EXHIBIT 99.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made and
entered into as of the 18th day of December, 2003 (the "EFFECTIVE DATE") between
Tag-It Pacific, Inc., a Delaware corporation (the "COMPANY"), and the parties
set forth on the signature page and Exhibit A hereto (each, a "PURCHASER" and
collectively, the "PURCHASERS").
R E C I T A L S:
A. The Purchasers have purchased shares of the Company's Preferred
Stock (as defined below) pursuant to Subscription Agreements (each, a
"SUBSCRIPTION AGREEMENT" and collectively, the "SUBSCRIPTION AGREEMENTS") by and
between the Company and each Purchaser.
B. The Company has issued a warrant (the "WARRANT") to purchase shares
of the Company's Common Stock to Sanders Morris Harris Inc., a Texas corporation
("SMH").
C. The Company, the Purchasers, and SMH desire to set forth the
registration rights to be granted by the Company to the Purchasers and SMH.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth herein and in
the Subscription Agreements, the parties mutually agree as follows:
A G R E E M E N T:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"APPROVED MARKET" means the Nasdaq National Market, the Nasdaq SmallCap
Market, the New York Stock Exchange, Inc., or the American Stock Exchange, Inc.
"BUSINESS DAY" means any day of the year, other than a Saturday,
Sunday, or other day on which the Commission is required or authorized to close.
"CLOSING DATE" means December 17, 2003, or such other time as is
mutually agreed between the Company and the Purchasers for the closing of the
sale referred to in Recital A above.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" means the common stock, par value $.001 per share, of
the Company and any and all shares of capital stock or other equity securities
of: (i) the Company which are added to or exchanged or substituted for the
Common Stock by reason of the declaration of any stock dividend or stock split,
the issuance of any distribution or the reclassification, readjustment,
recapitalization or other such modification of the capital structure of the
Company; and (ii) any other corporation, now or hereafter organized under the
laws of any state or other governmental authority, with which the
Company is merged, which results from any consolidation or reorganization to
which the Company is a party, or to which is sold all or substantially all of
the shares or assets of the Company, if immediately after such merger,
consolidation, reorganization or sale, the Company or the stockholders of the
Company own equity securities having in the aggregate more than 50% of the total
voting power of such other corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"FAMILY MEMBER" means (a) with respect to any individual, such
individual's spouse, any descendants (whether natural or adopted), any trust all
of the beneficial interests of which are owned by any of such individuals or by
any of such individuals together with any organization described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended, the estate of any
such individual, and any corporation, association, partnership or limited
liability company all of the equity interests of which are owned by those above
described individuals, trusts or organizations and (b) with respect to any
trust, the owners of the beneficial interests of such trust.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any registration form under the Securities Act subsequently
adopted by the Commission, which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the Commission.
"HOLDER" means each Purchaser, SMH, or any of such Purchaser's
respective successors and Permitted Assigns who acquire rights in accordance
with this Agreement with respect to the Registrable Securities directly or
indirectly from a Purchaser or SMH, including from any Permitted Assignee.
"INSPECTOR" means any attorney, accountant, or other agent retained by
a Purchaser for the purposes provided in Section 4(j).
"MAJORITY HOLDERS" means at any time Holders of a majority of the
Registrable Securities.
"OFFERING PRICE" means the Offering Price set forth in the Placement
Agent Agreement dated December 10, 2003, between the Company and SMH.
"PERMITTED ASSIGNEE" means (a) with respect to a partnership, its
partners or former partners in accordance with their partnership interests, (b)
with respect to a corporation, its shareholders in accordance with their
interest in the corporation, (c) with respect to a limited liability company,
its members or former members in accordance with their interest in the limited
liability company, (d) with respect to an individual party, any Family Member of
such party, (e) an entity that is controlled by, controls, or is under common
control with a transferor, or (f) a party to this Agreement.
"PREFERRED STOCK" means the Series D Convertible Preferred Stock, par
value $.001 per share, of the Company.
The terms "REGISTER," "REGISTERED," and "REGISTRATION" refers to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
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"REGISTRABLE SECURITIES" means shares of Common Stock issued or
issuable to each Purchaser upon conversion of the Preferred Stock issued to each
pursuant to the Subscription Agreements or issued or to be issued to SMH
pursuant to the Warrant, EXCLUDING (i) any Registrable Securities that have been
publicly sold or may be sold immediately without registration under the
Securities Act either pursuant to Rule 144 of the Securities Act or otherwise;
(ii) any Registrable Securities sold by a person in a transaction pursuant to a
registration statement filed under the Securities Act or (iii) any Registrable
Securities that are at the time subject to an effective registration statement
under the Securities Act.
"REGISTRATION DEFAULT DATE" means the date which is 60 days following
the Closing Date; PROVIDED, HOWEVER, (i) if the Registration Statement is
subject to review by the SEC staff, the Registration Default Date shall be the
date which is 150 days following the Closing Date; (ii) if the Registration
Statement is not subject to review by the SEC staff and the 60th day following
the Closing Date falls during an S-3 Blackout Period, the Registration Default
Date shall be the date immediately following the last day of such S-3 Blackout
Period, (iii) if the Registration Statement is subject to review by the SEC
staff and the Company is unable to file necessary pre-effective amendments to
the Registration Statement with the SEC because of an S-3 Blackout Period, the
Registration Default Date shall be extended by the number of calendar days that
the Company is unable to file any such pre-effective amendment during any such
S-3 Blackout Period that occurs prior to the end of the 150-day period, and (iv)
if the Registration Statement is subject to review by the SEC staff and the
Company is unable in the ordinary course of business to comply with Rule 3-12(b)
of Regulation S-X, the Registration Default Date shall be the date ten Business
Days following the date the Company files its Annual Report on Form 10-K for the
year ending December 31, 2003, but no later than April 14, 2004.
"REGISTRATION DEFAULT PERIOD" means the period following the
Registration Default Date during which any Registration Event occurs and is
continuing.
"REGISTRATION EVENT" means the occurrence of any of the following
events:
(a) the Company fails to file with the SEC the Registration
Statement on or before the Registration Filing Date pursuant to Section
3(a),
(b) the Registration Statement covering Registrable Securities
is not declared effective by the Commission on or before the
Registration Default Date,
(c) after the SEC Effective Date, sales cannot be made
pursuant to the Registration Statement for any reason (including
without limitation by reason of a stop order, or the Company's failure
to update the Registration Statement) but except as excused pursuant to
Section 3(a) or for the reasons specified in clause (d), or
(d) the Common Stock generally or the Registrable Securities
specifically are not listed or included for quotation on an Approved
Market, or trading of the Common Stock is suspended or halted on the
Approved Market, which at the time constitutes the principal market for
the Common Stock, for more than two full, consecutive Trading Days;
PROVIDED, HOWEVER, a Registration Event shall not be deemed to occur if
all or substantially all trading in equity securities (including the
Common Stock) is suspended or halted on the Approved Market for any
length of time.
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"REGISTRATION STATEMENT" means the registration statement required to
be filed by the Company pursuant to Section 3(a).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute promulgated in replacement thereof, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"SEC EFFECTIVE DATE" means the date the Registration Statement is
declared effective by the Commission.
"S-3 BLACKOUT PERIOD" means, with respect to a registration, a period
in each case commencing on the day immediately after the Company notifies the
Purchasers and SMH that they are required, pursuant to Section 4(f), to suspend
offers and sales of Registrable Securities during which the Company, in the good
faith judgment of its Board of Directors, determines (because of the existence
of, or in anticipation of, any acquisition, financing activity, or other
transaction involving the Company, or the unavailability for reasons beyond the
Company's control of any required financial statements, disclosure of
information which is in its best interest not to publicly disclose, or any other
event or condition of similar significance to the Company) that the registration
and distribution of the Registrable Securities to be covered by such
registration statement, if any, would be seriously detrimental to the Company
and its shareholders and ending on the earlier of (1) the date upon which the
material non-public information commencing the S-3 Blackout Period is disclosed
to the public or ceases to be material and (2) such time as the Company notifies
the selling Holders that the Company will no longer delay such filing of the
Registration Statement, recommence taking steps to make such Registration
Statement effective, or allow sales pursuant to such Registration Statement to
resume; PROVIDED, HOWEVER, that (a) the Company shall limit its use of S-3
Blackout Periods, in the aggregate, to 30 Trading Days in any 12-month period
and (b) no S-3 Blackout Period may commence sooner than 60 days after the end of
a prior S-3 Blackout Period.
"TRADING DAY" means a day on whichever (a) the national securities
exchange, (b) the Nasdaq Stock Market, or (c) such other securities market, in
any such case which at the time constitutes the principal securities market for
the Common Stock, is open for general trading of securities.
2. TERM. This Agreement shall continue in full force and effect for a
period of three (3) years from the Effective Date, unless terminated sooner
hereunder.
3. REGISTRATION.
(a) REGISTRATION ON FORM S-3. As promptly as reasonably practicable
after the date hereof, but in any event not later than 30 days after the Closing
Date (the "REGISTRATION FILING DATE"), the Company shall file with the
Commission a shelf registration statement on Form S-3 relating to the resale by
the Holders of all of the Registrable Securities; PROVIDED, HOWEVER, that the
Company shall not be obligated to effect any such registration, qualification,
or compliance pursuant to this Section 3(a), or keep such registration effective
pursuant to Section 4: (i) in any particular jurisdiction in which the Company
would be required to qualify to do business as a foreign corporation or as a
dealer in securities under the securities or blue sky laws of such jurisdiction
or to execute a general consent to service of process in effecting such
registration, qualification or compliance, in each case where it has not already
done so; or (ii) during any S-3 Blackout Period, in which case the Registration
Filing Date shall be extended to the date immediately following the last day of
such S-3 Blackout Period.
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(b) PIGGYBACK REGISTRATION. If the Company shall determine to register
for sale for cash any of its Common Stock, for its own account or for the
account of others (other than the Holders), other than (i) a registration
relating solely to employee benefit plans or securities issued or issuable to
employees, consultants (to the extent the securities owned or to be owned by
such consultants could be registered on Form S-8) or any of their Family Members
(including a registration on Form S-8) or (ii) a registration relating solely to
a Commission Rule 145 transaction, a registration on Form S-4 in connection with
a merger, acquisition, divestiture, reorganization, or similar event, the
Company shall promptly give to the Holders written notice thereof (and in no
event shall such notice be given less than 20 calendar days prior to the filing
of such registration statement), and shall, subject to Section 3(c), include in
such registration (and any related qualification under blue sky laws or other
compliance) (a "PIGGYBACK REGISTRATION"), all of the Registrable Securities
specified in a written request or requests, made within 10 calendar days after
receipt of such written notice from the Company, by any Holder or Holders.
However, the Company may, without the consent of the Holders, withdraw such
registration statement prior to its becoming effective if the Company or such
other shareholders have elected to abandon the proposal to register the
securities proposed to be registered thereby.
(c) UNDERWRITING. If a Piggyback Registration is for a registered
public offering involving an underwriting, the Company shall so advise the
Holders in writing or as a part of the written notice given pursuant to Section
3(b). In such event the right of any Holder to registration pursuant to Section
3(b) shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and any other
shareholders of the Company distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company or
selling shareholders, as applicable. Notwithstanding any other provision of this
Section 3(c), if the underwriter or the Company determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may exclude some or all Registrable Securities from such
registration and underwriting. The Company shall so advise all Holders (except
those Holders who failed to timely elect to distribute their Registrable
Securities through such underwriting or have indicated to the Company their
decision not to do so), and the number of shares of Registrable Securities that
may be included in the registration and underwriting, if any, shall be allocated
among such Holders as follows:
(i) In the event of a Piggyback Registration that is
initiated by the Company, the number of shares that may be included in
the registration and underwriting shall be allocated first to the
Company and then, subject to obligations and commitments existing as of
the date hereof, to all selling shareholders, including the Holders,
who have requested to sell in the registration on a pro rata basis
according to the number of shares requested to be included; and
(ii) In the event of a Piggyback Registration that is
initiated by the exercise of demand registration rights by a
shareholder or shareholders of the Company (other than the Holders),
then the number of shares that may be included in the registration and
underwriting shall be allocated first to such selling shareholders who
exercised such demand and then, subject to obligations and commitments
existing as of the date hereof, to all other selling shareholders,
including the Holders, who have requested to sell in the registration,
on a pro rata basis according to the number of shares requested to be
included.
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No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities and/or other securities so withdrawn
from such underwriting shall also be withdrawn from such registration; PROVIDED,
HOWEVER, that, if by the withdrawal of such Registrable Securities a greater
number of Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities pursuant to the terms and limitations set forth herein in the same
proportion used above in determining the underwriter limitation.
(e) OTHER REGISTRATIONS. Prior to the SEC Effective Date the Company
will not, without the prior written consent of the Majority Holders, file or
request the acceleration of any other registration statement filed with the
Commission, and during any time subsequent to the SEC Effective Date when the
Registration Statement for any reason is not available for use by any Holder for
the resale of any Registrable Securities, the Company shall not, without the
prior written consent of the Majority Holders, file any other registration
statement or any amendment thereto with the Commission under the Securities Act
or request the acceleration of the effectiveness of any other registration
statement previously filed with the Commission, other than (A) any registration
statement on Form S-8 or Form S-4 and (B) any registration statement or
amendment which the Company is required to file or as to which the Company is
required to request acceleration pursuant to any obligation in effect on the
date of execution and delivery of this Agreement.
(f) FAILURE TO FILE REGISTRATION STATEMENT. If a Registration Event
occurs, then the Company will make payments to each Purchaser and SMH (to the
extent that it has exercised the Warrant)(a "QUALIFIED Purchaser"), as partial
liquidated damages for the minimum amount of damages to the Qualified Purchaser
by reason thereof, and not as a penalty, at a rate equal to one percent (1%) of
the Offering Price per share of Preferred Stock or, with respect to SMH, one
tenth of one percent (0.1%) of the Offering Price for each share of Common Stock
acquired upon exercise of the Warrant, held by such Qualified Purchaser per
month, for each calendar month of the Registration Default Period (pro rated for
any period less than 30 days); provided, however, if a Registration Event occurs
(or is continuing) on a date more than one-year after the Qualified Purchaser
acquired the Registrable Securities (and thus the one-year holding period under
Rule 144(d) has elapsed), liquidated damages shall be paid only with respect to
that portion of a Qualified Purchaser's Registrable Securities that cannot then
be immediately resold in reliance on Rule 144. Each such payment shall be due
and payable within five days after the end of each calendar month of the
Registration Default Period until the termination of the Registration Default
Period and within five days after such termination. Such payments shall be in
partial compensation to the Qualified Purchaser, and shall not constitute the
Qualified Purchaser's exclusive remedy for such events. The Registration Default
Period shall terminate upon (i) the filing of the Registration Statement in the
case of clause (a) of the definition of "Registration Event," (ii) the SEC
Effective Date in the case of clause (b) of the definition of "Registration
Event," (iii) the ability of the Qualified Purchaser to effect sales pursuant to
the Registration Statement in the case of clause (c) of the definition of
"Registration Event," (iv) the listing or inclusion and/or trading of the Common
Stock on an Approved Market, as the case may be, in the case of clause (d) of
the definition of "Registration Event," and (v) in the case of the events
described in clauses (b) and (c) of the definition of "Registration Event," the
earlier termination of the Registration Default Period. The amounts payable as
partial liquidated damages pursuant to this paragraph shall be payable in lawful
money of the United States. Amounts payable as partial liquidated damages to
each Qualified Purchaser hereunder with respect to each share of Registrable
Securities
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shall cease when the Qualified Purchaser no longer holds such share of
Registrable Securities or such share of Registrable Securities can be
immediately sold by the Qualified Purchaser in reliance on Rule 144. SMH
acknowledges and agrees that the partial liquidated damages provided for in this
Section 3(f) shall apply to Registrable Securities of SMH only to the extent SMH
has exercised the Warrant.
4. REGISTRATION PROCEDURES. In the case of each registration,
qualification, or compliance effected by the Company pursuant to Section 3
hereof, the Company will keep each Holder including securities therein
reasonably advised in writing (which may include e-mail) as to the initiation of
each registration, qualification, and compliance and as to the completion
thereof. At its expense with respect to any registration statement filed
pursuant to Section 3, the Company will:
(a) prepare and file with the Commission with respect to such
Registrable Securities, a registration statement on Form S-3 or any other form
for which the Company then qualifies or which counsel for the Company shall deem
appropriate, and which form shall be available for the sale of the Registrable
Securities in accordance with the intended method(s) of distribution thereof,
and use its commercially reasonable efforts to cause such registration statement
to become and remain effective at least for a period ending with the first to
occur of (i) the sale of all Registrable Securities covered by the registration
statement, (ii) the availability under Rule 144 for the Holder to immediately,
freely resell without restriction all Registrable Securities covered by the
registration statement, and (iii) one year after a registration statement filed
pursuant to Section 3(a) is declared effective by the Commission (in either
case, the "EFFECTIVENESS PERIOD"); PROVIDED, HOWEVER, if at the end of such
one-year period, any Holder is not able to immediately, freely resell all
Registrable Securities that it owns, the Effectiveness Period shall continue
until terminated pursuant to clause (i) or (ii); provided that no later than two
business days before filing with the Commission a registration statement or
prospectus or any amendments or supplements thereto, the Company shall (i)
furnish to each Holder a copy of the "Plan of Distribution" and "Selling
Shareholder" portions of the registration statement and the other portions of
such documents proposed to be filed that the Company considers not to contain
material, non-public information (excluding any exhibits other than applicable
underwriting documents), in substantially the form proposed to be filed and (ii)
notify each Holder of Registrable Securities covered by such registration
statement of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered;
(b) if a registration statement is subject to review by the
Commission, promptly respond to all comments and diligently pursue resolution of
any comments to the satisfaction of the Commission;
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
during the Effectiveness Period (but in any event at least until expiration of
the 90-day period referred to in Section 4(3) of the Securities Act and Rule
174, or any successor thereto, thereunder, if applicable), and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended method(s) of disposition by the sellers thereof set
forth in such registration statement;
(d) furnish, without charge, to each Holder of Registrable Securities
covered by such registration statement (i) a reasonable number of copies of such
registration statement (including any exhibits thereto other than exhibits
incorporated by reference), each amendment and supplement thereto as such Holder
may request, (ii) such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and any other
prospectus filed under Rule 424 under the Securities Act) as such Holders may
request, in conformity with the requirements of the Securities
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Act, and (iii) such other documents as such Holder may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Holder, but only during the Effectiveness Period;
(e) use its commercially reasonable bes efforts to register or
qualify such Registrable Securities under such other applicable securities or
blue sky laws of such jurisdictions as any Holder of Registrable Securities
covered by such registration statement reasonably requests as may be necessary
for the marketability of the Registrable Securities (such request to be made by
the time the applicable registration statement is deemed effective by the
Commission) and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such Holder; PROVIDED
that the Company shall not be required to (i) qualify generally to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this paragraph (e), (ii) subject itself to taxation in any such jurisdiction, or
(iii) consent to general service of process in any such jurisdiction;
(f) as promptly as practicable after becoming aware of such event,
notify each Holder of such Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event which comes to the Company's attention if as a result of
such event the prospectus included in such registration statement contains an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and the Company shall promptly prepare and furnish to such Holder a supplement
or amendment to such prospectus (or prepare and file appropriate reports under
the Exchange Act) so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, unless suspension of
the use of such prospectus otherwise is authorized herein or in the event of an
S-3 Blackout Period, in which case no supplement or amendment need be furnished
(or Exchange Act filing made) until the termination of such suspension or S-3
Blackout Period;
(g) comply, and continue to comply during the period that such
registration statement is effective under the Securities Act, in all material
respects with the Securities Act and the Exchange Act and with all applicable
rules and regulations of the Commission with respect to the disposition of all
securities covered by such registration statement, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first full calendar month after the SEC
Effective Date, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act.
(h) as promptly as practicable after becoming aware of such event,
notify each Holder of Registrable Securities being offered or sold pursuant to
the Registration Statement of the issuance by the Commission of any stop order
or other suspension of effectiveness of the Registration Statement at the
earliest possible time;
(i) permit the Holders of Registrable Securities being included in the
Registration Statement and their legal counsel, at such Holders' sole cost and
expense (except as otherwise specifically provided in Section 6) to review and
have a reasonable opportunity to comment on the Registration Statement and all
amendments and supplements thereto at least two Business Days prior to their
filing with the Commission and shall not file any such document to which the
Majority Holders reasonably object;
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(j) make available for inspection by any Holder and any Inspector
retained by such Holder, at such Holder's sole expense, all Records as shall be
reasonably necessary to enable such Holder to exercise its due diligence
responsibility, and cause the Company's officers, directors, and employees to
supply all information which such Holder or any Inspector may reasonably request
for purposes of such due diligence; PROVIDED, HOWEVER, that such Holder shall
hold in confidence and shall not make any disclosure of any record or other
information which the Company determines in good faith to be confidential, and
of which determination such Holder is so notified at the time such Holder
receives such information, unless (i) the disclosure of such record is necessary
to avoid or correct a misstatement or omission in the Registration Statement and
a reasonable time prior to such disclosure the Holder shall have informed the
Company of the need to so correct such misstatement or omission and the Company
shall have failed to correct such misstatement of omission, (ii) the release of
such record is ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction or (iii) the information in such
record has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such records to any Inspector until
and unless such Inspector shall have entered into a confidentiality agreement
with the Company with respect thereto, substantially in the form of this Section
4(j), which agreement shall permit such Inspector to disclose records to the
Holder who has retained such Inspector. Each Holder agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the records deemed confidential. The Company shall hold in confidence
and shall not make any disclosure of information concerning a Holder provided to
the Company pursuant to this Agreement unless (i) disclosure of such information
is necessary to comply with federal or state securities laws, (ii) disclosure of
such information to the Staff of the Division of Corporation Finance is
necessary to respond to comments raised by the Staff in its review of the
Registration Statement, (iii) disclosure of such information is necessary to
avoid or correct a misstatement or omission in the Registration Statement, (iv)
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (v) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning a Holder
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to such Holder and allow such Holder, at
such Holder's expense, to undertake appropriate action to prevent disclosure of,
or to obtain a protective order for, such information;
(k) use its best efforts to cause all the Registrable Securities
covered by the Registration Statement to be quoted on the American Stock
Exchange or such other principal securities market on which securities of the
same class or series issued by the Company are then listed or traded;
(l) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities at all times;
(m) cooperate with the Holders of Registrable Securities being offered
pursuant to the Registration Statement to issue and deliver certificates (not
bearing any restrictive legends) representing Registrable Securities to be
offered pursuant to the Registration Statement within five Trading Days after
delivery of certificates to the Company and enable such certificates to be in
such denominations or amounts as the Holders may reasonably request and
registered in such names as the Holders may request;
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(n) during the Effectiveness Period, refrain from bidding for or
purchasing any Common Stock or any right to purchase Common Stock or attempting
to induce any Person to purchase any such security or right if such bid,
purchase or attempt would in any way limit the right of the Holders to sell
Registrable Securities by reason of the limitations set forth in Regulation M
under the 1934 Act; and
(o) take all other reasonable actions necessary to expedite and
facilitate disposition by the Holders of the Registrable Securities pursuant to
the Registration Statement.
5. SUSPENSION OF OFFERS AND SALES. Each Holder of Registrable
Securities agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(f) hereof or of the
commencement of an S-3 Blackout Period, such Holder shall discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 4(f) hereof or
notice of the end of the S-3 Blackout Period, and, if so directed by the
Company, such Holder shall deliver to the Company (at the Company's expense) all
copies (including, without limitation, any and all drafts), other than permanent
file copies, then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the period mentioned in Section
4(a)(iii) hereof shall be extended by the greater of (i) ten business days or
(ii) the number of days during the period from and including the date of the
giving of such notice pursuant to Section 4(f) hereof to and including the date
when each Holder of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by Section 4(f) hereof.
6. REGISTRATION EXPENSES. The Company shall pay all expenses in
connection with any registration, including, without limitation, all
registration, filing, stock exchange fees, printing expenses, all fees and
expenses of complying with securities or blue sky laws, and the fees and
disbursements of counsel for the Company and of its independent accountants;
provided that, in any underwritten registration, each party shall pay for its
own underwriting discounts and commissions and transfer taxes. Except as
provided above in this Section 6 and Section 9, the Company shall not be
responsible for the expenses of any attorney or other advisor employed by a
Holder of Registrable Securities.
7. ASSIGNMENT OF RIGHTS. No Holder may assign its rights under this
Agreement to any party without the prior written consent of the Company;
PROVIDED, HOWEVER, that a Holder may assign its rights under this Agreement
without such restrictions to a Permitted Assignee as long as (a) such transfer
or assignment is effected in accordance with applicable securities laws; (b)
such transferee or assignee agrees in writing to become subject to the terms of
this Agreement; and (c) the Company is given written notice by such Holder of
such transfer or assignment, stating the name and address of the transferee or
assignee and identifying the Registrable Securities with respect to which such
rights are being transferred or assigned.
8. INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing.
9. INDEMNIFICATION.
(a) In the event of the offer and sale of Registrable Securities held
by Holders under the
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Securities Act, the Company shall, and hereby does, indemnify and hold harmless,
to the fullest extent permitted by law, each Holder, its directors, officers,
partners, each other person who participates as an underwriter in the offering
or sale of such securities, and each other person, if any, who controls or is
under common control with such Holder or any such underwriter within the meaning
of Section 15 of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, and expenses to which the Holder or any such
director, officer, partner or underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such shares were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Company shall
reimburse the Holder, and each such director, officer, partner, underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating, defending or settling any such loss,
claim, damage, liability, action or proceeding; provided that the Company shall
not be liable in any such case (i) to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement in or
omission or alleged omission from such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by or on behalf of such
Holder specifically stating that it is for use in the preparation thereof or
(ii) if the person asserting any such loss, claim, damage, liability (or action
or proceeding in respect thereof) who purchased the Registrable Securities that
are the subject thereof did not receive a copy of an amended preliminary
prospectus or the final prospectus (or the final prospectus as amended or
supplemented) at or prior to the written confirmation of the sale of such
Registrable Securities to such person because of the failure of such Holder or
underwriter to so provide such amended preliminary or final prospectus and the
untrue statement or alleged untrue statement or omission or alleged omission of
a material fact made in such preliminary prospectus was corrected in the amended
preliminary or final prospectus (or the final prospectus as amended or
supplemented). Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Holders, or any such director,
officer, partner, underwriter or controlling person and shall survive the
transfer of such shares by the Holder.
(b) As a condition to including any Registrable Securities to be
offered by a Holder in any registration statement filed pursuant to this
Agreement, each such Holder agrees to be bound by the terms of this Section 9
and to indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors and officers, and each other person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information about such Holder as a Holder of the
Company furnished to the Company, and such Holder shall reimburse the Company,
and each such director, officer, and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating,
defending, or settling and such loss,
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claim, damage, liability, action, or proceeding; PROVIDED, HOWEVER, that such
indemnity agreement found in this Section 9(b) shall in no event exceed the
gross proceeds from the offering received by such Holder. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling person and
shall survive the transfer by any Holder of such shares.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in
Section 9(a) or (b) hereof (including any governmental action), such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the indemnifying party of the commencement of such
action; provided that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under Section 9(a) or (b) hereof, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in the reasonable
judgment of counsel to such indemnified party a conflict of interest between
such indemnified and indemnifying parties may exist or the indemnified party may
have defenses not available to the indemnifying party in respect of such claim,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party
and, after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties arises in respect of such claim after the
assumption of the defenses thereof or the indemnifying party fails to defend
such claim in a diligent manner, other than reasonable costs of investigation.
Neither an indemnified nor an indemnifying party shall be liable for any
settlement of any action or proceeding effected without its consent. No
indemnifying party shall, without the consent of the 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 of such claim or
litigation. Notwithstanding anything to the contrary set forth herein, and
without limiting any of the rights set forth above, in any event any party shall
have the right to retain, at its own expense, counsel with respect to the
defense of a claim.
(d) In the event that an indemnifying party does or is not permitted
to assume the defense of an action pursuant to Section 9(c) or in the case of
the expense reimbursement obligation set forth in Section 9(a) and (b), the
indemnification required by Section 9(a) and (b) hereof shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills received or expenses, losses, damages, or
liabilities are incurred.
(e) If the indemnification provided for in this Section 9 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall (i) contribute to the amount paid or payable by such indemnified party as
a result of such loss, liability, claim, damage or expense as is appropriate to
reflect the proportionate relative fault of the indemnifying party on the one
hand and the indemnified party on the other (determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission relates to information supplied by the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission), or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified party
than the amount hereinafter calculated,
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not only the proportionate relative fault of the indemnifying party and the
indemnified party, but also the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other, as well as any
other relevant equitable considerations. No indemnified party guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any indemnifying party
who was not guilty of such fraudulent misrepresentation.
(f) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subsections of this Section 9 (with appropriate modifications)
shall be given by the Company and each Holder of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation or governmental authority other than the
Securities Act.
10. RULE 144. For a period of at least 24 months following the Closing
Date, the Company will use its commercially reasonable best efforts (a) to
timely file all reports required to be filed by the Company after the date
hereof under the Securities Act and the Exchange Act (including the reports
pursuant to Section 13(a) or 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144) and the rules and regulations adopted by the
Commission thereunder), (b) if the Company is not required to file reports
pursuant to such sections, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell shares of Common Stock under Rule 144, and
(c) to take such further action as any holder of shares of Common Stock may
reasonably request, all to the extent required from time to time to enable the
Purchasers to sell shares of Common Stock without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144,
including causing its attorneys to issue and deliver any appropriate legal
opinion required to permit a Purchaser to sell shares of Common Stock under Rule
144 upon receipt of appropriate documentation relating to such sale.
11. INDEPENDENT NATURE OF EACH PURCHASER'S OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under this Agreement are several and not joint
with the obligations of any other Purchaser, and each Purchaser shall not be
responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement. The decision of each Purchaser to purchase
Preferred Stock and enter into this Agreement has been made by each Purchaser
independently of any other Purchaser. Nothing contained herein and no action
taken by any Purchaser pursuant hereto, shall be deemed to constitute such
Purchasers as a partnership, an association, a joint venture, or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by this Agreement. Each Purchaser acknowledges that no other
Purchaser has acted as agent for the Purchaser in connection with making its
investment in Preferred Stock and that no other Purchaser will be acting as
agent of the Purchaser in connection with monitoring its investment in the
Preferred Stock or enforcing its rights under this Agreement. Each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
12. MISCELLANEOUS
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware and the United States of
America, both substantive and remedial. Any judicial proceeding brought against
either of the parties to this agreement or any dispute arising out of this
Agreement or any matter related hereto shall be brought in the courts of the
State of Texas, Harris County, or in the United States District Court for the
Southern District of Texas and, by its execution and
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delivery of this agreement, each party to this Agreement accepts the
jurisdiction of such courts. The foregoing consent to jurisdiction shall not be
deemed to confer rights on any person other than the parties to this Agreement.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, Permitted Assigns, executors and administrators of the parties
hereto. In the event the Company merges with, or is otherwise acquired by, a
direct or indirect subsidiary of a publicly traded company, the Company shall
condition the merger or acquisition on the assumption by such parent company of
the Company's obligations under this Agreement.
(c) ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
(d) NOTICES, ETC. All notices or other communications which are
required or permitted under this Agreement shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or certified mail,
postage pre-paid, by electronic mail, or by courier or overnight carrier, to the
persons at the addresses set forth below (or at such other address as may be
provided hereunder), and shall be deemed to have been delivered as of the date
so delivered:
If to the Company: Tag-It Pacific, Inc.
21900 Burbank Boulevard, Suite 270
Woodland Hills, California 91367
Attention: Chief Executive Officer
Facsimile: (818) 444-4110
e-mail: colin.dyne@tagitpacific.com
If to the Purchasers: To each Purchaser at the address
set forth on Exhibit A
with a copy to: Sanders Morris Harris Inc.
600 Travis, Suite 3100
Houston, Texas 77002
Attention: President
Facsimile: ( 713) 224-1101
e-mail: ben.morris@smhhou.com
or at such other address as any party shall have furnished to the other parties
in writing.
(e) DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any Holder of any Registrable Securities, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such Holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Holder of any breach or default under
this Agreement, or any waiver on the part of any Holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All
14
remedies, either under this Agreement, or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
(g) SEVERABILITY. In the case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
(h) AMENDMENTS. The provisions of this Agreement may be amended at any
time and from time to time, and particular provisions of this Agreement may be
waived, with and only with an agreement or consent in writing signed by the
Company and by the holders of an 80% majority of the number of shares of
Registrable Securities outstanding as of the date of such amendment or waiver.
The Purchasers acknowledge that by the operation of this Section 12(h), the
holders of an 80% majority of the outstanding Registrable Securities may have
the right and power to diminish or eliminate all rights of the Purchasers under
this Agreement.
(i) LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of at least a majority of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder registration rights senior to those
granted to the Holders hereunder.
[Signatures on following page]
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This Registration Rights Agreement is hereby executed as of the date
first above written.
COMPANY:
TAG-IT PACIFIC, INC.
By:
-----------------------------------
Name: Colin Dyne
Its: Chief Executive Officer
PURCHASER:
--------------------------------------
(PRINT NAME)
By:___________________________________
Name:_________________________________
Its:__________________________________
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