigned Investor, by signing and returning this signature page, irrevocably commits and agrees to purchase at the Closings identified below the securities set forth above the Investor's signature hereto, subject to the terms and conditions of this Agreement. Also, by signing below, Investor agrees to be deemed a party to and bound by the Investor Rights Agreement and Stockholders Agreement, in furtherance thereof, Investor hereby constitutes and appoints Colin Dyne as Purchaser's attorney-in-fact, with full power of substitution, to sign the Investor Rights Agreement and Stockholders Agreement each in the form attached hereto on Investor's behalf.
COMMON STOCK A WARRANTS TO B WARRANTS TO AGGREGATE COMMON STOCK PURCHASE PURCHASE PURCHASE PRICE - --------- ------------ ------------- --------------- --------------- FIRST CLOSING - --------- ------------ ------------- --------------- --------------- SECOND CLOSING - --------- ------------ ------------- --------------- ---------------
INVESTOR -------------------------------- Address: -------------------------------- -------------------------------- -------------------------------- Page 11 EX-99 4 exhibit99-2.txt FORM OF WARRANT TO PURCHASE COMMON STOCK EXHIBIT 99.2 THIS WARRANT AND THE SECURITIES ISSUABLE HEREUNDER 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 WARRANT NOR THE SECURITIES ISSUABLE HEREUNDER MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. - ------------------------------------------------------------------------------ FORM OF WARRANT TO PURCHASE COMMON STOCK OF TAG-IT PACIFIC, INC. --------------- THIS CERTIFIES THAT, for value received, [ ], or his or her permitted registered assigns ("HOLDER"), is entitled, subject to the terms and conditions of this Warrant, at any time or from time to time after the issuance date of this Warrant (the "EFFECTIVE DATE"), and before 5:00 p.m. Pacific Time on December 28, 2005 (the "EXPIRATION DATE"), to purchase from TAG-IT PACIFIC, INC., a Delaware corporation (the "COMPANY"), up to [ ]shares of Common Stock of the Company at a price per share equal to the Purchase Price (as defined below). Both the number of shares of Common Stock purchasable upon exercise of this Warrant and the Purchase Price are subject to adjustment and change as provided herein. 1. CERTAIN DEFINITIONS. As used in this Warrant the following terms shall have the following respective meanings: 1.1 "ADJUSTED PRICE" shall mean, initially, [$ ]as may be adjusted from time to time pursuant to Section 4 hereof. 1.2 "COMMON STOCK" shall mean the Common Stock of the Company and any other securities at any time receivable or issuable upon exercise of this Warrant. 1.3 "FAIR MARKET VALUE" of a share of Common Stock as of a particular date shall mean: (a) If traded on a securities exchange or the Nasdaq National Market, the Fair Market Value shall be deemed to be the average of the closing prices of the Common Stock of the Company on such exchange or market over the five (5) trading days ending immediately prior to the applicable date of valuation; (b) If traded over-the-counter, the Fair Market Value shall be deemed to be the average of the closing bid and asked quotations averaged over the fifteen (15)-day period ending immediately prior to the applicable date of valuation; and (c) If there is no public market, the Fair Market Value shall be the value thereof, as agreed upon in good faith by the Company and the Holder; provided, however, that if the Company and the Holder cannot agree on such value, such value shall be determined by an independent valuation firm experienced in valuing businesses jointly selected in good faith by the Company and the Holder. Fees and expenses of the valuation firm shall be paid for by the Company. 1.4 "PURCHASE PRICE" shall mean the Adjusted Price multiplied by 1.10 plus 25% of the amount, if any, by which the Fair Market Value as of the date of exercise exceeds the Adjusted Price; provided, in no event shall the Purchase Price exceed $5.25 (subject to SECTION 4 below). 1.5 "REGISTERED HOLDER" shall mean any Holder in whose name this Warrant is registered upon the books and records maintained by the Company. 1.6 "WARRANT" as used herein, shall include this Warrant and any warrant delivered in substitution or exchange therefor as provided herein. 2. EXERCISE OF WARRANT 2.1 PAYMENT. Subject to compliance with the terms and conditions of this Warrant and applicable securities laws, this Warrant may be exercised, in whole or in part at any time or from time to time, on or before the Expiration Date by the delivery (including, without limitation, delivery by facsimile) of the form of Notice of Exercise attached hereto as EXHIBIT 1 (the "NOTICE OF EXERCISE"), duly executed by the Holder, at the principal office of the Company, and as soon as practicable after such date, surrendering (a) this Warrant at the principal office of the Company, and (b) payment in cash (by check) or by wire transfer of an amount equal to the product obtained by multiplying the number of shares of Common Stock being purchased upon such exercise by the then effective Purchase Price (the "EXERCISE AMOUNT"). 2.2 NET ISSUE EXERCISE. In lieu of the payment methods set forth in SECTION 2.1(B) above, the Holder may elect to exchange all or some of this Warrant for shares of Common Stock equal to the value of the amount of the Warrant being exchanged on the date of exchange. If Holder elects to exchange this Warrant as provided in this SECTION 2.2, Holder shall tender to the Company the Warrant for the amount being exchanged, along with written notice of Holder's election to exchange some or all of the Warrant, and the Company shall issue to Holder the number of shares of the Common Stock computed using the following formula: Page 2 X = Y (A-B) ----------- A Where: X = the number of shares of Common Stock to be issued to Holder. Y = the number of shares of Common Stock purchasable under the amount of the Warrant being exchanged (as adjusted to the date of such calculation). A = the Fair Market Value of one share of the Common Stock. B = Purchase Price (as adjusted to the date of such calculation). 2.3 STOCK CERTIFICATES; FRACTIONAL SHARES. As soon as practicable on or after the date of any exercise of this Warrant but in any event within 5 business days after its receipt of the Exercise Amount, the Company shall issue and deliver to the person or persons designated by the Holder a certificate or certificates for the aggregate number of whole shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share equal to such fraction of the current Fair Market Value of one whole share of Common Stock as of such date of exercise. No fractional shares or scrip representing fractional shares shall be issued upon an exercise of this Warrant. 2.4 PARTIAL EXERCISE; EFFECTIVE DATE OF EXERCISE. In case of any partial exercise of this Warrant, the Company shall cancel this Warrant upon surrender hereof and shall execute and deliver a new Warrant of like tenor and date for the balance of the shares of Common Stock purchasable hereunder. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above. The person entitled to receive the shares of Common Stock issuable upon exercise of this Warrant shall be treated for all purposes as the holder of record of such shares as of the close of business on the date the Company receives the Notice of Exercise, subject to receipt of the Exercise Amount. 2.5 VESTING. The warrants shall vest fully upon issuance. 3. VALID ISSUANCE: TAXES. All shares of Common Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and non-assessable. The Company shall not be required to pay any tax or other charge imposed in connection with any transfer involved in the issuance of any certificate for shares of Common Stock in any name other than that of the Registered Holder of this Warrant, and in such case the Company shall not be required to issue or deliver any stock certificate or security until such tax or other charge has been paid, or it has been established to the Company's reasonable satisfaction that no tax or other charge is due. 4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities or property receivable or issuable upon exercise of this Warrant) and the Purchase Price are subject to adjustment upon occurrence of the following events: 4.1 ADJUSTMENT FOR STOCK SPLITS, STOCK SUBDIVISIONS OR COMBINATIONS OF SHARES. The Adjusted Price of this Warrant shall be proportionally decreased and the number of shares of Page 3 Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall be proportionally increased to reflect any stock split or other subdivision of the Company's Common Stock. The Adjusted Price of this Warrant shall be proportionally increased and the number of shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall be proportionally decreased to reflect any reverse stock split, consolidation or combination of the Company's Common Stock. 4.2 ADJUSTMENT FOR DIVIDENDS OR DISTRIBUTIONS OF STOCK OR OTHER SECURITIES OR PROPERTY. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution with respect to the Common Stock (or any shares of stock or other securities at the time issuable upon exercise of the Warrant) payable in (a) securities of the Company (including debt instruments), or (b) assets (excluding cash dividends paid or payable solely out of retained earnings), then, in each such case, the Holder of this Warrant on exercise hereof at any time after the consummation, effective date or record date of such dividend or other distribution, shall receive, in addition to the shares of Common Stock (or such other stock or securities) issuable on such exercise prior to such date, and without the payment of additional consideration therefor, the securities or such other assets of the Company to which such Holder would have been entitled upon such date if such Holder had exercised this Warrant on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and all such additional securities or other assets distributed with respect to such shares as aforesaid during such period giving effect to all adjustments called for by this SECTION 4. 4.3 RECLASSIFICATION. If the Company, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change, and the Adjusted Price therefore shall be appropriately adjusted, all subject to further adjustment as provided in this SECTION 4. No adjustment shall be made pursuant to this SECTION 4.3 upon any conversion or redemption of the Common Stock which is the subject of SECTION 4.5. 4.4 ADJUSTMENT FOR CAPITAL REORGANIZATION, MERGER OR CONSOLIDATION. In case of any capital reorganization of the capital stock of the Company (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or any merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the assets of the Company then, and in each such case, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the Holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Purchase Price then in effect, the number of shares of stock or other securities or property (including cash) to which the holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this SECTION 4. The foregoing provisions of this SECTION 4.4 shall similarly apply to successive reorganizations, Page 4 consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. 4.5 CONVERSION OF COMMON STOCK. In case all or any portion of the authorized and outstanding shares of Common Stock of the Company are redeemed or converted or reclassified into other securities or property pursuant to the Company's Certificate of Incorporation or otherwise, or the Common Stock otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon exercise hereof at any time after the date on which the Common Stock is so redeemed or converted, reclassified or ceases to exist (the "TERMINATION DATE"), shall receive, in lieu of the number of shares of Common Stock that would have been issuable upon such exercise immediately prior to the Termination Date, the securities or property that would have been received if this Warrant had been exercised in full and the Common Stock received thereupon had been simultaneously converted immediately prior to the Termination Date, all subject to further adjustment as provided in this Warrant. Additionally, the Adjusted Price shall be immediately adjusted such that the aggregate Purchase Price of the maximum number of securities or other property for which this Warrant is exercisable immediately after the Termination Date is equal to the aggregate Purchase Price of the maximum number of shares of Common Stock for which this Warrant was exercisable immediately prior to the Termination Date, all subject to further adjustment as provided herein. 4.6 FULL RATCHET ADJUSTMENT FOR ISSUANCE OF ADDITIONAL STOCK. If at any time after the Effective Date and prior to the first anniversary of the Effective Date the Company shall issue any Additional Stock (as defined below) without consideration or for a consideration per share less than the Adjusted Price in effect on the date immediately prior to the date of issuance of such Additional Stock, the Adjusted Price in effect immediately prior to each such issuance shall automatically be adjusted on a full ratchet basis such that the new Adjusted Price of the shares subject to exercise under this Warrant shall be equal to the value of the consideration paid per each share of Additional Stock issued. For purposes of this SECTION 4.6, "ADDITIONAL STOCK" shall mean any shares of Common Stock issued or issuable by the Company, other than (i) shares of Common Stock issued pursuant to any stock split, stock subdivision, stock dividend, redemption, conversion or other reclassification of securities, or recapitalization, each as may be contemplated in SECTIONS 4.1 through 4.3 and SECTION 4.5 above, (ii) shares of Common Stock, or options or warrants to purchase Common Stock, issued or issuable to employees, consultants or directors of the Company for the primary purpose of soliciting or retaining their employment or services directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Company, (iii) shares of Common Stock of the Company issuable upon exercise of warrants, options, notes or other rights to acquire securities of the corporation outstanding as of December 30, 2001, and (iv) any shares of Common Stock, or warrants to purchase shares of Common Stock (and any shares of Common Stock issued upon exercise of such warrants) issued pursuant to that certain Stock and Warrant Purchase Agreement dated December 28, 2001 between the Company and the parties set forth on the signature page thereto. 4.7 DETERMINATION OF VALUE OF CONSIDERATION OTHER THAN CASH OR MARKETABLE SECURITIES. If the per-share consideration payable to the Holder hereof for shares in connection with any transaction is in a form other than cash or marketable securities, then for purposes of any adjustment required pursuant to the provisions of this Section4, the value of such consideration shall be shall be the value as agreed upon in good faith by the Company and the Holder; provided, however, that if the Company and the Holder cannot agree on such value, such value shall be Page 5 determined by an independent valuation firm experienced in valuing such property jointly selected in good faith by the Company and the Holder. All Fees and expenses of the valuation firm shall be paid for by the Company. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. 5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in the Purchase Price, or number or type of shares issuable upon exercise of this Warrant, the Chief Financial Officer or Controller of the Company shall compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of the adjusted Purchase Price. The Company shall promptly send (by facsimile and by either first class mail, postage prepaid or overnight delivery) a copy of each such certificate to the Holder. In addition, if at any time prior to the Expiration Date: 5.1 the Company shall declare any dividend payable in any securities or make any distribution to its stockholders; 5.2 the Company shall offer to its stockholders as a class any additional shares of Common Stock or securities convertible into Common Stock or any right to subscribe to Common Stock or securities convertible or exchangeable into Common Stock; or 5.3 a dissolution or winding up of the Company (other than in connection with a consolidation, merger or sale of all or substantially all of its property, assets and business as an entirety) shall be proposed; then in any one or more of such events, the Company shall give notice in writing of such event to the Holder at least 10 days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution or subscription rights, or for the determination of stockholders entitled to vote on such proposed dissolution, liquidation or winding up. Such notice shall specify such record date or date of the closing of the transfer books, as the case may be. 6. LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory to the Company of the ownership of and the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to it, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new Warrant of like tenor as the lost, stolen, destroyed or mutilated Warrant. 7. RESERVATION OF COMMON STOCK. The Company hereby covenants that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant such number of shares of Common Stock or other shares of capital stock of the Company as are from time to time issuable upon exercise of this Warrant and, from time to time, will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of this Warrant. All such shares shall be duly authorized, and when issued upon such exercise, shall be validly issued, fully paid and non-assessable, free and clear of all liens, security Page 6 interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights, except encumbrances or restrictions arising under federal or state securities laws. Issuance of this Warrant shall constitute full authority to the Company's Officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the exercise of this Warrant. 8. TRANSFER AND EXCHANGE. Subject to the terms and conditions of this Warrant and compliance with all applicable securities laws, this Warrant and all rights hereunder may be transferred to any Registered Holder's parent, subsidiary or affiliate or to any officer, director, partner or member of any such parent, subsidiary or affiliate, in whole or in part, on the books of the Company maintained for such purpose at the principal office of the Company referred to above, by the Registered Holder hereof in person, or by duly authorized attorney, upon surrender of this Warrant properly endorsed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any permitted partial transfer, the Company will issue and deliver to the Registered Holder a new Warrant or Warrants with respect to the shares of Common Stock not so transferred. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that when this Warrant shall have been so endorsed, the person in possession of this Warrant may be treated by the Company, and all other persons dealing with this Warrant, as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding; provided, however that until a transfer of this Warrant is duly registered on the books of the Company, the Company may treat the Registered Holder hereof as the owner for all purposes. 9. RESTRICTIONS ON TRANSFER. By acceptance hereof, the Holder acknowledges that this Warrant and the capital stock of the Company that may be issued upon its exercise have not been registered under the Securities Act, and Holder agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any capital stock issued upon its exercise in the absence of (i) an effective registration statement under the Securities Act as to this Warrant or such securities and registration or qualification of this Warrant or such securities under any applicable Blue Sky or state securities laws then in effect, or (ii) an opinion of counsel, reasonably satisfactory to the Company, that such registration and qualification are not required. In the reasonable discretion of the Company, the Company may condition any transfer of all or any portion of this Warrant or the capital stock of the Company that may be issued upon its exercise (other than a disposition satisfying the conditions set forth in clause (i) of SECTION 9(I) above) upon the transferee's delivery to the Company of a written agreement, in form and substance reasonably satisfactory to the Company, whereby the transferee makes such representations and warranties to and for the benefit of the Company as are comparable to the representations and warranties of the Holder set forth in SECTION 10 below. 10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the Holder hereby represents, warrants and covenants that any shares of stock purchased upon exercise of this Warrant shall be acquired for investment only and not with a view to, or for sale in connection with, any distribution thereof; that the Holder has had such opportunity as such Holder has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Holder to evaluate the merits and risks of its investment in the Company; that the Holder is able to bear the economic risk of holding such shares as may be acquired pursuant to the exercise of this Warrant for an indefinite period; that the Holder understands that the shares of stock acquired pursuant to the exercise of this Warrant will not be registered under the 1933 Act (unless otherwise Page 7 required pursuant to exercise by the Holder of the registration rights, if any, granted to the Registered Holder) and will be "restricted securities" within the meaning of Rule 144 under the 1933 Act and that the exemption from registration under Rule 144 will not be available for at least one (1) year from the date of exercise of this Warrant, subject to any special treatment by the SEC for exercise of this Warrant pursuant to SECTION 2.2, and even then will not be available unless a public market then exists for the stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and that all stock certificates representing shares of stock issued to the Holder upon exercise of this Warrant or upon conversion of such shares may have affixed thereto a legend substantially in the following form: 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 REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. 11. NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In the absence of affirmative action by such Holder to purchase Common Stock by exercise of this Warrant or Common Stock upon conversion thereof, no provisions of this Warrant, and no enumeration herein of the rights or privileges of the Holder hereof shall cause such Holder hereof to be a stockholder of the Company for any purpose. 12. NOTICES. Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party; (b) when received when sent by facsimile at the address and number set forth below; (c) three business days after deposit in the U.S. mail with first class or certified mail receipt requested postage prepaid and addressed to the other party as set forth below; or (d) the next business day after deposit with a national overnight delivery service, postage prepaid, addressed to the parties as set forth below with next-business-day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. Page 8 To Holder: To the Company: TAG-IT PACIFIC, INC. 21900 Burbank Blvd Woodland Hills, CA 91367 Attn: Chief Financial Officer Fax Number: (818) 444-4106 Each person making a communication hereunder by facsimile shall promptly confirm by telephone to the person to whom such communication was addressed each communication made by it by facsimile pursuant hereto. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this SECTION 12 by giving the other party written notice of the new address in the manner set forth above. 13. HEADINGS. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof. 14. LAW GOVERNING. This Warrant shall be construed and enforced in accordance with, and governed by, the laws of the State of California. 15. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Registered Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock issuable upon the exercise of this Warrant above the amount payable therefore upon such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon exercise of this Warrant. 16. SEVERABILITY. If any term, provision, covenant or restriction of this Warrant is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Warrant shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 17. COUNTERPARTS. For the convenience of the parties, any number of counterparts of this Warrant may be executed by the parties hereto and each such executed counterpart shall be, and shall be deemed to be, an original instrument. Page 9 IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the Effective Date. HOLDER TAG-IT PACIFIC, INC. - --------------------------------- -------------------------------------- By: By - --------------------------------- -------------------------------------- Ronda Salmen Chief Financial Officer - --------------------------------- -------------------------------------- SIGNATURE PAGE TO WARRANT TO PURCHASE COMMON STOCK Page 10 EXHIBIT 1 NOTICE OF EXERCISE (To be executed upon exercise of Warrant) To: TAG-IT PACIFIC, INC. The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant Certificate for, and to purchase thereunder, the securities of TAG-IT PACIFIC, Inc., as provided for therein, and (check the applicable box): [ ] tenders herewith payment of the exercise price in full in the form of cash or a certified or official bank check or wire transfer in same-day funds in the amount of $____________ for _________ such securities. [ ] Elects the Net Issue Exercise option pursuant to Section 2.2 of the Warrant, and accordingly requests delivery of a net of ______________ of such securities. Please issue a certificate or certificates for such securities in the name of, and pay any cash for any fractional share to (please print name, address and social security number): Name: ------------------------------------------------------------- Address: ------------------------------------------------------------- Signature: ------------------------------------------------------------- Note: The above signature should correspond exactly with the name on the first page of this Warrant Certificate. If said number of shares shall not be all the shares purchasable under the within Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the shares purchasable thereunder rounded up to the next higher whole number of shares. EXHIBIT 2 ASSIGNMENT (To be executed only upon assignment of Warrant Certificate) For value received, the undersigned hereby sells, assigns and transfers unto the parties set forth below all or such portion of the Warrants represented by the within Warrant Certificate set forth below, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ____________________________ attorney, to transfer said Warrant Certificate on the books of the within-named Company with respect to the number of Warrants set forth below, with full power of substitution in the premises:
NAME(S) OF ASSIGNEE(S) ADDRESS # OF WARRANTS - ------------------------------- ------------------------- --------------
And if said number of Warrants shall not be all the Warrants represented by the Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the Warrants registered by said Warrant Certificate. Dated: ------------------------------------------------------------- Signature: ------------------------------------------------------------- Notice: The signature to the foregoing Assignment must correspond to the name as written upon the face of this security in every particular, without alteration or any change whatsoever. EX-99 5 exhibit99-3.txt STOCKHOLDERS AGREEMENT EXHIBIT 99.3 FORM OF STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT (this "AGREEMENT") is made and entered into as of __________, 200_, by and between TAG-IT PACIFIC, INC., a Delaware corporation (the "Company") and ____________ ("INVESTOR") RECITALS A. The Company and Investor are party to that certain Stock and Warrant Purchase Agreement, dated as of __________, 200__ (the "PURCHASE AGREEMENT") which provides for, among other things, the issuance to the Investor of shares (the "PURCHASED SHARES") of common stock, par value $.001 per share, of the Company (the "COMMON STOCK") and Warrants (the "WARRANTS") to purchase additional shares of Common Stock (the "WARRANT SHARES.") B. The execution and delivery by the parties of this Agreement is a condition precedent to the consummation of the transactions contemplated by the Purchase Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and of the agreements and mutual covenants contained herein, the parties hereto agree as follows: 1. DEFINITIONS. As used in this Agreement, all capitalized terms and phrases. Including the term, "Securities," not defined herein have the meaning set forth in the Purchase Agreement. 2. NON-TRANSFER PERIOD. Other than with respect to transfers in compliance with the transfer provisions of this Agreement (including Section 3 below) and the Purchase Agreement to an "Affiliate"(as defined below) who or which agrees to be bound by all of the transfer restrictions and other provisions set out in this Agreement, the Investor shall not sell, assign, transfer, pledge, hypothecate, gift, encumber or otherwise dispose of (or enter into any option, put, call or straddle or other agreement with respect to)(a "TRANSFER") any of the Securities during the period commencing on the date of issuance to the Investor of such Security (with respect to a Security, the "ISSUE DATE") and ending on the first anniversary of the acquisition by Investor from the Company of that Security (with respect to each such Security, the "NON-TRANSFER PERIOD"), unless the Transfer is approved in writing by the Company in its sole discretion. For purposes of this Agreement, "AFFILIATE" shall mean a person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the first person and, with respect to the Investor only, the Investor's spouse and the Investor's and the Investor's spouse's parents, grandparents, brothers, sisters, children, grandchildren, nieces and nephews. "CONTROL" (including the terms "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as a trustee or executor, or otherwise. "PERSON" means any individual, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, government bureau or agency or other subdivision thereof or other entity of any kind or nature. 3. PERMITTED TRANSFERS FOLLOWING NON-TRANSFER PERIOD. Following expiration of the applicable Non-Transfer Period, a Security may not be Transferred unless: 3.1 such Transfer is made in accordance with the provisions of this Agreement and, as applicable, the Purchase Agreement and the terms of the applicable Warrant; and 3.2 such Transfer is made pursuant to an effective registration under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and any applicable state securities laws, or an exemption from such registration, and prior to any such Transfer the Investor shall give the Company (A) notice describing the manner and circumstances of the proposed Transfer and (B) if reasonably requested by the Company, a written opinion of legal counsel, which shall be reasonably satisfactory to the Company and its counsel, to the effect that the proposed Transfer of Shares may be effected without registration under the Securities Act and any applicable state securities laws. The Company shall have no obligation to register the Shares for resale under the Securities Act. 4. SHARE CERTIFICATES. Each certificate representing the Shares shall be stamped with legends in substantially the following form: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE ACT AND THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION THEREUNDER, AND THE SECURITIES LAWS OF ANY SUCH STATE." "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN TRANSFER LIMITATIONS AND RESTRICTIONS SET FORTH IN A STOCKHOLDERS AGREEMENT BETWEEN THE COMPANY AND THE HOLDER HEREOF, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY." 5. VOTING LIMITATION; PROXY. Until the first anniversary of the Issue Date of the Purchased Shares, the Investor agrees (i) not to vote the Purchased Shares or Warrant Shares on any matter to which the Investor is entitled to vote at a meeting of the stockholders of the Company (or to express consent or dissent to corporate action in writing without a meeting), including, without limitation, in the election of directors, unless instructed by the Board of Directors of the Company to do so and, if so instructed, the Investor agrees to vote the Purchased Shares or Warrant Shares at the meeting (or express consent or dissent to corporate action in writing without a meeting) only in the manner instructed by the Board of Directors of the Company, and (ii) unless otherwise instructed by the Board of Directors of the Company, to attend or be represented by proxy at all special and annual meetings of the stockholders of the Company such that the Purchased Shares, and when issued, the Warrant Shares are present at the meeting for purposes of determining the presence of a quorum. Page 2 6. MISCELLANEOUS. 6.1 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed as original but all of which together shall constitute one and the same instrument. 6.2 SEVERABILITY. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement and shall be interpreted so as to be effective and valid. 6.3 ASSIGNMENT. This Agreement shall not be assigned without the prior written consent of the parties hereto and no rights, or any direct or indirect interest herein, shall be transferable hereunder without the prior written consent of the other parties hereto. 6.4 NOTICES. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the first business day following the date of sending by reputable courier service, fully prepaid, addressed to such address, or (c) upon actual receipt of such mailing, if mailed. The addresses for such communications shall be the addresses indicated on Schedule A to the Purchase Agreement or at such address as the Investor or permitted assignee shall have furnished to the Company in writing. The parties hereto may from time to time change their address or facsimile number for notices under this Section 6.4 by giving written notice of such changed address or facsimile number to the other parties hereto as provided in this Section 6.4. 6.5 CONSTRUCTION AND INTERPRETATION. Should any provision of this Agreement require judicial interpretation, the parties hereto agree that the court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be more strictly construed against the party that itself or through its agent prepared the same, it being agreed that the Company, the Investor and their respective agents have participated in the preparation hereof. 6.6 ENTIRE AGREEMENT. This Agreement and the other written agreements between the Company and the Investor represent the entire agreement between the parties concerning the subject matter hereof, and all oral discussions and prior agreements are merged herein; PROVIDED, if there is a conflict between this Agreement and any other document executed Page 3 contemporaneously herewith with respect to the obligations described herein, the provision of this Agreement shall control. 6.7 ARBITRATION. Any dispute or controversy other than requests for immediate equitable relief, arising under, out of, or in connection with or in relation to this Agreement, and any amendments thereto or the breach thereof, shall be determined and settled by arbitration to be held in County of Los Angeles, State of California, in accordance with the rules of the American Arbitration Association. Any award rendered therein shall be final and binding on each and all of the Parties and judgment may be entered thereon in any court of competent jurisdiction. 6.8 COSTS AND ATTORNEYS' FEES. If any action, suit, arbitration or other proceeding is instituted to remedy, prevent or obtain relief from a default in the performance by any party to this Agreement of its obligations under this Agreement, the prevailing party (as determined by the court or other fact-finder) will be entitled to recover from the losing party all actual costs incurred in each and every such action, suit, arbitration or other proceeding, including any and all appeals or petitions therefrom, including, without limitation, reasonable attorneys' fees and disbursements. 6.9 SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other parties to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach the aggrieved parties shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which they may be entitled, at law or in equity. 6.10 AMENDMENT AND WAIVER. This Agreement may be amended or modified only upon the written consent of the Company and the Investor. The obligations of the Company and the rights of the Investor under the Agreement may be waived only with the written consent of the Investor. 6.11 GOVERNING LAW. THIS AGREMEENT IS MADE AND ENTERED INTO IN THE STATE OF CALIFORNIA AND THE LAWS OF SAID STATE SHALL GOVERN THE VALIDITY AND INTERPRETATION HEREOF AND THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE DUTIES AND OBLIGATIONS HEREUNDER. [SIGNATURES BEGIN ON THE FOLLOWING PAGE] Page 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above-written. TAG-IT PACIFIC, INC. By ----------------------------------- Ronda Sallmen Title: Chief Financial Officer INVESTOR ------------------------------------------- EX-99 6 exhibit99-4.txt INVESTOR RIGHTS AGREEMENT EXHIBIT 99.4 INVESTOR RIGHTS AGREEMENT This Investor Rights Agreement (this "AGREEMENT") is made as of [ ], 200_, by and among Tag-It Pacific, Inc., a Delaware corporation (the "COMPANY"), and those certain investors (each an "INVESTOR") party to that certain Stock and Warrant Purchase Agreement, dated as of ___________, 200_ as set forth on Schedule A thereto (the "PURCHASE AGREEMENT"). RECITALS This Agreement is being entered into in connection with the Purchase Agreement, pursuant to which each Investor is acquiring shares of the Company's Common Stock, par value $0.001 per share (the shares so acquired, the "SHARES") and Warrants to purchase shares (the "WARRANT SHARES") of Common Stock. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. REGISTRATION RIGHTS. 1.1 DEFINITIONS. For purposes of this Agreement: "AFFILIATE" means, with respect to a Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with, such Person in question. For the purposes of this definition, "CONTROL" (including, with correlative meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any duly constituted committee of that Board which has been delegated the authority to take the specific action in question. "CAPITAL STOCK" means, with respect to any Person, any and all shares, interests, warrants, subscription rights, participations or other equivalents (however designated) of capital stock. "COMMON STOCK" means the Company's common stock, par value $0.001 per share. "ELIGIBLE OFFERING" means any public offering of Common Stock by the Company other than: (i) any registration relating solely to the sale of securities to participants in a Company stock plan, (ii) any registration relating to corporate reorganization or other transaction under Rule 145 of the Act, (iii) any registration on any form (other than Form S-1, S-2 or S-3) which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, and (iv) any registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC (or any other federal agency at the time administering the Securities Exchange Act of 1934, as amended) promulgated thereunder. "FORM S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "PERSON" means any individual, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, government bureau or agency or other subdivision thereof or other entity of any kind or nature. "QUALIFIED OFFERING" means a firmly underwritten public offering of the Company's Common Stock pursuant to an effective registration statement filed with the SEC. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document by the SEC. "REGISTRABLE SECURITIES" means (i) the Shares and the Warrant Shares or any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the Shares and/or the Warrant Shares, and (ii) any Common Stock issued by way of a stock split of the shares referenced in (i) above. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC (or any other federal agency at the time administering the Securities Act of 1933, as amended) promulgated thereunder. "TRADING DAY" shall mean any day on which shares of the Company's Common Stock are traded on the American Stock Exchange, any other national market or over the counter, as the case may be. 1.2 REGISTRATION RIGHTS WITH RESPECT TO THE SECURITIES. (a) FILING. Upon receipt of a written request from Investors representing a majority of the Registrable Securities delivered at any time after December __, 2002, the Company agrees to file, and cause to become effective as promptly as practicable thereafter, a shelf registration statement pursuant to Rule 415 under the Securities Act of 1933 (the "REGISTRATION STATEMENT") on Form S-3 covering the shares of Common Stock into which the Shares may be converted (the "UNDERLYING SHARES"), which Registration Statement (or post-effective amendment filed under this Page 2 Section 1.2) shall remain effective until the earlier of: (i) two (2) years from the date of effectiveness and (ii) such time as all registration rights granted to Investors hereunder have terminated pursuant to Section 4.2 hereof (the "EFFECTIVENESS PERIOD"). If the Company is not eligible to use Form S-3, the Registration Statement shall be on Form S-1 and shall be amended to Form S-3 at such time as the Company becomes eligible to use Form S-3. Notwithstanding the FOREGOING, the Company shall not be obligated to file and cause to be effective a Registration Statement in the event that (1) the Company shall furnish to the Investors a certificate signed by the Chief Executive Officer or Chairman of the Board of Directors stating that in the good faith judgment of the Board of Directors, it would be seriously detrimental to the Company and its stockholders for such Registration Statement to be effected at such time, in which event the Company shall have the right to defer the filing of the Registration Statement for a period of not more than 90 days, or (2) if the Company has already filed one Registration Statement at the request of an Investor pursuant to this Section 1.2(a); (b) EFFECTIVENESS. The Company shall use its commercially reasonable efforts to cause such Registration Statement to become effective within 90 days after filing with the SEC or, if earlier, within five (5) days of SEC clearance to request acceleration of effectiveness. The Registration Statement shall include appropriate language regarding reliance upon Rule 416 to the extent permitted by the SEC. The Company will notify the Investors of the effectiveness of the Registration Statement within one Trading Day of such event. (c) EXPENSES. All fees, disbursements and out-of-pocket expenses and costs incurred by the Company in connection with the preparation and filing of the Registration Statement under Section 1.2(a) and in complying with applicable Federal and State securities and Blue Sky laws shall be borne by the Company. The Investors shall bear the cost of underwriting and/or brokerage discounts, fees and commissions, if any, applicable to the Securities being registered. The Investors and their counsel shall have a reasonable period, not to exceed five (5) Trading Days, to review any amendment to the Registration Statement prior to filing with the SEC, and the Company shall provide the Investor swith copies of any comment letters received from the SEC with respect thereto within two (2) Trading Days of receipt thereof. 1.3 PIGGYBACK REGISTRATIONS. From and after December __, 2002, Company shall notify each Investor in writing at least 20 days prior to filing any registration statement under the Securities Act for purposes of effecting an Eligible Offering, and will afford the Investors an opportunity to include in such registration statement all or any part of the Registrable Securities then held by the Investors. If an Investor desires to include in any such registration statement all or any part of the Registrable Securities it holds, such Investor shall, within 10 days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Investor wishes to include in such registration statement. If an Investor decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Investor shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) UNDERWRITING. If a registration statement under which the Company gives notice under this Section1.3 is for an underwritten offering, then the Company shall so advise the Investors. In such event, the right of an Investor's Registrable Securities to be included in a Page 3 registration pursuant to this Section1.3 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. If an Investor is proposing to distribute his Registrable Securities through such underwriting such Investor shall enter into an underwriting agreement in customary form with the managing underwriter or underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including Registrable Securities) from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, FIRST, to the Company, SECOND to the holders of any other registration rights granted by the Company prior to the date of this Investor Rights Agreement, and THIRD, to Investor and all other holders of registration rights granted by the Company, on a pro rata basis based on the total number of Registrable Securities then held by each holder and all such other holders. If an Investor disapproves of the terms of any such underwriting, such Investor may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. (b) EXPENSES. The Company shall pay all expenses incurred in connection with a registration pursuant to this Section 1.3 (excluding underwriters' or brokers' discounts and commissions), including, without limitation all federal and "blue sky" registration and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Company and the fees and disbursements of special counsel for Investor (up to $7,500). 1.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration of any Registrable Securities under this Agreement, the Company shall, as expeditiously as reasonably possible: (a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of an Investor, keep such registration statement effective for the Effectiveness Period; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (c) furnish to each Investor such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor that are included in such registration; (d) use all reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by an Investor, provided that the Company shall not be required in Page 4 connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering; (f) at such time as an Investor's Registrable Securities are covered by such registration statement, notify such Investor at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of such Investor prepare and file an amendment to any such prospectus as may be necessary; (g) furnish, at the request of each Investor if Investor is requesting registration of Registrable Securities and such securities are being sold through underwriters, a "comfort" letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to such Investor requesting registration, addressed to the underwriters and to such Investor; (h) cause all Registrable Securities registered hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; (i) cause the Company's officers, directors and independent certified public accountants to provide all information reasonably requested by a representative of the Investors and any attorney or accountant retained by the Investors, in connection with such registration; (j) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of the Registration Statement; and (k) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any securities included in the registration statement for sale in any jurisdiction, use its commercially reasonable efforts promptly to obtain the withdrawal of such order. 1.5 INVESTOR'S OBLIGATIONS. (i) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 1 that each Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by such Investor and the intended method of disposition of such securities, as shall be required to timely effect the registration of its Registrable Securities. (ii) Each Investor agrees that upon receipt of written notice of a Blackout Period from the Chief Executive Officer or Chairman of the Board of Directors, each Investor will not offer or sell Registrable Securities or engage in any transaction involving or relating Page 5 to Registrable Securities during the time period set forth in such notice (such Blackout Period not to exceed 30 days) and will not disclose the contents of such notice until the Blackout Period has ended. For purposes of this Section 1.5: "BLACKOUT PERIOD": shall mean the occurrence of a material event which may be, in the good faith opinion of the Board of Directors, materially adverse to the Company's financial condition, business or operations or may require a disclosure which is not in the Company's best interest in light of the existence of (A) any material acquisition or financing activity involving the Company, including a proposed public offering of debt or equity securities, (B) an undisclosed material event, the public disclosure of which would have a material adverse effect on the Company, and (C) a proposed material transaction involving the Company and a material portion of its assets. 1.6 DELAY OF REGISTRATION. The Investors shall not have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.7 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Section 1: (a) BY THE COMPANY. To the extent permitted by law, the Company will indemnify and hold each Investor harmless, any underwriter (as defined in the Securities Act) for Investor and each person, if any, who controls such Investor or such Investor's underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any federal or state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each Investor or his underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this subsection 1.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information Page 6 furnished expressly for use in connection with such registration by an Investor, his underwriter or any controlling person of Investor. (b) BY INVESTORS. To the extent permitted by law, each Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, or any underwriter, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, or underwriter may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Investor expressly for use in connection with such registration; and such Investor will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, or underwriter in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this subsection 1.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such Investor, which consent shall not be unreasonably withheld; and PROVIDED FURTHER, that the total amounts payable in indemnity by such Investor under this subsection 1.7(b) in respect of any Violation shall not exceed the net proceeds received by the Investor in the registered offering out of which such Violation arises. (c) NOTICE. Promptly after receipt by an indemnified party under this Section 1.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.7, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.7. (d) DEFECT ELIMINATED IN FINAL PROSPECTUS. The foregoing indemnity agreements of the Company and the Investors are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished to the person Page 7 asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. (e) SURVIVAL. The obligations of the Company and each Investor under this Section 1.7 shall survive the completion of any offering of Registrable Securities in a registration statement, and otherwise, and the termination of this Agreement. (f) SETTLEMENT. No indemnified party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. 1.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to Section 1.2 and Section 1.3 may not be assigned by the Investors. 1.9 HOLDBACK AGREEMENTS. Investor shall not effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for equity securities of the Company, during the thirty days prior to and the 120-day period beginning on the effective date of any registration or any in which Registrable Securities are included (except as part of such underwritten offering), unless the underwriters managing the registered public offering otherwise agree. 1.10 RULE144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (b) use its commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) as long as an Investor owns any Registrable Securities, to furnish to such Investor forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company and such other reports and documents of the Company as such Investor may reasonably request in availing itself of any rule or regulation of the SEC allowing such Investor to sell any such securities without registration (at any time after the Company has become subject to the reporting requirements of the Exchange Act). 1.11 TERMINATION OF REGISTRATION RIGHTS. An Investor shall not be entitled to exercise any right provided in Section 1 hereof subsequent to the time at which all Registrable Securities held by such Investor (and any affiliate of Investor with whom Investor must aggregate its sales under Rule 144) can be sold in any three month period without registration in compliance with Rule 144 of the Act. Page 8 2. AMENDMENT. 2.1 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 with the written consent of the Company and Investors representing a majority of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 2.1 shall be binding upon the Investor and the Company. 3. GENERAL PROVISIONS. 3.1 NOTICES. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the first business day following the date of sending by reputable courier service, fully prepaid, addressed to such address, or (c) upon actual receipt of such mailing, if mailed. The addresses for such communications shall be the addresses indicated on Schedule A of the Purchase Agreement or at such address as the Investor or permitted assignee shall have furnished to the Company in writing. The parties hereto may from time to time change their address or facsimile number for notices under this Section 3.1 by giving written notice of such changed address or facsimile number to the other parties hereto as provided in this Section 3.1. 3.2 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed as original but all of which together shall constitute one and the same instrument. 3.3 SEVERABILITY. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement and shall be interpreted so as to be effective and valid. 3.4 CONSTRUCTION AND INTERPRETATION. Should any provision of this Agreement require judicial interpretation, the parties hereto agree that the court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be more strictly construed against the party that itself or through its agent prepared the same, it being agreed that the Company, the Investor and their respective agents have participated in the preparation hereof. Page 9 3.5 ENTIRE AGREEMENT. This Agreement and the other written agreements between the Company and the Investor represent the entire agreement between the parties concerning the subject matter hereof, and all oral discussions and prior agreements are merged herein; PROVIDED, if there is a conflict between this Agreement and any other document executed contemporaneously herewith with respect to the obligations described herein, the provision of this Agreement shall control. 3.6 ARBITRATION. Any dispute or controversy arising under, out of, or in connection with or in relation to this Agreement, and any amendments thereto or the breach thereof, shall be determined and settled by arbitration to be held in County of Los Angeles, State of California, in accordance with the rules of the American Arbitration Association. Any award rendered therein shall be final and binding on each and all of the Parties and judgment may be entered thereon in any court of competent jurisdiction. 3.7 COSTS AND ATTORNEYS' FEES. If any action, suit, arbitration or other proceeding is instituted to remedy, prevent or obtain relief from a default in the performance by any party to this Agreement of its obligations under this Agreement, the prevailing party (as determined by the court or other fact-finder) will be entitled to recover from the losing party all actual costs incurred in each and every such action, suit, arbitration or other proceeding, including any and all appeals or petitions therefrom, including, without limitation, reasonable attorneys' fees and disbursements. 3.8 GOVERNING LAW. THIS AGREMEENT IS MADE AND ENTERED INTO IN THE STATE OF CALIFORNIA AND THE LAWS OF SAID STATE SHALL GOVERN THE VALIDITY AND INTERPRETATION HEREOF AND THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE DUTIES AND OBLIGATIONS HEREUNDER. 3.9 ADJUSTMENTS FOR STOCK SPLITS AND CERTAIN OTHER CHANGES. Wherever in this Agreement there is a reference to a specific number of shares of Common Stock of the Company of any class or series, then, upon the occurrence of any subdivision, combination or stock dividend of such class or series of stock, the specific number of shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the affect on the outstanding shares of such class or series of stock by such subdivision, combination or stock dividend. Page 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. TAG-IT PACIFIC, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- INVESTOR: ------------------------------------------- By: Page 11 EXHIBIT A FORM OF INVESTOR RIGHTS AGREEMENT JOINDER By signing and returning this Investor Rights Agreement Joinder, the undersigned agrees to be a party to that certain Investor Rights Agreement, dated as of September 20, 2001, by and among the Company and Coats North America Consolidated, Inc., a copy of which has been presented to the undersigned along with this Investor Rights Agreement Joinder. The undersigned shall have all rights, and shall observe all of the obligations, applicable to an "Investor" as set forth in the Investor Rights Agreement as if the undersigned had originally signed the Investor Rights Agreement. Date: ----------------------------- INVESTOR: ---------------------------------- By: Title: Page 12 -----END PRIVACY-ENHANCED MESSAGE-----